# ASX Stock Pairs Trade Journal



## Pairs Trader

A few members requested me start a journal after I posted a pair trade I took in december here https://www.aussiestockforums.com/forums/showthread.php?t=13560 I thought I would go ahead and start one to show how its done, It amazes me how many traders only use technical analysis or breakout/reversal trading systems to find and execute trades, let me tell you professional traders use arbitrage to make money on a consistent basis, and the simplest form of arbitrage is pair trading also known as statistical arbitrage, market neutral trading, long/short equity investing or relative value arbitrage, with this style you aren't reliant on market direction or conditions to make money and the relationship between two highly correlated stocks is more predictable than the outright direction of any given stock. This is the strategy most hedge funds use, Il post my ASX pair trades and analysis here for all to see, Il try and post my entry and exit prices as close to real time as possible, if not after market close when I have time, please don't judge each trade by itself, I wouldn't have a clue of the result of the next trade, I know that after 10, 20 or more trades I will outperform the market in terms of risk, volatility and return. Successful trading is all about making heaps of small trades that you have a edge with. I know there are a few other pair traders that hang around here too, please feel free to chime in guys. cheers.


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## nizar

Pairs Trader said:


> A few members requested me start a journal after I posted a pair trade I took in december here https://www.aussiestockforums.com/forums/showthread.php?t=13560 I thought I would go ahead and start one to show how its done, It amazes me how many traders only use technical analysis or breakout/reversal trading systems to find and execute trades, let me tell you professional traders use arbitrage to make money on a consistent basis, and the simplest form of arbitrage is pair trading also known as statistical arbitrage, market neutral trading, long/short equity investing or relative value arbitrage, with this style you aren't reliant on market direction or conditions to make money and the relationship between two highly correlated stocks is more predictable than the outright direction of any given stock. This is the strategy most hedge funds use, Il post my ASX pair trades and analysis here for all to see, Il try and post my entry and exit prices as close to real time as possible, if not after market close when I have time, please don't judge each trade by itself, I wouldn't have a clue of the result of the next trade, I know that after 10, 20 or more trades I will outperform the market in terms of risk, volatility and return. Successful trading is all about making heaps of small trades that you have a edge with. I know there are a few other pair traders that hang around here too, please feel free to chime in guys. cheers.




I look forward to your posts and will be following this thread with interest.


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## oby_2

I would also like to thank you for your previous post as it raised a lot of interesting discussions. I have been quite interested in what I have been learning of Pairs Trading over the last couple of months and will keep an eye on this thread to learn more - from all participants!


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## skc

Look forward to it, Pairs Trader. Would you also give an update on the RIO/BHP thread? 

While I agree with the principle of pairs trading and see some of its advantages, I have a lot of problem accepting it being called arbitrage. Arbitrage by definition is risk-free profit. Pairs trading is not zero risk, although it does neutralise to some extent certain categories of risk.


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## aleckara

Pairs trading negates some systematic risk common between the two components and leaves the risk factors not common to both including non-systematic events. In other words the macro risk factors can be eliminated to a degree (if the stocks have a high corelation to these factors) and what you are trading is the differences in the stocks, albeit with more risk than if you were just trading one. I would say that at times it can be more risky - I would be interested how you close out your positions, exercise money management, judge when you should get out, etc considering your position is in effect two trades not one.

What criteria would you use for a pairs trade? It does have its advantages.


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## nizar

When trading pairs, how important is it that both stocks are in the same industry/sector?


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## MRC & Co

nizar said:


> When trading pairs, how important is it that both stocks are in the same industry/sector?




Not that I'm a professional at this, but generally, they will be, as a close correlation is required.

Pairs Trader averages down exponentially (by the looks of his last thread), his trades, which is a very interesting strategy and will work most of the time.  But as I asked in the thread, at what point, do you cut it?  Sometimes, the spreads on certain pairs will blow out and I know of one big trader who did his azz when this happened.


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## Pairs Trader

Ok, first trade taken today.

United Group Limited vs Monadelphous Group Limited 

Correlation 86.05%

Long UGL - 7.31
Short MND - 7.22


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## Pairs Trader

skc said:


> Look forward to it, Pairs Trader. Would you also give an update on the RIO/BHP thread?
> 
> While I agree with the principle of pairs trading and see some of its advantages, I have a lot of problem accepting it being called arbitrage. Arbitrage by definition is risk-free profit. Pairs trading is not zero risk, although it does neutralise to some extent certain categories of risk.




thanks for all your comments guys.

RIO/BHP trade is closed.

Yes without splitting hairs, pairs trading isn't risk-free arbitrage per se, its statistical arbitrage, we are betting on two correlated shares converging after diverging more than normal.


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## Pairs Trader

aleckara said:


> Pairs trading negates some systematic risk common between the two components and leaves the risk factors not common to both including non-systematic events. In other words the macro risk factors can be eliminated to a degree (if the stocks have a high corelation to these factors) and what you are trading is the differences in the stocks, albeit with more risk than if you were just trading one. I would say that at times it can be more risky - I would be interested how you close out your positions, exercise money management, judge when you should get out, etc considering your position is in effect two trades not one.
> 
> What criteria would you use for a pairs trade? It does have its advantages.




I close position when the pair comes back to the mean, money management is don't place more than 25% of my a/c on any position, I hand pick on my own which entry signals to take then strictly stick to the system. 

I can't see how pair trading is more risky than outright naked trading, for e.g. which is more risky.

Long 50K HVN........or

Long 25K HVN
Short 25K DJS

?


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## Pairs Trader

nizar said:


> When trading pairs, how important is it that both stocks are in the same industry/sector?




Very important, you will find correlated shares that aren't in the same sector however thats just technical correlation, you need to be trading fundamental correlation. There is a logic to the market contrary to popular belief, shares are priced relative to interest rates, economic conditions, industry conditions, earnings expectations and peer stocks. Since two stocks in the same sector are exposed to the same industry/economic factors they are priced similarly, every now and then for whatever reason(institutional buying/selling, news) a pair will become out of whack with one another, this is where pair traders step in and provide liquidity, price assets correctly, reduce volatility and profit for themselves, so arbitrage does provide a true function to the market, it isn't speculating which breakout/reversal trading systems are with no value provided to the market.


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## aleckara

Pairs Trader said:


> I close position when the pair comes back to the mean, money management is don't place more than 25% of my a/c on any position, I hand pick on my own which entry signals to take then strictly stick to the system.
> 
> I can't see how pair trading is more risky than outright naked trading, for e.g. which is more risky.
> 
> Long 50K HVN........or
> 
> Long 25K HVN
> Short 25K DJS
> 
> ?




Thats easy. You now have two trades that can fail on you; not just one. These stocks tend to move with retail numbers I would say although I have never traded them. If you do this going on my previous assumption although the Australian retail risk is almost cancelled (theoretically) if the stocks have a high correlation to this risk factor there are other issues. What if it was announced that DJS is the front runner of the sector? and at the same time HVN announces a profit downgrade? (can happen in reporting season pretty quickly). Suddenly you have a loss on both of these trades. Notice how those announcements have very little to do with the overall retail sector.

Each stock has a number of risk factors. By going long/short you are trying to neutralise the ones common to both, and at the same time your trade is only with the risk factors that are not common - these are usually more unpredictable however. RIO announcing a debt burden would of been a huge example and BHP announcing they have none if you have done your previous trade before the announcement.

Risk is not really measured by this anyway. It's about the size of the position, market conditions, and a lot of other factors. The problem comes of course when people don't realise all the risk factors that they are indeed getting a exposure to when trading.


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## MRC & Co

MRC & Co said:


> But as I asked in the thread, at what point, do you cut it?




I gather by your lack of response to this question in either thread, you don't cut it, full-stop?  

Good thread though.  Interesting to follow.  Thx.

Aleck, yes, good point, more worthy points to this thread.  Pairs trading is not risk-free and at the wrong time, you will get killed on both sides.  Hence, my original question.


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## Pairs Trader

Yes I don't employ stop losses for reasons previously stated, a pair will always come back to its mean whether at a loss or a profit. 

Yes you could view pair trading as more risky because more positions, however that is very subjective, i guess its all how you view it, let me ask you a question though, would you feel more comfortable with your a/c leveraged 5:1 naked trading or 5:1 market neutral trading? I don't see how eliminating market and sector risk increases your overall risk profile.

To each their own.


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## prawn_86

Pairs Trader said:


> Ok, first trade taken today.
> 
> United Group Limited vs Monadelphous Group Limited
> 
> Correlation 86.05%
> 
> Long UGL - 7.31
> Short MND - 7.22




Could you please elaborate as to why you took this trade?


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## Pairs Trader

I placed this trade because pairtrade finder signaled an entry signal, its at my 3rd layer which means this pair is currently more than 2.60 standard deviations from its mean, it has high correlation above 86%, both are industrial sector stocks, and there is a divergence between the ratio and RSI charts. Its not rocket science, just consistent application of the same method.


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## nizar

MRC & Co said:


> Not that I'm a professional at this, but generally, they will be, as a close correlation is required.




MRC & Co.
I asked the question precisely because I saw a few pairs which are closely correlated yet in totally different industries.
Eg. Check out LNN and CSL, its in the high 80s.

PairsTrader
Thanks for your response.


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## nizar

PairsTrader.

How far back do you look when measuring correlation?
A few months? Years? Combination of both?


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## Pairs Trader

I use 100 day correlation and displayed for the last 150 days.


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## MRC & Co

Pairs Trader said:


> Yes I don't employ stop losses for reasons previously stated, a pair will always come back to its mean whether at a loss or a profit.
> 
> Yes you could view pair trading as more risky because more positions, however that is very subjective, i guess its all how you view it, let me ask you a question though, would you feel more comfortable with your a/c leveraged 5:1 naked trading or 5:1 market neutral trading? I don't see how eliminating market and sector risk increases your overall risk profile.
> 
> To each their own.




What about the unexpected though, as in the case of Aleck, would you simply hold and assume eventually, they will come back to a mean, even though the fundamentals of the pair have obviously altered?

Personally, my account leveraged many times over would not be a problem, if I was comfortable with my directional trading and employed tight stops on individual trades.  It's how futures scalping works.  

But I like the general premise of your trading, just not the no stop part, correlations come and go and if it's thought this may be the case due to a change in the fundamentals of the correlated pair, I can't see why averaging further offside would be wise, in comparison with simply cutting the loss there and then.


