so is this somewhat in the neighborhood of what you traders are talking about.......today I wanted to buy IMCL & TARO while shorting PFE & SGP.....it would have turned out to be a pretty good intraday play as IMCL has been on a solid uptrend, TARO earnings momentum......while PFE and most of the drug companies have been pulling back the last few days. Even BRL after announcing a 3-2 split could not muster much juice...........
This is the Bright way. I do not mean that they invented it, but one of the way they train you to trade pairs. nitro
The question isn't who teaches it, but does it work? True, Bright may not have the best reputation, but they do have some "bright" traders doing a lot of interesting research into pair models. The short-term pair trading serves my trading style...I got tired of building positions in pairs, periodically getting blown out, paying $$$ for overnight costs, etc. Nothing worse that waking up in the morning and finding one side of your pair is on the wrong side of an upgrade/downgrade...
I just started a thread asking that same question! http://www.elitetrader.com/vb/showthread.php?threadid=14284
seems to be the most logical - margin offset, leverage and specific event driven equities. logic, of course, often does not rule the day! i 'll check your thread. thnaks
And many misunderstand doubling up with good trading (when doing pairs). But any trader still has high probability of making good money doing it. It boils down to avoid the 0,5% chance of getting into a neverending trending spread (like pvn/cof (?)). And who knows beforehand???
I'm not a pair trader so I can only comment on the theory, however, I just finished reading "When Genius Failed," the story of Long-Term Capital Management. When they got away from bond arbitrage they started hedging equities, basically very large-scale pair trades. The problem was dependency on price inefficiency. Once enough people become savvy of a particular pair or arbitrage opportunity the profit potential decreases as pricing becomes more efficient. I would guess that even on the short term that could be a problem with pair trading. Once enough people figure out an inefficient pair the pricing will become more efficient and the pair less profitable. YMMV.
ive also had most my success in this arena wtih the crutch stlye... i would just caution someone to realize their time frame before entering a pair, i.e don't go in with an idea and range that is a day or two and then turn it into to a pair investment of several weeks if it starts to trend, or be savvy enough to see the trend and go w/ it.