I analyze it from a risk/reward perspective, i.e., if I expect the spread to revert to the mean 67% of the time, then I'll implement a stop loss that is equal to the reward of the spread. So, size of loss equals size of win, but if you win 2 out of 3 times, then you're golden. MC
Al you do a pretty good job yourself of finding spreads (e.g. FO/ITT). How do you find the spreads? Last time you told me correlation...is there something more? Royce
market topology used to be a good place to find pairs but they started charging for the site. a good way to find pairs is get a list of all the stocks in the s&p 500 that do over a million shares note the sector for each symbol. then overlay the stocks in the same sector on a chart to see how they track. go back a few years and check the range for the spread.
are you using a website for charting? I've been using Yahoo, and also http://stockcharts.com/charts/performance/ thanks
Hi Royce, Currently I am testing several systems. All of them are based on correlation analysis. However, some of the constrains are different. For example, FO/ITT and FDC/GWW belong to the "flat" 40dma system. Something like DLX/ODP is more trendy but has better risk parameters on a longer term. The reason I ask people questions is because in order to come up with a great system I need as much help as I can get. Any idea is welcome... Al
Closed FNM/FRE today at R=1.137 with 3% gain. Could not wait any longer. It is still quite far from 40dma. Working on my timing... Al
how long you been in this position? i look @ pairtrading.com performance-they far away from my results.... http://www.angelfire.com/de3/options/TRADES.HTM looks like they put at least 20000 on each side to get 500-1000 profit. man..........you can make it easy on nasdaq in intraday. imagine, where i would be, if unstead 2500-5000 on each side i put 20000)))))))))))heh.... one big drop on news will kick you out for month, if not forever. i been trying to hold some positions overnight-it's nightmare.