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## nizar

I agree with MRC, doesn't matter how high % your win rate is, you don't want 1-2 losses to wipe out all your gains.

You would need a stop maybe 4 Sd away from the mean which would like never ever get hit, but when it does, you'd be very happy you had it there.

Worth testing at least 

Or have you already tested it and concluded that no stop works best?


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## Pairs Trader

MRC & Co said:


> What about the unexpected though, as in the case of Aleck, would you simply hold and assume eventually, they will come back to a mean, even though the fundamentals of the pair have obviously altered?
> 
> Personally, my account leveraged many times over would not be a problem, if I was comfortable with my directional trading and employed tight stops on individual trades.  It's how futures scalping works.
> 
> But I like the general premise of your trading, just not the no stop part, correlations come and go and if it's thought this may be the case due to a change in the fundamentals of the correlated pair, I can't see why averaging further offside would be wise, in comparison with simply cutting the loss there and then.




Yes I can appreciate your view, its not wrong its just that I don't like using stops for various reasons, Im fine if one of my positions moves against me 50% or more it won't take me out of the game, as Ive said successful trading is all about making heaps of small trades with an edge, a pair will always return to the mean because we use a rolling mean not a static mean. If I were to employ a stop loss it would be time-based not price-based.


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## Pairs Trader

nizar said:


> I agree with MRC, doesn't matter how high % your win rate is, you don't want 1-2 losses to wipe out all your gains.
> 
> You would need a stop maybe 4 Sd away from the mean which would like never ever get hit, but when it does, you'd be very happy you had it there.
> 
> Worth testing at least
> 
> Or have you already tested it and concluded that no stop works best?




In most trading systems stops generally decrease performance plus the added slippage and spread costs. If a pair were at 4stdev from its mean without significant reason I would be inclined to add more to the position not take it off.


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## fapturbo

Pairs Trader said:


> In most trading systems stops generally decrease performance plus the added slippage and spread costs. If a pair were at 4stdev from its mean without significant reason I would be inclined to add more to the position not take it off.




How do you measure a Standard Deviation from it's mean?


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## MRC & Co

Interesting Pairs, it's definately thinking outside the box.  Will be great to watch this thread play out with the various pairs trades. 

Perhaps you should include the lot sizes, so then when you average down, it's easier to follow your average price?


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## Largesse

I'm a big fan of this method of trading. 
Great for diversifying my trading methods as I primarily trade as a scalper intra-day. 
The longer time frames mean I can do my analysis after-hours on EOD data and set my trades for the next morning


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## Nick Radge

Pairs,
Do you go like for like or ratio them up?

And would you cover this somewhere near 0.92?


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## oby_2

Hi All,

Very interesting conversation. 

Pairs Trader - Do you invest $ for $ (eg. $10K in RIO and $10K in BHP) or do you use a Beta to calculate so a given % change in one should result in the same % change in the other?

Regards,
oby


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## Pairs Trader

fapturbo said:


> How do you measure a Standard Deviation from it's mean?




I don't measure anything, the program does it for me.


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## Pairs Trader

MRC & Co said:


> Interesting Pairs, it's definately thinking outside the box.  Will be great to watch this thread play out with the various pairs trades.
> 
> Perhaps you should include the lot sizes, so then when you average down, it's easier to follow your average price?




thanks MRC, yes I will include lot sizes if I average down on a trade so you can easily see the average, I don't avg down on every trade only if the pair really gets out of whack without a warranted cause.


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## fapturbo

Pairs Trader said:


> I don't measure anything, the program does it for me.




Ok fine.

Do you know how the program measures it?


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## Pairs Trader

Nick Radge said:


> Pairs,
> Do you go like for like or ratio them up?
> 
> And would you cover this somewhere near 0.92?




Ratio, at the moment a exit signal would be triggered around 0.9, however we use a rolling mean not a static one, so the exit level changes daily.


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## Pairs Trader

fapturbo said:


> Ok fine.
> 
> Do you know how the program measures it?




Its the stdev of the ratio. I have it configured to measure the stdev of last 14days.


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## Nick Radge

> exit signal would be triggered around 0.9




Wasn't far out! and yes I see why it changes.


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## Pairs Trader

oby_2 said:


> Hi All,
> 
> Very interesting conversation.
> 
> Pairs Trader - Do you invest $ for $ (eg. $10K in RIO and $10K in BHP) or do you use a Beta to calculate so a given % change in one should result in the same % change in the other?
> 
> Regards,
> oby




Yes I trade $ neutral, Im not sure if beta neutral improves performance as beta is constantly changing, I prefer to keep it simple dollar for dollar.


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## Largesse

not doing too badly on your trade Pairs Trader, up a nice 2.3% based on today's close.


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## beerwm

How about this example;

ABC Drug co. - 0.11c
XYZ Drug co. - 0.09c

90% + correlation, diverges/ etc - entry signal triggered

so you short-
ABC Drug co. - 0.11c
long-
XYZ Drug co. 0.09c

ABC Drug co - 0.11c - develops miracle drug, - surges to $11.
XYZ Drug co - 0.09c - stays put

so you put 1k, into both companies
your loss = 100,000 - [2k initial investment], = 98,000 loss.

-yet you 'cant' exit because the stocks havent returned to a correlation, but kept on diverging.

I'm sure your system works, but have you planned/experienced a situation like I suggested?
Reliance on stocks to continue a correlation after a divergence cant be guaranteed.... can it? especially when shorting.

sorry if i misunderstood your system, im happy to be corrected


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## Largesse

i'm sure one of his rules is: stay away from penny dreadfuls

to be honest i think your example is stupid, it's quite easy to throw up some extra-ordinary/ridiculous hypothetical that will make any process/method/set of rules invalid.


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## beerwm

there are plenty of shares that make 100x gains, even a 10x gain could cripple.

The reason why my example makes Pair's system invalid is because there is no cap to what he can lose. [like others have stated]

If the divergence continues.... you sit.

Judging by the RIO/BHP trade, it seems Pair doesnt consider fundamentals a crucial part of the system.

I dont think saying, that 2 stocks can diverge to a citical extent is "extra-ordinary/ridiculous hypothetical"

Anyway its just something to consider.


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## Pairs Trader

beerwm said:


> ABC Drug co - 0.11c - develops miracle drug, - surges to $11.
> XYZ Drug co - 0.09c - stays put
> 
> so you put 1k, into both companies
> your loss = 100,000 - [2k initial investment], = 98,000 loss.
> 
> -yet you 'cant' exit because the stocks havent returned to a correlation, but kept on diverging.




This would never happen to me because I only trade large caps, Ive never seen a large cap surge 2x overnight let alone 100x overnight, that is quite a ridiculous claim actually, you says this happens often, I would like to see some recent examples please. Plus whats the difference if you were just short the stock without a hedge, the same thing would happen, so shorting any stock exposes you to this risk, at least with pair trading you have removed market & sector risk leaving you only stock specific risk most of which can be avoided, don't trade into earnings, announcements, etc......yeah sure every now and then your going to find yourself in a ugly trade, that happens with any system and its part n parcel of trading.


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## Pairs Trader

Just exited the UGL/MND trade for good profits on both sides

Sold UGL @ 7.55 (Long 7.31)

Covered MND @ 6.60 (Short 7.22)


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## beerwm

Why would if have to surge overnight?

you said you only get out of a trade when the stocks return to a mean...
...what if they dont>?

anyway... whats a large cap classified as?


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## Pairs Trader

beerwm said:


> Why would if have to surge overnight?
> 
> you said you only get out of a trade when the stocks return to a mean...
> ...what if they dont>?
> 
> anyway... whats a large cap classified as?




Not sure what you mean when you say ''why would it have to surge overnight?''

As ive said before we don't use a static mean, we use a rolling mean which means it will always come back eventually, could you please post some examples of stocks surging 100x as you previously suggested this happens quite often. Large cap is a ASX200 stock.


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## MRC & Co

Pairs Trader said:


> As ive said before we don't use a static mean, we use a rolling mean




Out of interest Pairs, who is 'we'?  

The rolling mean is of a 100 day period yeh?

Good work on the closed trade, too easy!


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## Pairs Trader

MRC & Co said:


> Out of interest Pairs, who is 'we'?
> 
> The rolling mean is of a 100 day period yeh?
> 
> Good work on the closed trade, too easy!




Just referring to myself and bunch of other pair traders I know.

I have the rolling mean set to 14days in the program.

Thanks, yeah 1st trade of the journal went well.


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## MRC & Co

Pairs Trader said:


> Just referring to myself and bunch of other pair traders I know.
> 
> I have the rolling mean set to 14days in the program.
> 
> Thanks, yeah 1st trade of the journal went well.




Thx for answering all the Qs.  

Good luck with the rest of the trades, I will keep track with interest.


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## Largesse

Pairs Trader said:


> Just exited the UGL/MND trade for good profits on both sides
> 
> Sold UGL @ 7.55 (Long 7.31)
> 
> Covered MND @ 6.60 (Short 7.22)




what was your exit signal?


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## Pairs Trader

The program gave me the exit signal which means the pair returned to its mean.


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## nizar

Pairs.

What do you do when you enter a pair but then a few days after entry they start diverging and actually don't converge back due to fundamental reasons (eg. one reported profit, the other a huge loss). Would you exit this pair on a discretionary basis because there's a good reason?

Or does your system have rules to prevent this from becoming too damaging?

Eg. a time-based stop (exit after X days if the pair does not revert to the mean) or a maximum stop loss (at like 4sd) ?

I'd be keen to hear your thoughts.


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## MRC & Co

I think he answered that already Nizar, he waits until it converges back to it's mean (rolling, not static).


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## Pairs Trader

Just entered a new pair trade

Long DJS @ 2.05
Short HVN @ 2.04

Will add more if it goes against me, this is one of my favourite pairs, good correlation at 90%, oscillates around its mean regularly and consistently. I had a great trade on this pair 2 weeks ago as you can see.


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## Pairs Trader

Opened new trade 

Long LGL @ 2.85
Short SGX @ 5.03

This pair has high correlation at 94% and has had some awesome trades over the last few weeks.


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## Pairs Trader

Just entered another trade

Long QAN @ 1.51
Short MAP @ 1.66

Both have moved strongly to the upside today.


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## wabbit

PT,

Are you trading every signal your system shows?  If not, how are you deciding which trading signals to take and which ones to ignore?  How much "discretion" is there in this system?


wabbit


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## Pairs Trader

wabbit said:


> PT,
> 
> Are you trading every signal your system shows?  If not, how are you deciding which trading signals to take and which ones to ignore?  How much "discretion" is there in this system?
> wabbit



Almost every signal, I just make sure correlation is above 70%, not in a strong downtrend and the ratio chart shouldn't be in a strong trend either.


