Ooops, I can see the error. I answered to DT saying "Man" (i.e. Yo` Man !) and here is misunderstanding. Sorry Man,
Ups I think it's another misunderstanding. You should say "there is no maybe in pairs trading". This is arbitrage, where profits are more related to statistics. Directional trading is less related. Correct me if I'm wrong - I've never made any pairs-trading.
Chris I saw you did not mean to talk to me. I just wanted to prevent what I was afraid could turn out as the old backtest-or-not discussion. Sorry for being impolite, I was not aware you knew each other. peace
Actually my belief is that whole trading is statistics related (more or less). But therm "statistics" covers large area.
It may look good on paper. In real trading two things are crucial in such strategies, IMO: 1) Correlation changes over time 2) Commission & slippage costs x2 higher vs directional trading (can be a problem mainly in intraday pairs trading) Does pairs trading have any advantages (in terms of return/risk ratio) over directional trading? I doubt it. It would be a good idea to include pairs-trading systems for diversification purposes. The whole idea is to profit from market's over-reaction (or inefficiency). Traditional trading systems try to profit from exact same thing, by using profit targets for example. Nothing new. I'm boring...