Actually I've had much success with FNM/FRE. When I started pairs trading them the spread as I recall was about 14 points. Now it's in the 5 to 7 range. Somehow I managed to turn profits. Looking back at my trading for 2002, I pairs traded FNM/FRE 84 times without a single loss! OK, sometimes I cheated and sold my long position while continuing to hold my short position or vice versa so I wasn't true to pairs trading.
Sure it is..."crutch pairs" trading is less comission intensive and a perfectly good way to trade a "pair." nitro
Hi Al, glad to see your post - found it through a google search. I've become fascinated by the concept of hedge trading correlated pairs. I've actually made only one trade of this kind - put $2,000 on the line and profited $150 in 10 days. I used options on indices - not much risk, but not much gain - worked, but maybe I was just lucky? Anyway, maybe I'm over simplifying, but you can download stocks' price histories at: http://moneycentral.msn.com/investor/charts/chartdl.asp, import them into excel and use excel to get the price ratios. My intuition is that you use excel functions to find average and standard deviation of ratios... For put/call ratio history I use: http://www.schaeffersresearch.com/streetools/equity_OIPCRatio.asp It gives only 3 months of history, but that's enough for me to see direction. Hope this helps, and would like to hear how you're progressing. Jerry jerryjuracich@hotmail.com
Hi, I'm new to this group and didn't realize there was more than the first page of this thread when I posted my earlier response. Sorry for not reading more before posting - It's clear that you guys are way ahead of me. Wow - after reading the next 20 pages of the thread, my mind is really reeling - It's great to see that there are so many traders into hedge trading correlated pairs and sharing their experiences - I'll try to absorb some more later. Jerry
Jerry, there is no "maybe" in trading. If you had good, backtested trading plan the profits come from statistics. If you had none, it could be only luck.
is anyone doing pairs only within the same sector, maybe using fundamental data as well? anybody doing pairstrading cross-country? japanese stocks? 'always looking for diversification ... peace
All of my pairs trading is from correlated pairs within the same sector. I like gold, telecom, utilities, and oil. I've had limited experience and bad luck with financials and retail. Also, I'm always trading with expected convergence rather than divergence. Often I'm setting up the trades based on the ratios of the stock (e.g. buy long 200 @ 10 and sell short 100 @ 20) but more often I buy an equal number of shares both long and short and play the spread. This works best when the share prices aren't dramatically different and makes ongoing analysis of the trade a lot easier.
"profits come from statictics" - and luck. "if you had none, it can be only luck" - not true, you can trade without backtested system and your profits won't be connected with luck only.