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## wabbit

Thanks.


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## nizar

Pairs, do you trade these pairs intraday or end of day?
What is your average holding time for a trade?


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## Pairs Trader

I find swing trading them the best method, intra day trading is a very slim margin game. Average holding time is 4-7days.


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## Pairs Trader

Just exited 2nd trade of the journal for nice profits;

Sold QAN @ 1.72
Covered MAP @ 1.69


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## MRC & Co

Cheers for the update Pairs.


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## Pairs Trader

Just closed 3rd trade of the journal for nice profits

Sold DJS @ 2.69 
Covered HVN @ 2.49

So far 4 trades, 3 closed with profit, 4th open trade showing profits


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## skc

Pairs Trader said:


> Just closed 3rd trade of the journal for nice profits
> 
> Sold DJS @ 2.69
> Covered HVN @ 2.49
> 
> So far 4 trades, 3 closed with profit, 4th open trade showing profits




Nice one PT. When I saw this trade I thought you would profit from HVN falling rather than DJ going up so strongly. 

Key lesson: *Never *under-estimate the power of Miranda Kerr.


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## Pairs Trader

closed 4th trade for another profit

Sold LGL @ 3.05
Covered SGX @ 5.14

all I hear is doom and gloom all day, yet this has to be one of best trading environments in years, not for the long-only punters though........


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## prawn_86

Well done PT,

Any chance of giving the total % return when you close your trades? As i know you average down sometimes...


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## Pairs Trader

So far average trade has been a 4.74% profit, that figure is on the total of both sides invested, its not just the absolute return that matters either, its the fact that im market neutral that gives me lower volatility, lower correlation, lower exposure relative to the market as well.


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## skc

Hey PT, I am thinking about long TAH and short CWN, mostly on fundamentals (TAH being more diverse, CWN being casinos only) and the fact that young Packer has been down on his luck. And as you know, one of the best strategy in a casino is to bet against the person who looks unlucky...

Any comments?


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## Pairs Trader

Yes if you have a good feeling on the fundamentals of these 2 stocks now may not be a bad time to build a position. The ratio chart is approaching 6 month lows, which means over the last several months CWN has been stronger than TAH, and the pair is currently 1.80 standard deviations below its mean, the pair backtests well, the only thing I don't like about this pair is its low & decreasing correlation at 38%, although this is not strictly important if your playing fundamentals, I would look to add to the position below a ratio of 1.00 (TAH/CWN) and look to exit at a ratio of 1.35 which has been a recent resistance zone, that is when TAH share price is 1.35 times that of CWN share price.


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## sinner

This is a wonderful thread. Please keep it up!


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## skc

Pairs Trader said:


> Yes if you have a good feeling on the fundamentals of these 2 stocks now may not be a bad time to build a position. The ratio chart is approaching 6 month lows, which means over the last several months CWN has been stronger than TAH, and the pair is currently 1.80 standard deviations below its mean, the pair backtests well, the only thing I don't like about this pair is its low & decreasing correlation at 38%, although this is not strictly important if your playing fundamentals, I would look to add to the position below a ratio of 1.00 (TAH/CWN) and look to exit at a ratio of 1.35 which has been a recent resistance zone, that is when TAH share price is 1.35 times that of CWN share price.




Wonderful. I think all the good news is flushed out in CWN, and chances are young James is up to no good with so much money - hence the fade Packer move. Thanks PT.


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## Pairs Trader

I think you may be right on the fundamentals with this pair trade skc, I checked them out and found;

CWN has fy09 p/e of 15.7, fy10 p/e of 10.50
consensus fy09 eps of 37.9, fy10 of 56.8

whereas TAH has fy09 p/e of 7.3, fy10 p/e of 8.0
consensus fy09 eps of 88.0, fy10 of 80.20

so basically analyst expectations are that CWN earnings will grow 49% over the next year whilst TAH earnings will shrink 10%, and valuations have been priced accordingly, not a bad bet to fade these expectations since if they were re-rated the stocks would be ferociously repriced, hard to believe CWN can achieve that growth rate in the current environment, plus a huge difference in applied growth rates between the two stocks, the risk is in the downside re-rating of CWN eps, I don't see it being re-rated to higher than 49%. 

Interesting play to watch out.


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## nizar

http://www.bennfundsmanagement.com....Equity Fund Monthly Summary February 2009.pdf

These guys manage this AU$52mil fund through pairs trading.
Up 11.95% last year and 14%+ YTD for 2009.
Started in 2002 with average 22%pa.
Impressive.


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## Pairs Trader

nizar said:


> http://www.bennfundsmanagement.com....Equity Fund Monthly Summary February 2009.pdf
> 
> These guys manage this AU$52mil fund through pairs trading.
> Up 11.95% last year and 14%+ YTD for 2009.
> Started in 2002 with average 22%pa.
> Impressive.




Yes the most successful hedge funds especially in the last year have been using pair trading, these guys have some good numbers. I recently did a post on our news page showing Jim Simons, owner of the worlds largest hedge fund testifying in front of congress that he used pair trading to achieve his long term return of 2,478% over the last 11 years.  Pair Trading News


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## Pairs Trader

Trade opened today

Long MAP @ 1.61
Short QAN @ 1.79


----------



## Pairs Trader

New trade

Long NCM @ 32.28
Short SGX @ 5.63


----------



## prawn_86

Hey PT,

Out of the pair how do you decide which stock to go long and which to short?


----------



## nomore4s

prawn_86 said:


> Hey PT,
> 
> Out of the pair how do you decide which stock to go long and which to short?




Surely that would be determined by the correlation between the pair?


----------



## prawn_86

nomore4s said:


> Surely that would be determined by the correlation between the pair?




As i understand it (and i could be way off) correlation is just a number. The correlation between abc and xyz is the same as between xyz and abc. So how does one determine which to short and which to go long? Or doesnt it really matter? Or is it which directions they have diverged from the mean correlation?


----------



## Pairs Trader

Basically you buy the stock that has gone down, and short the one that has gone up, however there's no guessing involved, the program will tell you. If you look on the above chart attachment you will see in today's date row, NCM is highlighted green which means go long, SGX is highlighted red which means go short, then a blue highlight means exit the position, I have audio alerts set to notify me when a new signal has arrived on any of my 278 stock pairs so Im not glued to the screen all day. Please find below a screenshot of the main console, here you can see all my pairs loaded and Ive ranked them by trade signals, you can see the coloured ones have enter trade signals, blue highlights are exit signals, yellow are in trades, data is automatically loaded into the system every 30 seconds and is free.


----------



## nomore4s

prawn_86 said:


> As i understand it (and i could be way off) correlation is just a number. The correlation between abc and xyz is the same as between xyz and abc. So how does one determine which to short and which to go long? Or doesnt it really matter? Or is it which directions they have diverged from the mean correlation?




lol, The way I understand pairs trading is you enter trades when the pair has diverged from the mean and you trade them back to the mean. So the long and short is determined by the divergence.

Eg - re NCM & SGX - going short NCM and long SGX would mean they are diverting even more from the mean.

Maybe Pairs will clarify it for us Edit: He already did, lol


----------



## prawn_86

So why aren't you taking the other trades its showing that you should enter PT?


----------



## sinner

Hi PT,

Very glad to have your continued posting.

Are there back-testing results for actual trades on the pairs available by this software? 

As you said, it provides a "stock correlation" indicator, and we might say this is a good substitute. But not all breaks in the correlation avg might end up being a good trade, so I am curious about the actual expectancy on backtesting.

Also what is your expectancy on live trades taken so far? Have they all been a profit?


----------



## Pairs Trader

prawn_86 said:


> So why aren't you taking the other trades its showing that you should enter PT?




Because I filter the enter trade signals with other analysis, if you look at the charts in my attachments you can see I like pairs with non-trending ratio charts, ratio-RSI divergences, and the spread chart approaching near-term high or low and fading that direction.


----------



## Pairs Trader

sinner said:


> Hi PT,
> 
> Very glad to have your continued posting.
> 
> Are there back-testing results for actual trades on the pairs available by this software?
> 
> As you said, it provides a "stock correlation" indicator, and we might say this is a good substitute. But not all breaks in the correlation avg might end up being a good trade, so I am curious about the actual expectancy on backtesting.
> 
> Also what is your expectancy on live trades taken so far? Have they all been a profit?




Yes pairtrade finder has a backtesting feature. Correlation is more of a confirmation tool that the pair you are trading has a statistically significant relationship, nothing more, its not used in the signal formula methodologies. Yes all my live trades so far in this journal have been profitable with avg profit of 4.74%(measured on total amount invested, not just one side) Please find below a quick backtest I did on some random ASX Consumer Discretionary stocks for the last year, the system matched all possible pair combination's and ranked from high correlation down, number of trades, total PnL& avg PnL per trade is based on $10,000 invested in each trade. These results are not including filtering trade signals for news items, strong trending ratio charts, downward trending correlation, spreads near highs/lows, etc which improves performance....just raw results


----------



## sinner

4.74% avg profit is pretty damned good! If you took just one trade a month thats just under 57% returns per annum non compounding?!

Thankyou for going to the trouble of posting a backtest just for me :


----------



## skc

Pairs Trader said:


> I think you may be right on the fundamentals with this pair trade skc, I checked them out and found;
> 
> CWN has fy09 p/e of 15.7, fy10 p/e of 10.50
> consensus fy09 eps of 37.9, fy10 of 56.8
> 
> whereas TAH has fy09 p/e of 7.3, fy10 p/e of 8.0
> consensus fy09 eps of 88.0, fy10 of 80.20
> 
> so basically analyst expectations are that CWN earnings will grow 49% over the next year whilst TAH earnings will shrink 10%, and valuations have been priced accordingly, not a bad bet to fade these expectations since if they were re-rated the stocks would be ferociously repriced, hard to believe CWN can achieve that growth rate in the current environment, plus a huge difference in applied growth rates between the two stocks, the risk is in the downside re-rating of CWN eps, I don't see it being re-rated to higher than 49%.
> 
> Interesting play to watch out.




