Spread Trading 50% long 50% short.

Discussion in 'Trading' started by Runningbear, Aug 19, 2002.

  1. Im interested to hear if there is anyone out there currently spread trading a portfolio of stocks, with 50% of the portfolio value long, and 50% short.

    I figure if you buy a basket of the best stocks showing relative strenth to an index, and you sell the worst stocks showing relative weakness to an index, you aviod having to pick the direction of the market, and you can use more leverage because you are less likely to get wiped out by volitility and things like big short covering rallies. As long as your long basket shows relative strengh to the short basket you make money. And your equity curve should be smoother.

    Does anyone use a strategy like this, either intraday or over longer time frames.

  2. Bob111


    sounds like pair trading for me....
    i been work on it, and my opinion-you can make money on this))))))
    good luck!
  3. Yes, I use this strategy. Basically delta neutral. I use it mainly when I don't have a strong market direction opinion at support and resistance levels. I also like to use it to hedge off risk when I want to carry a larger than normal overnight position.

    I also often use it intra day to neutralize the market influence on my positions. Often the general market movement will ruin a good directional setup so I match a long with a short.

    It works really well most of the time.

    Also, sometimes I use it by legging in like a spread to help hedge profits.

    Good Luck
  4. Delta neutral is one thing. I have nothing but respect for a true delta neutral trader. And I don't think nowdays a single individual trader can compete in the delta neutral arena.

    But I have done all kinds of spread trading in options and grains. If you are going to be naked for even one second, you are not spread trading, and then it all breaks down to guessing the direction.

    I ended up spending more time and energy, not to mention commissions, trying to guess that brief net long or short period.

    Most spread trading is just fooling yourself into thinking you don't need to be right. No spread, or money management plan, or scaling in and out will free you from the need to be right.

    To make money in the market you have to be right. There is no other way. 50% long and 50% short will work when that is the right strategy. So now, you don't have to be right on the direction. You have just transferred that need to what seems to be an easier guess. But you still need to be right on the time to use the strategy.

    I'm still wating for someone to explain to me why it is a good idea to spread the close rather than just taking it off and putting it back on in the morning.
  5. Bob111


    -------To make money in the market you have to be right. There is no other way

    good one!

    maybe (as example) he may choose go long on stocks with good valuations)))))))) and short with bad...
    the only a question for now-who is good and who is bad, if they cooking books?
  6. balda


    10% a month only on pair trading on a 100K account
    I use only highly corralated stocks.