PT,

The CWN eps growth has a lot to do with 2 things. The openning of Macau City of Dreams casino (June this year) and also their planned acquisition of Cannery casinos in US. This acquisition is now on the shelf and much reduced in scope, but instead they saved themselves ~$1b or so... Unfortunately I haven't seen any broker report on the latest EPS forecast, but I think it will depend a lot on what they now do with their spare warchest. There are speculations that CWN can team up with TTS and carve up TAH, one taking the casinos and the other for the gaming / wagering.

Noticed the CWN/TAH pair on your list. Their share prices are about equal now. I have a long order for TAH waiting to be filled, but will probably wait a bit on shorting CWN given how strong the overall market has been.


----------



## awg

Pairs Trader said:


> New trade
> 
> Long NCM @ 32.28
> Short SGX @ 5.63




thanks for all the posts.

just trying to comprehend.

yr graph showing the ratio of NCM/SGX seems to show a correlation in direction, even though divergence in amounts occur.

there must be something I am missing, because NCM and SGX are strongly correlated with gold price, I would have thought they would move in the same direction as the gold price, so shorting one would be counterproductive.
the chart seems to show that, I confess to  being dumb but curious


----------



## nomore4s

awg said:


> thanks for all the posts.
> 
> just trying to comprehend.
> 
> yr graph showing the ratio of NCM/SGX seems to show a correlation in direction, even though divergence in amounts occur.
> 
> there must be something I am missing, because NCM and SGX are strongly correlated with gold price, I would have thought they would move in the same direction as the gold price, so shorting one would be counterproductive.
> the chart seems to show that, I confess to  being dumb but curious




I actually think that would help a pairs trade. If the 2 stocks are strongly linked by something like the price of gold and they divert from the mean there is a stronger chance of them coming back together. My take anyway.

Trade looks to be going well atm.


----------



## Pairs Trader

awg said:


> thanks for all the posts.
> 
> just trying to comprehend.
> 
> yr graph showing the ratio of NCM/SGX seems to show a correlation in direction, even though divergence in amounts occur.
> 
> there must be something I am missing, because NCM and SGX are strongly correlated with gold price, I would have thought they would move in the same direction as the gold price, so shorting one would be counterproductive.
> the chart seems to show that, I confess to  being dumb but curious




Your not missing anything, yes both are correlated to the gold price, however Im not arbing them against the gold price, im arbing them against each other, they don't always go in the same direction, occasionally they diverge from each other, can be caused by institutional buying/selling, news, etc..... im betting on the relationship between 2 highly correlated stocks, which is more predictable than the outright direction of any given stock.

Just closed this trade aswell for a quick overnight profit

Sold NCM @ 32.55
Covered SGX @ 5.38

5 out 5 so far in the journal.


----------



## Pairs Trader

Just entered trade in stock indicies ASX200(Sydney) vs N225(Tokyo)

Long ASX200 @ 3695
Short N225 @ 8774


----------



## oby_2

awg - further to PT's comments. You mentioned that shorting one correlated stock would be "counterproductive". You are correct in saying that if both go up in price you would decrease profit, HOWEVER, the point in taking a pair trading approach is to be market nuetral, and rather than seeing the short side as counterproductive to price, you should consider it as a risk minimisation strategy.

Thanks for a great thread gang.

oby


----------



## oby_2

PT - I'll be watching your ASX200(Sydney) vs N225(Tokyo) trade with interest. Through my backtesting (I don't use PTF) I noted some interesting returns from my strategy when looking at the AllOrds V the ASX100 and ASX50, but I have not looked at comparing the ASX200 to comparative foreign indices. 

In my current environment however I can not trade AORD V ASX50 etc so haven't followed the initiative further. It was more so an activity to compare returns/risks/volatility etc. I do however trade XEJ V XMJ and XIJ V XTJ although I have avoided other sector combinations thus far.

oby


----------



## Pairs Trader

Sold MAP @ 1.73
Covered QAN @ 1.82

6 out of 6


----------



## Pairs Trader

Sold ASX200 @ 3598
Covered N225 @ 8388

7 out of 7


----------



## Pairs Trader

Interesting to see Bennelong, a pair trading hedge fund achieved the 2nd highest return in February out of 217 domestic hedge funds, also pair trading has been the only hedge fund trading strategy to produce positive returns this year.....

_Bennelong Securities Long Short Equity Fund came in second with a positive 7.88 per cent return for February.

Bennelong Securities has an equity market neutral strategy, investing equal proportions long and short. The strategy is an attempt to have opposing market risks cancel each other out to achieve absolute returns.

Australian Fund Monitors said equity market neutral continues to be the best performing equity-based strategy.

It said equity market neutral was the only equity-based strategy to have produced a positive return in the 2009 year to date, continuing the positive performance from 2008._
http://www.thebull.com.au/articles_detail.php?id=1503


----------



## MRC & Co

Cheers Pairs, good stuff as always.

I have recommended another trader to your site.

A great strategy, perfect for this type of environment as I would imagine there are many irrational correlation blowouts at present.


----------



## Pairs Trader

New trade

Long LGL @ 2.97
Short SGX @ 5.29


----------



## Pairs Trader

New trade in stock indicies

Long ASX200 @ 3748
Short HSCE(China H Shares) @ 8912


----------



## julius

PT,

This is the LGL/SGX ratio back through January of last year, as well as a 200-period simple moving average.

You're long the ratio, or short the spread, looking for a swing back toward the mean. So why enter here ? The ratio doesn't seem to look overbought/oversold by historical standards. What is the other criteria ?


----------



## Pairs Trader

julius, you are looking at a long term chart of the pair, I prefer much smaller timeframes, as such this pair was 2.47 standard deviations below its short term mean when I entered this morning.


----------



## sinner

julius said:


> PT,
> 
> This is the LGL/SGX ratio back through January of last year, as well as a 200-period simple moving average.
> 
> You're long the ratio, or short the spread, looking for a swing back toward the mean. So why enter here ? The ratio doesn't seem to look overbought/oversold by historical standards. What is the other criteria ?




Hi Julius,

It would be interesting to see your chart there with price of gold also to see how the delta affects the spread?

Any hope of seeing that?


----------



## Pairs Trader

Another trade, there's heaps of entry signals today.

Long MAP @ 1.73
Short QAN @ 1.94


----------



## julius

Pairs Trader said:


> julius, you are looking at a long term chart of the pair, I prefer much smaller timeframes, as such this pair was 2.47 standard deviations below its short term mean when I entered this morning.




Thanks PT. What horizon are we talking about here for 'short term' ? 10-20 days ?

Also, whats the PlusMinus indicator in the top right window ?


----------



## Pairs Trader

A lot of my trades recently have only been overnight or several days long holding time. Plus/minus is how many standard deviations the pair is currently from its mean.


----------



## Pairs Trader

Sold MAP @ 1.755
Covered QAN @ 1.88

8 trades, 8 winners so far in the journal, all posted in real time.


----------



## Pairs Trader

Sold LGL @ 3.00
Covered SGX @ 5.21

9 from 9


----------



## beamstas

9 from 9 is good

*BUT*

You counted 2.5c on MAP and 6 cents on QAN as a winner.

I'd be more concerned with profitability rather than win rate .. 

Just a thought..

Brad


----------



## Pairs Trader

Yes the profits on my latest MAP/QAN trade are the lowest of all my profitable trades, however there is nothing wrong with 1.4% and 3% profit respectively for 2 days holding time without market or sector exposure. Also for eg I bought DJS @ 2.05 and several days later sold it for 2.69 back in March, so I have made much more profitable trades. I recently reduced my trade holding time and look to exit within 3 days, therefore my win rate significantly improves whilst only sacrificing the win/loss ratio slightly. If you have a good risk management plan you can do this. For example if I aim for 80% win rate, and look to exit when profits exceed $2,000 and don't let losers go above $3,000 loss, my net profit after 10 trades will be $10,000 ((8 x 2k)-(2 x 3k)). I find trading with a high win rate / low win loss ratio is much easier on the psyche than low win rate / high win loss ratio.


----------



## beamstas

Pairs Trader said:


> I find trading with a high win rate / low win loss ratio is much easier on the psyche than low win rate / high win loss ratio.




Easier on the head
Harder on the wallet

Brad


----------



## Pairs Trader

New trade

Long FTSE @ 3903.7
Short DAX @ 4293.6


----------



## Pairs Trader

beamstas said:


> Easier on the head
> Harder on the wallet
> 
> Brad




Well that hasn't been my experience having profitably traded pairs for several years now.

Please do feel free to start your own trading journal showing us how its done.


----------



## Pairs Trader

Sold ASX200 @ 3644
Covered HSCE @ 8535

10 from 10.


----------



## keroppi

Are you the creator or connected to the person(s) who created PairTrade Finder?  Thanks.


----------



## Pairs Trader

Yes that is correct.


----------



## sinner

Hi PT,

I have been examining this method of trading more closely, to suit my new job, including downloading the demo of the software you use.

Got a few questions if you don't mind.

Not sure I understand the function of the "layers" utility? I see you mention how some pairs passed your "3rd layer" and I see the option to add multiple ones but really don't understand how it works.

Does the back-testing utility on the full version go further back than 365 days?

How do you find so many good pairs? The back-testing can throw out a lot of good pairs as low correlation and include a lot of crap ones as high correlation.

I have many more questions but we can start there :


----------



## Pairs Trader

Layers are simply multiple entry signals for the same trade. For example the software is default 1 layer at 2.00, which means you will receive an entry signal when the pair is 2 stdev from the mean, you can add a 2nd layer for eg at 2.25, a 3rd at 2.50, so if the pair moves against us initially you can lower your cost average of the trade and take advantage of volatility. Currently we can only backtest 365 days backward, since the program is crunching a huge amount of data/variables, however Im having my programmer work on increasing that, should be able to offer something longer soon. Too find good pairs I run backtests on each industry/sector, and filter results for pairs showing avg profit per trade more than $300(10k trade value), and a non-trending ratio chart. Hope this all makes sense, I really do try and keep it as simple as possible.


----------



## sinner

Hi PT,

Yes, thankyou for your thoughts and tips. The software really is very good, my questions were just the result of my own laziness to not work with it some more.

One pair I found giving a signal on Thursday close was GCL/RIV, had a high correlation, RSI divergence from the ratio and non-trending ratio. 

I am not trading at the moment, but eager to see what you think of this one as an example for those who are interested?

Have found several other similar pairs and will be paper trading them in the mean time for the duration of the demo at which point (if results are good) will purchase the software.


----------



## Pairs Trader

Yeah once you get the hang of it, the software really is a great tool, I have quite a few small hedge funds using it and producing good returns for their clients, you can import just about any instrument in the world and look for correlations/trading signals. 

Im not allowed by law to give specific trading advice on a individual trade, however that pair and signal looks fine, but its not trade by trade results that matter, I don't what the next trade will produce, what matters is your results after 20 or more trades, keeping the total of your losses smaller than the total of your wins.

New trade

Long N225 @ 8828
Short HSI @ 15337


----------



## carmen

Hi PT. Thanks for your posts, really interesting. Can you tell me what the correlation is between WOW & WES? 

Thanks


----------



## Pairs Trader

Your welcome carmen,

WES/WOW 100 day correlation @ -58% 

Don't pair trade it


----------



## Pairs Trader

New trade

Long GCL @ 4.90
Short RIV @ 3.99


----------



## Gunter

Hi,

Probably a silly question, but what instruments do you use to put these pair trades on? CFDs as its easier to go short? 

If so is there much deviation on the CFD price to the underlying stock price?

Cheers.


----------



## Pairs Trader

I use IG Markets direct market access. IG is great for the index pair trades, as they have AUD denominated mini contracts which takes out the need to currency hedge and you can achieve exact dollar balancing much cheaper than with futures.


----------



## carmen

Pairs Trader said:


> Your welcome carmen,
> 
> WES/WOW 100 day correlation @ -58%
> 
> Don't pair trade it




hehe thanks i was just thinking as the old adage gos, buy woolies sell wesfarmers, or as its been lately the other way around.


----------



## skc

Hey PT. Thanks for a great thread. 

I am playing around with your demo at the moment, with the aim of producing enough profit over the next 30 days to pay for the program. I am part way there thanks to a ABC-JHX play 

I understand that the entry/exit triggers are based on the "+/-" column. Where can I find the calculation of this number? That is, where can I see the current ratio (which can be calculated easily enough I guess), the current rolling mean, and the current standard deviation?

As the program uses Yahoo data which is delayed, knowing the current mean and standard deviation will allow a pair be opened by looking at the spread and deviation in real time. Also, the larger the absolute value of the std dev, the greater the potential return when things return to the mean. Knowing the numerical value of the std dev allows one to pick the better bang for buck trade.

Thanks


----------



## Pairs Trader

We only disclose formula methodologies to paid members upon request as Im sure you can understand. We don't display those values anywhere, the system calculates it all in the background. Im currently working with my programmer adding a new feature which displays how far the pair is from its mean in % terms, thus giving a good indication of the profit potential on a trade because as you know the short term standard deviation can become smaller than in the past whilst still giving a signal but producing less % return on capital invested, this way you may only want to take trades with greater than 5% profit potential.


----------



## MS+Tradesim

PT,

I was initially skeptical but I've been following this thread with interest. I've downloaded the demo but haven't done much with it yet. 

Can it be setup to look at currencies?


----------



## Pairs Trader

New Trade Alert Received

Monadelphous seems to had a massive institutional order worked through this morning causing a big spike up to 10.59, got short on the way back down.

Long UGL @ 9.50
Short MND @ 10.31


----------



## skc

Pairs Trader said:


> We only disclose formula methodologies to paid members upon request as Im sure you can understand. We don't display those values anywhere, the system calculates it all in the background. Im currently working with my programmer adding a new feature which displays how far the pair is from its mean in % terms, thus giving a good indication of the profit potential on a trade because as you know the short term standard deviation can become smaller than in the past whilst still giving a signal but producing less % return on capital invested, this way you may only want to take trades with greater than 5% profit potential.




Thanks PT. Understand you can't disclose everything. 

I think you have partly answered my question anyway. 

I did find the program can generate some "false positives" for entries due to a pair's std dev being too small (and hence doesn't take much to get the +/- over the threshold). I have seen buy signal triggered, only to generate exit signal when each stocked moved a few cents. It seems to one way to address that is to look at the ratio chart and eyeball the distance with the rolling mean. If it's too small then there's not much to be had.


----------



## Pairs Trader

Sold N225 @ 8753
Covered HSI @ 14893

11 from 11.


----------



## Pairs Trader

Closed trade for small profit

Sold GCL @ 5.01
Covered RIV @ 4.07

12 from 12.


----------



## MS+Tradesim

Hi PT,

You might have missed my question...

Can PairTrader analyse FX?

Cheers.


----------



## Pairs Trader

There is the possibility of analyzing FX and commodities through pairtrade finder with IQfeed, our subscription data feed, we have a special arrangement where the initial $50 fee is waived. However the software is specifically designed for analysing stocks and indicies, I don't personally pair trade FX as there are 1000s of highly correlated stocks and indices with fundamental correlation aswell, since FX are already in pairs, eg..AUD/USD, you are already pair trading, so for eg.....if you analysed GBP/USD against CHF/USD and got a buy signal, thats the same as going long GBP/CHF, so I don't even bother with pair trading FX, more profits in stocks and indices.


----------



## Pairs Trader

Sold UGL @ 9.53
Covered MND @ 10.05

13 trades, 13 wins.


----------



## Pairs Trader

New trade

Long OSH @ 4.85
Short STO @ 16.74


----------



## beamstas

Pairs Trader said:


> Closed trade for small profit
> 
> Sold GCL @ 5.01
> Covered RIV @ 4.07
> 
> 12 from 12.




Long GCL @ 4.90
Short RIV @ 3.99

That's not a winning trade mate
Lets say you put 100k on each side, which would be a pretty normal trade. You do the trade through IB with 0.08% brokerage

You are spending $320 on brokerage and made $270 on the position? (+$2,244.90 for GCL and -$-1,965.60 for RIV) You've just spend more in brokerage than you have made on the trade 

Even if you don't count commissions, you have made 0.14% for the trade

Not sure how these are winning trades when you are losing money!

Hope i've missed something because i was actually looking at the pairs trader

Cheers
Brad


----------



## keroppi

I also think it would be good to incorporate a simple FX feed into the software.  Otherwise, it is not as useful.

How much are you putting in per trade?

Have you considered the risks of relying only on yahoo data?


----------



## Pairs Trader

GCL bought at 4.90 sold at 5.01 = 2.2%
RIV sold at 3.99 covered at 4.07 = 2.0%
gross profit 0.2%
commission 0.16%

so whilst its did produce a minuscule profit, I guess you could call it a scratch trade, my bad, next time any trade produces less than $100 profit Il call it a scratch, this trade has been my lowest producing trade to date and I don't think you can deny the previous 12 trades I posted in real time which produced significant profits, Il post a summary of my trades over the next several days which will show them all in detail.


----------



## Pairs Trader

We also have a special arrangement with IQfeed for real time data, they are considered to one of the most reliable & clean data providers out there.


----------



## skc

Pairs Trader said:


> GCL bought at 4.90 sold at 5.01 = 2.2%
> RIV sold at 3.99 covered at 4.07 = 2.0%
> gross profit 0.2%
> commission 0.16%
> 
> so whilst its did produce a minuscule profit, I guess you could call it a scratch trade, my bad, next time any trade produces less than $100 profit Il call it a scratch, this trade has been my lowest producing trade to date and I don't think you can deny the previous 12 trades I posted in real time which produced significant profits, Il post a summary of my trades over the next several days which will show them all in detail.




GCL had a takeover on the table which essentially put something of a price target/ceiling on them. So when other coal shares went flying, the Pairs Finder identified the discrepency and triggered an entry. I think this is one example where some fundamental research may have stopped one from entering the trade. 

Having said that, GCL spiked up yesterday soon as the trade was exited. So who knows...


----------



## beamstas

Pairs Trader said:


> GCL bought at 4.90 sold at 5.01 = 2.2%
> RIV sold at 3.99 covered at 4.07 = 2.0%
> gross profit 0.2%
> commission 0.16%
> 
> so whilst its did produce a minuscule profit, I guess you could call it a scratch trade, my bad, next time any trade produces less than $100 profit Il call it a scratch, this trade has been my lowest producing trade to date and I don't think you can deny the previous 12 trades I posted in real time which produced significant profits, Il post a summary of my trades over the next several days which will show them all in detail.




Huh?
Commission is 0.08% each way
You opened 2 trades and closed 2 trades

Comms = 0.08*4 = 0.32%
Gross Profit = 0.20%

Net profit/Loss = -0.12%


----------



## Pairs Trader

yes your right, apologies, Ive got a spreadsheet doing the calculations, the trade was down a few bucks after taking out commissions. But please, don't judge the pair trading on any one trade, its about results after 10, 20 or more trades that count, I still don't know what the result will be on my next trade even though the last 12 were profitable, its mostly random, however results after 20 trades aren't.


----------



## beamstas

Pairs Trader said:


> yes your right, apologies, Ive got a spreadsheet doing the calculations, the trade was down a few bucks after taking out commissions. But please, don't judge the pair trading on any one trade, its about results after 10, 20 or more trades that count, I still don't know what the result will be on my next trade even though the last 12 were profitable, its mostly random, however results after 20 trades aren't.




Pairs
Im not here to try and say your system is wrong 
Your win rate is quite high.... obviously you must be doing something right...?
Maybe you should post the net p/l of the trades as a % (we don't need to include account values) just to see how good the trades actually are?
No use trading if im risking $100 to make $1. Do you see? :

Best of luck
Cheers
Brad


----------



## Pairs Trader

Closed trade

Sold OSH @ 5.04 (3.91% profit)
Covered STO @ 16.41 (1.97% profit)
Holding time: 1 day

13 wins
1 scratch


----------



## prawn_86

beamstas said:


> Pairs
> Im not here to try and say your system is wrong
> Your win rate is quite high.... obviously you must be doing something right...?
> Maybe you should post the net p/l of the trades as a % (we don't need to include account values) just to see how good the trades actually are?
> No use trading if im risking $100 to make $1. Do you see? :
> 
> Best of luck
> Cheers
> Brad






Pairs Trader said:


> Closed trade
> 
> Sold OSH @ 5.04 (3.91% profit)
> Covered STO @ 16.41 (1.97% profit)
> Holding time: 1 day
> 
> 13 wins
> 1 scratch




Much better with the % figures. Now we are comparing apples with apples


----------



## tatankov

Thanks for this interesting topic.

I have one question. Days ago you said:



> Layers are simply multiple entry signals for the same trade. For example the software is default 1 layer at 2.00, which means you will receive an entry signal when the pair is 2 stdev from the mean, you can add a 2nd layer for eg at 2.25, a 3rd at 2.50, so if the pair moves against us initially you can lower your cost average of the trade and take advantage of volatility. Currently we can only backtest 365 days backward, since the program is crunching a huge amount of data/variables, however Im having my programmer work on increasing that, should be able to offer something longer soon. Too find good pairs I run backtests on each industry/sector, and filter results for pairs showing avg profit per trade more than $300(10k trade value), and a non-trending ratio chart. Hope this all makes sense, I really do try and keep it as simple as possible.




The Layers configuration is taken in consideration to generate the entry signals and in backtest results? Or not used on backtest results?

A exit signal is only generated when ratio cross rolling mean, correct? This is not configurable? In some trades, seems to be more profitable to exit when it crosses the first std_dev.


----------



## beamstas

Nice one
Thanks Pairs
Much easier to follow now

Cheers
Brad


----------



## MS+Tradesim

Pairs Trader said:


> Closed trade
> 
> Sold OSH @ 5.04 (3.91% profit)
> Covered STO @ 16.41 (1.97% profit)
> Holding time: 1 day




Hi PT,

I'm trying to understand why you exited this one. I was watching it and I think I have mostly the same settings as you've indicated in this thread but an exit didn't signal for me. Did you make a discretionary exit or is it a case of not using exactly the same settings? I'm just trying to learn more about it.

Also my interest in looking for correlated FX pairs is because of the obvious trading opportunities. Several of them track closely and a take-off in one is often a precursor to a take off in another. Being able to statistically analyse these movements would be valuable. I could probably do it in Metastock, but just hoping PairTrader can add value by saving me time.


----------



## beamstas

MS+Tradesim said:


> Hi PT,
> 
> I'm trying to understand why you exited this one. I was watching it and I think I have mostly the same settings as you've indicated in this thread but an exit didn't signal for me. Did you make a discretionary exit or is it a case of not using exactly the same settings? I'm just trying to learn more about it.
> 
> Also my interest in looking for correlated FX pairs is because of the obvious trading opportunities. Several of them track closely and a take-off in one is often a precursor to a take off in another. Being able to statistically analyse these movements would be valuable. I could probably do it in Metastock, but just hoping PairTrader can add value by saving me time.




FX is pairs trading anyway

You sell one currency (short)
And buy another currency (long)

When you close the position 
You buy the first currency back (cover the short)
And sell the other currency (sell the long)

Cheers
Brad


----------



## MS+Tradesim

I know how FX works. I trade it.  

What seems a difficult concept to grasp is that multiple pairs are correlated and might present pair trading opportunities. Maybe a picture will help. EURJPY as bars. EURUSD as line. Can PairTrader analyse this and if so, how do I get FX data into it?


----------



## MS+Tradesim

Sorry Brad. Shouldn't have vented my frustration at you or anyone 

Back to OSH/STO:l I've opened PairTrader today to find the trade has simply disappeared. I haven't changed any settings. 

Edit: I see what's happened. The closing prices have changed and in the last few days the deviation has not gone above 2.00. How is this happening? I'm guessing when I click on "Refresh Prices" it collects all the prior closes which will overwrite the intra-day data that one might have entered on. How do I avoid this?


----------



## glenn_r

I agree MS&T having a FX capability would be interesting as quite a few pairs do show close correlation.

Young Brad of course you trade FX as pairs but what we are looking at is the correlation between 2 pairs.

To Pair Trader as you already have access to Yahoo data surely it would be fairly simple to add the major FX pairs.


----------



## sinner

The scratch on a so far perfect record is my fault, sorry 'bout that :

But I think it highlights a very interesting aspect of market neutral trading. i.e. the difference between a scratch +/- $100 versus a loss of several % of your capital!


----------



## beamstas

Sorry for my oversight

So MS meant trade one pair against one pair 

So if USD/AUD and USD/JPY were far apart but normally follow each other pretty closely
And your currency is in Aud
How would you trade this?
That's very confusing for me 


Can i ask what would cause 2 currencies to have a correlation?

Or do some pairs work randomly?

Cheers
Brad


----------



## glenn_r

MS

Its still on my screen, I actually traded it.

Brad your examples have the same currency in both pairs, does that give you a hint?


----------



## MS+Tradesim

glenn_r said:


> MS
> 
> Its still on my screen, I actually traded it.




The pairs I'm looking at are all missing data for the 27/4. 

I'll figure this out.

Edit: OK, there's definitely something wrong here. I deleted all the stocks and reloaded a few. Prices loaded up to and including 28/4. It indicated an open trade on OSH/STO. I then refreshed the prices and it added 30/4 but is still missing the 29/4. Maybe something with SQL...hmmm.


----------



## Pairs Trader

Guys Il answer your questions soon, just busy trading at the moment.

Closed first losing trade of the journal

Sold FTSE @ 4215.2 (7.9% profit)
Covered DAX @ 4728.4 (10.1% loss)

13 wins
1 scratch
1 loss

New trade

Long SSM @ 0.405
Short CSR @ 1.325


----------



## Pairs Trader

Ok, we first loading ASX stocks you will be missing yesterdays data only, its the way yahoo finance works to fetch data, there is only ever a 1 day lag, and going forward all data is gathered correctly and automatically every 5 mins into the program. Also if you have the system running during the day and a signal is generated buts reverts back to its mean over the course of the day and is no longer valid on the close you won't see the signal. Also I did close my OSH/STO trade premature to an exit signal, generally if I have good profits with 1 day holding I will simply take them, I do use a little discretionary when exiting, you can follow the exit signals religously and be fine, however sometimes I like to exit when the pair gets back within 1 stdev of its mean, so for example I could enter when the pair is -2.25 stdev and exit when it goes above -1.00, this reduces trade length, improves win rate % and reduces chances of being stuck in a long, losing trade. There are no hard and fast rules, its up the trader to customize his own trading plan that suits his personality and capabilities the best. Also with FX, in the above examples you are using USD/JPY and AUD/JPY, well we could plug these into pt finder, however if we were to get an signal to trade this pair, its the same as buying or selling AUD/USD, since JPY is in both pairs we would have opposite trades cancelling each other out if we opened positions in both pairs, you will only find highly correlated FX pairs containing the same currency in both pairs otherwise pairs like AUD/USD vs CHF/EUR simply don't correlate well and have no fundamental reason to diverge and converge in a normal oscillating pattern that we see in highly correlated stocks. Its amazing how many times I get asked to incorprate FX and commodities into pt finder and I don't understand why, you need a very large account to properly pair trade futures because of the min contract size and the need to be $ neutral, plus there are 1000s of great stock pairs that offer unique opportunities everyday that only a few people can act on and produce really high risk-adjusted returns, we don't need anything else but stocks as there are literally millions of different stock pair combination's worldwide.


----------



## MS+Tradesim

With respect, customers are asking for a certain functionality, and because you can't see how it would be useful, you seem reticent to offer it. There is clearly a market for it by your own admission. 

It doesn't matter though, as I'm figuring it out in Metastock. I'll leave your thread for your journal.


----------



## Pairs Trader

I think its human nature to not do what is simple, what already works, we constantly look for something else instead of just sticking to what is proven to work. Ive done extensive backtesting of pair trading of just about every tradeable instrument in the world, I can tell you FX and commodities are nowhere near as profitable as pair trading stocks, actually pair trading FX is almost impossible(see below), plus they present less opportunities, are more difficult to achieve dollar neutral and you need a large account size, not to mention you will be competing against large players who can't participate in single-stock pair trades. Im sure If I had a feed for these instruments people would be interested, however Im focused on profitability for my clients, therefore I highly recommend to them to only stick to stocks, if they want to pair trade something else, that's fine by me, I guess everyone finds out on their own.

Let me give you a heads up, in your example above you plot the eur/usd and eur/jpy, taking a long position in one and a short position in the other is exactly the same as buying or selling usd/jpy by itself, because eur is in both pairs and you would have an opposite position in each currency, make sense? so in your example, its not a pair trade at all and I can tell you now, if you do pair trade it as your example suggests, you will lose money over a period of time, because its the same as buying or selling usd/jpy when it hits the bollinger band, not a profitable strategy at all.


----------



## beamstas

> improves win rate %




The search for the holy grail continues....


Brad


----------



## Pairs Trader

what holy grail? 

there is only edge, risk management and discipline.


----------



## beamstas

Pairs Trader said:


> what holy grail?
> 
> there is only edge, risk management and *discipline.*




There is more to the story than win%

You are only using half of your brain

The price can go up or go down tomorrow
No one knows and no one will know

By selling you are being un-disciplined and irrational. You are thinking the price may go against you, but in reality it could go either way. You may be severerly damaging your win/loss 

You won't make a big profit by taking a small one!


----------



## Pairs Trader

beamstas said:


> There is more to the story than win%
> 
> You are only using half of your brain
> 
> The price can go up or go down tomorrow
> No one knows and no one will know
> 
> By selling you are being un-disciplined and irrational. You are thinking the price may go against you, but in reality it could go either way. You may be severerly damaging your win/loss
> 
> You won't make a big profit by taking a small one!




Gee thanks for the advice, I actually base my trading on years of experience and extensive backtesting, and my account has grown 28% since starting this journal 2 months ago with 15 trades Ive placed in real time for everyone to see, maybe you could start your own trading journal and show us all how its done?


----------



## Nyden

beamstas said:


> There is more to the story than win%
> 
> You are only using half of your brain
> 
> The price can go up or go down tomorrow
> No one knows and no one will know
> 
> By selling you are being un-disciplined and irrational. You are thinking the price may go against you, but in reality it could go either way. You may be severerly damaging your win/loss
> 
> You won't make a big profit by taking a small one!




I seem to recall a wonderful quote from someone here a while ago, (don't remember who, sorry!) - that no one ever went broke from taking a profit 

I would argue that by locking in profits - and not allowing for greed to take over, Pairs is actually being quite disciplined, and I fail to understand why you seem to have an agenda against him? Almost all of your posts here have been critical!

Personally, I enjoy reading this thread. Keep up the good work Pairs.


----------



## glenn_r

Don't worry about junior beams, he remind's me of an old story about the young bull and the old bull, the young bull says to the old bull lets run down to the paddock and do one of those cows, the old bull replies nah lets walk down to the paddock and do them all...

I'm quite keen on your work too PT keep it up and as I see it the software is not a black box it just saves a lot of time in finding correlated pairs and then produces signals for further discretionary/fundamental analysis and when the pairs move in your favour you bank profits as your not riding a trend just using mean reversion, very simple.


----------



## skc

beamstas said:


> There is more to the story than win%
> 
> You are only using half of your brain
> 
> The price can go up or go down tomorrow
> No one knows and no one will know
> 
> By selling you are being un-disciplined and irrational. You are thinking the price may go against you, but in reality it could go either way. You may be severerly damaging your win/loss
> 
> You won't make a big profit by taking a small one!




It is clear that Beamstas is a fan of Nick Radge and read his win % vs average win curve (sorry don't have it at hand) - so am I, but I think you have extrapolated what Nick means a bit too much 

What Nick is saying is that he operates at the area of the graph where the win% is lower (~40% I think) and average win is high (~4x risk). This is achieved by letting profits run and cutting losses quickly. What Nick *is not *saying is that no one or other methods can operate on other parts of that graph and still be profitable.

The last thing you do with Pairs Trading is to let the profit run. Because the more the profit run, the deviation from the mean goes from positive to negative... and you are more likely to actually close and reverse the positions. 

Applying the low win% vs high average win framework to pairs trading wouldn't make sense.

Open your mind to other possibilities - and reassess who's using half their brain.


----------



## awg

Hi PT and all,

do you ever close one leg of the trade ( upon receiving yr signal)?

but let the other leg run with a trailing/profit stop ( because its moving in the right direction)..ie further into profit?

RIO long would have been a nice hold (I held), even if though I did query yr trade at the time


----------



## beamstas

Have openened my mind
Been following this system for a while silently




> I seem to recall a wonderful quote from someone here a while ago, (don't remember who, sorry!) - that no one ever went broke from taking a profit




Sorry mate, You couldn't be more wrong
Many posts around here even TH etc have argued against the saying of you can't go broke taking profits. Can't be bothered finding them but if you look through the beginners forum you might find it. You can and will go broke

I have no agenda against pairs, it seems like a good system that produces a nice win rate. Someone needs to give criticism.. It can be contructive or not just depends on what people want to take out of it



> The last thing you do with Pairs Trading is to let the profit run. Because the more the profit run, the deviation from the mean goes from positive to negative... and you are more likely to actually close and reverse the positions.




Realise this too
Not saying you can't operate with a low win/loss and a high win rate
Very possible and will reduce drawdowns which would make trading more comfortable
The point is that he has set his sell level and hasn't been diciplined! 


No where did i say he has to lower his win% and operate like that. 

Don't have Nicks Curve
But here is one







If you are above that line you are profitable
If you are below it you are losing

Obviously Pairs needs a low Win/Loss because of his high win%

BUT

You should always let the market decide when you end your position
Even if he puts the stop loss right up under his position
He's still giving the market a chance to move in his favour even further.


----------



## Nyden

beamstas said:


> Sorry mate, You couldn't be more wrong
> Many posts around here even TH etc have argued against the saying of you can't go broke taking profits. Can't be bothered finding them but if you look through the beginners forum you might find it. You can and will go broke




I did say profits Beam, by which I refer to gains after expenses. If you believe it possible to go broke with *profitable* trades (after expenses, a trade isn't _profitable_ if the brokerage / costs exceed any gains), well - please do explain it to me.

I guess it more so depends on your situation though, as to whether or not the individual trades for a living, or uses trading for a little additional income. A few 100 extra a week is great if you're working full time, but perhaps not so if you're forced to live on it.

Oh, and I do understand that profits on individual trades do need to be adequate as to cover losses on future trades, but surely if ones stops are tight enough, and the average win rate is high enough (as with Pairs) - this isn't a problem.


----------



## beamstas

Nyden said:


> I did say profits Beam, by which I refer to gains after expenses. If you believe it possible to go broke with *profitable* trades (after expenses, a trade isn't _profitable_ if the brokerage / costs exceed any gains), well - please do explain it to me.
> 
> I guess it more so depends on your situation though, as to whether or not the individual trades for a living, or uses trading for a little additional income. A few 100 extra a week is great if you're working full time, but perhaps not so if you're forced to live on it.
> 
> Oh, and I do understand that profits on individual trades do need to be adequate as to cover losses on future trades, but surely if ones stops are tight enough, and the average win rate is high enough (as with Pairs) - this isn't a problem.







Trembling Hand said:


> That's it really. If you know your system is profitable over 100-200 trades and how it preforms 2 things will come from it. Your next trade will not be causing you great anxiety because it will work or it won't. its no threat to you or your survival.
> 
> The second thing is that you soon realise that you need to let your winners run a bit its the best thing to enable you to survive. In spite of the cliche you can go broke taking a profit.




Anyway, im not going to turn this into a pissing contest
Just trying to twig people's minds
You can take what you want from what i say
If you don't agree i don't care!
Don't wanna argue with anyone


----------



## Pairs Trader

Yes, thanks everyone for not turning this into a flaming thread and keeping it on the topic of pair trading.

Opened a new trade just before close

Long NWS @ 12.94
Short NWSLV @ 11.71

Increased size on this trade due to the limited risk of same stock arbitrage.


----------



## keroppi

You say you have gained 28%.  However, have you accounted for brokerage and slippage because these are major factors when you are playing with the large number of trades you are entering and exiting?

The other thing is with FX, you can buy usd/jpy instead of long usd/eur and short jpy/eur, so that is just one trade instead of two, and transaction costs are then halved.  Why not then enter that one trade if the pair of usd/eur and jpy/eur suggests that a pairs trade is feasible?

Some general questions,
How long have you been pairs trading?
What instruments have you tried pairs trading with?
How much are you trading in each pair?

I look forward to your response.


----------



## julius

Pairs Trader said:


> Increased size on this trade due to the limited risk of same stock arbitrage.




Hi Pairs,

Could you please elaborate on this.

Thanks.


----------



## prawn_86

julius said:


> Could you please elaborate on this.
> .




My understanding of this is that the trade in question is one on a stock and its notes or something by the looks. This means that it is likely to have a stronger correlation due to the fact its the same company.

Im sure pairs will give a better explanation.


----------



## Pairs Trader

keroppi said:


> You say you have gained 28%.  However, have you accounted for brokerage and slippage because these are major factors when you are playing with the large number of trades you are entering and exiting?
> 
> The other thing is with FX, you can buy usd/jpy instead of long usd/eur and short jpy/eur, so that is just one trade instead of two, and transaction costs are then halved.  Why not then enter that one trade if the pair of usd/eur and jpy/eur suggests that a pairs trade is feasible?
> 
> Some general questions,
> How long have you been pairs trading?
> What instruments have you tried pairs trading with?
> How much are you trading in each pair?
> 
> I look forward to your response.




Yes I have accounted for brokerage and slippage in my results. I only pair trade stock and indices, not FX as its nowhere near as profitable.

Ive been pair trading for 6 years. Ive pair traded just about everything out there, you name it, and Ive traded it. Generally speaking my position size is $50,000 per side, sometimes more for reduced risk trades, sometimes less for elevated risk trades.


----------



## Pairs Trader

Yes NWSLV is the non-voting scipt of News Corp, the same as NWS just without the voting rights, this pair has a 99% correlation and because of this the avg profit per trade is lower than other pairs because divergences are smaller in % terms, so I increased my size to reflect this as a black swan event in this pair is virtually impossible.

New trade

Long MLB @ 2.20
Short SMX @ 2.88


----------



## Pairs Trader

Closed trade

Sold SSM @ 0.465 (14.81% profit)
Covered CSR @ 1.45 (9.43% loss)

14 wins
1 scratch
1 loss


----------



## tatankov

Pairs Trader said:


> Yes, thanks everyone for not turning this into a flaming thread and keeping it on the topic of pair trading.
> 
> Opened a new trade just before close
> 
> Long NWS @ 12.94
> Short NWSLV @ 11.71
> 
> Increased size on this trade due to the limited risk of same stock arbitrage.



Percent from mean is only 1%.
The target profit is not to much low?


----------



## Pairs Trader

Hence the increased trade size.


----------



## tatankov

Pairs Trader said:


> Hence the increased trade size.




*PTF closes a trade, only when the ratio cross the "rolling" mean value, right?*

It's not possible to configure other ways to exit a trade? This is a big limitation in my opinion.


----------



## tatankov

Pairs Trader said:


> Hence the increased trade size.




What money management rules do you follow?
Do you size your positions according to the pairs volatility?

All your trades are dollar neutral? You never consider beta neutral trades?


----------



## Pairs Trader

Closed trade

Sold NWS @ 13.75 (6.25% profit)
Covered NWSLV @ 12.21 (4.26% loss)

Remember whilst the profit is relatively small on this pair trade I had increased trade size as the risk with same stock arbitrage is significantly reduced, almost non-existent. Ive been successfully trading this pair for years now.

15 Wins
1 Scratch
1 Loss


----------



## Pairs Trader

Closed another profitable trade

Sold MLB @ 2.26 (2.72% profit)
Covered SMX @ 2.80 (2.85% profit)

16 Wins
1 Scratch
1 Loss


----------



## Pairs Trader

tatankov said:


> *PTF closes a trade, only when the ratio cross the "rolling" mean value, right?*
> 
> It's not possible to configure other ways to exit a trade? This is a big limitation in my opinion.




Yes when the pair returns to the mean is when an exit signal is given, you can use other analysis readings to exit earlier, as I mostly do, so you can exit when the pair comes back within 1 stdev from its mean, this increases your win rate, decreases avg holding time, and significantly reduces your chance of being stuck in long, losing trade.


----------



## Pairs Trader

tatankov said:


> What money management rules do you follow?
> Do you size your positions according to the pairs volatility?
> 
> All your trades are dollar neutral? You never consider beta neutral trades?




Strictly dollar neutral, and don't place more than 30% of your a/c in any one trade. I find keeping money management simple the best practice and in my opinion if you have to adjust position sizing based on different volatility in one stock to the other in the pair, then that isn't a good pair to trade because one stock clearly is different from the other, plus you don't know which side is going to produce the profits, so if you heavily weighted on one side, you risk magnifying your losing side more than it should.


----------



## tatankov

Pairs Trader said:


> Yes when the pair returns to the mean is when an exit signal is given, you can use other analysis readings to exit earlier, as I mostly do, so you can exit when the pair comes back within 1 stdev from its mean, this increases your win rate, decreases avg holding time, and significantly reduces your chance of being stuck in long, losing trade.




Thanks for your answer.

So, in your opinion, exiting when pair comes back within 1stdev, it's the overall best *stop-profit*? From visual inspection, 0.5 stdev, seemed a little better.

*Regarding Maximum Holding Time*, what does your experience tell you? I would bet in something between 8-12 days, but would like to know what do you think.

By the way, let me add that I am already a PairTradeFinder client. Purchased a license 2 weeks ago.
After testing the trial, during 15 days, I was convinced, and in my opinion is a good software, especially taking in mind its low price. Therefore is one of the tools i incorporate on my pairtrading model.

But would benefit from from obvious improvements. Being able to configure the exit signals (% loss, max days, e.g.), it's one of the crucial improvement. 

Best Regards


----------



## Pairs Trader

New trade

Long NSEI (Nifty Index) @ 3607.85
Short HSI (Hang Seng) @ 17681


----------



## Pairs Trader

New trade

Long APN @ 1.19
Short FXJ @ 1.11


----------



## Pairs Trader

New trade

Long AXJO @ 3862
Short N225 @ 9338


----------



## Pairs Trader

Closed index pair trade from yesterday for nice profits

Sold NSEI @ 3555 (1.46% loss)
Covered HSI @ 16937 (4.39% profit)

I love the hang seng, made 744 pts overnight, you don't see that everyday.

17 Wins
1 Scratch
1 Loss


----------



## MRC & Co

Pairs Trader said:


> I love the hang seng, made 744 pts overnight, you don't see that everyday.




LOL, the Seng has been going NUTS lately, like the Nikkei last month!


----------



## tatankov

Pairs Trader said:


> New trade
> 
> Long APN @ 1.19
> Short FXJ @ 1.11




My friend, you always look for "spread on the last 50 days", on a new High/Low?
It's a reliable pattern?


----------



## Pairs Trader

Not sure what you trying to say? I am fading the spread chart at 50 day lows as per my rules.


----------



## tatankov

Pairs Trader said:


> Not sure what you trying to say? I am fading the spread chart at 50 day lows as per my rules.



You answered my question.

Do you prefer pairtrading index or stocks?

Are you increasing your position size, on these index tradings? The distance from mean is very low.


----------



## Pairs Trader

They're both good to trade, If I had to choose one over the other I would choose stocks, more to choose from and more potent inefficiencies, however index pair trades are very low risk, the chance of a black swan event occurring is almost non-existent and yes I do size up for these trades, typically 1.5-2 times the normal stock pair trade size.


----------



## Pairs Trader

tatankov said:


> So, in your opinion, exiting when pair comes back within 1stdev, it's the overall best *stop-profit*? From visual inspection, 0.5 stdev, seemed a little better.
> 
> *Regarding Maximum Holding Time*, what does your experience tell you? I would bet in something between 8-12 days, but would like to know what do you think.
> 
> By the way, let me add that I am already a PairTradeFinder client. Purchased a license 2 weeks ago.
> After testing the trial, during 15 days, I was convinced, and in my opinion is a good software, especially taking in mind its low price. Therefore is one of the tools i incorporate on my pairtrading model.
> 
> But would benefit from from obvious improvements. Being able to configure the exit signals (% loss, max days, e.g.), it's one of the crucial improvement.
> 
> Best Regards




Yes its up to the individual to customize his own system, you can be as systematic or discretionary as you like, Im systematic in entries according to filters, however I use more discretion in my exits, for eg....if I show a nice profit overnight il take it, typically its within 1 stdev from the mean, sometimes if a pair is being stubborn il wait a bit, most winning trades occur within 1-7 days of placing them, so I look to exit within that timeframe, typically trades open longer than 10 days have a much higher lose rate % and can expose you to a long, losing trade. We are incorporating customizing exit signals into version 3.


----------



## Pairs Trader

Closed trade that I opened yesterday for good profits

Sold APN @ 1.25 (5.04% profit)
Covered FXJ @ 1.09 (1.83% profit)

18 Wins 
1 Scratch
1 Loss


----------



## Largesse

Nice trading PT.

20 trades down. Might be time for a summary. Total returns on account etc


----------



## Pairs Trader

New trade, same stock arbitrage, news corp again, currently its 2.27% above its mean, an historical extreme.

Long NWSLV @ 11.68
Short NWS @ 13.75


----------



## Pairs Trader

New trade

Long CTX @ 9.98
Short AOE @ 3.93

Cracker of a day up here in Queensland, should be out on the water


----------



## Pairs Trader

New trade

Long MLB @ 2.02
Short IRE @ 6.61

Still wishing I was on the water....


----------



## tatankov

Pairs Trader said:


> New trade
> 
> Long CTX @ 9.98
> Short AOE @ 3.93
> 
> Cracker of a day up here in Queensland, should be out on the water




That is one trade i would skip.
You are going against a uptrending ratio.


----------



## tatankov

PairsTrader,

Do you usually look at pair backtesting, before entering the trade?
How important is to you?


----------



## daCoops

Hi All, I've been following a few people who have been using this software (including yourself, and a guy called jonnysharp on elitetrader.com forum)

I too have taken a look at the 30 day trial, and am impressed at the possible trades it shows up (papertrading only).

I would like to start using it, but do not have a great amount of funds to invest - so I'm expecting to simply make very little profits, a few pounds above the commision. (I'm UK based btw)

My question is whether its best to use PairTrading with a CFD account or a Spread Betting account? Can someone more pro than myself give a few tips with respect to Pair trading using Spread bets / CFD's

Many thanks!


----------



## skc

daCoops said:


> Hi All, I've been following a few people who have been using this software (including yourself, and a guy called jonnysharp on elitetrader.com forum)
> 
> I too have taken a look at the 30 day trial, and am impressed at the possible trades it shows up (papertrading only).
> 
> I would like to start using it, but do not have a great amount of funds to invest - so I'm expecting to simply make very little profits, a few pounds above the commision. (I'm UK based btw)
> 
> My question is whether its best to use PairTrading with a CFD account or a Spread Betting account? Can someone more pro than myself give a few tips with respect to Pair trading using Spread bets / CFD's
> 
> Many thanks!




I think the bigger issue is the size of your capital. Pairs trading (PT) with a small account puts you at a VERY significant disadvantage. 

1. PT is commission-hungry. You pay 4 times for every trade. If you are looking at small position sizes, the minimum commission might be as high as 1 or 2 percent. UK trading around GBP10 minimum? Yuck.

2. PT doesn't look for large profit. You need to take consistently small profits. With more trades, the commission drag will be higher. 

3. PT doesn't employ stop loss. 2 bad trades at the beginning means you have no capital left, especially if you leverage with spread betting / CFD. In fact, you may not have enough capital to cover the margin, so your broker close you down before the trade comes back in your favour.

4. Using CFD puts you at other disadvantages if you are with a market maker. The spread you pay on entry and exit also eats away your profits significantly. Not to mention interest expense, esp if you are stuck in a flat/losing trade. 

Take the 20 or so trades listed here and apply the position size and commissions you have in mind, and see how your returns suffer with a small account.


----------



## Pairs Trader

Exited two trades this morning, both for profits

Sold NWSLV @ 11.50 (1.56% loss)
Covered NWS @ 13.21 (4.08% profit)

Sold CTX @ 10.16 (1.80% profit)
Covered AOE @ 3.80 (3.42% profit)

22 Wins
1 Scratch
1 Loss


----------



## Pairs Trader

tatankov said:


> That is one trade i would skip.
> You are going against a uptrending ratio.




Yes its quite subjective the ratio filter, I guess has their own take on it, personally Ive seen thousands of ratio charts so I guess I have a well trained eye, however the trade is already closed for a profit. The less time in a trade the less risk.


----------



## Pairs Trader

tatankov said:


> PairsTrader,
> 
> Do you usually look at pair backtesting, before entering the trade?
> How important is to you?




Not for individual trades, about every several months I will delete all my pairs off the radar, do fresh backtests and add new pairs, most of the good one will be re-added. Over time some pairs can decline in correlation and the fundamental relationship can change due to new information affect the respective business models and share prices. For example a favourite pair of mine for a long time was AMP/AXA, always had high correlation of 90% or above, a perfect sideways trending ratio chart, clean and robust signals, only needed to hold for a day or two for it to return to the mean, but then the pair changed last year, AMP became a lot stronger than AXA, correlation broke down and I removed the pair from my radar. I treat every pair and signal the same, it has to pass through several filters before I execute the trade, my general rule of thumb is, I look at the analysis window, analysis the charts, basically just look at each one for 5 seconds, if Im not convinced within 30 seconds, that is still considering the trade after 30 seconds I will not take the trade, usually the best trades pop out at you, and you know without a doubt its the type of trade you want to be in.


----------



## Pairs Trader

daCoops said:


> I too have taken a look at the 30 day trial, and am impressed at the possible trades it shows up (papertrading only).
> 
> I would like to start using it, but do not have a great amount of funds to invest - so I'm expecting to simply make very little profits, a few pounds above the commision. (I'm UK based btw)
> 
> My question is whether its best to use PairTrading with a CFD account or a Spread Betting account? Can someone more pro than myself give a few tips with respect to Pair trading using Spread bets / CFD's
> 
> Many thanks!




I would opt for a CFD account, however there's plenty of guys using it on spreadbetting accounts successfully. Most of us down here use CFD's, Americans aren't allowed by law to trade CFDs, so most of them are using IB or prop accounts, we are very lucky to be able to trade equities with leverage, this is still a new concept.

A couple of thousand pound a/c should be enough for your commissions to be within an acceptable % level of your gross profits. Ideally you don't want your commissions to be more than 30% of your gross profits, mine is around 8%, some think if you have a strong edge up to 70% of your gross profits can be spent on commissions, personally that's out of my comfort zone and I would feel sick how much dollars I would be making the broker.


----------



## tatankov

Pairs Trader said:


> I would opt for a CFD account, however there's plenty of guys using it on spreadbetting accounts successfully. Most of us down here use CFD's, Americans aren't allowed by law to trade CFDs, so most of them are using IB or prop accounts, we are very lucky to be able to trade equities with leverage, this is still a new concept.
> 
> A couple of thousand pound a/c should be enough for your commissions to be within an acceptable % level of your gross profits. Ideally you don't want your commissions to be more than 30% of your gross profits, mine is around 8%, some think if you have a strong edge up to 70% of your gross profits can be spent on commissions, personally that's out of my comfort zone and I would feel sick how much dollars I would be making the broker.




What broker would you suggest?
What is the average spread+comission on CFD's?


----------



## daCoops

Hi All,

Thanks for the advice guys with respect to the CFD vs Spread Betting. I've been taking a look at the various brokers and things, and think that I'm going to go ahead with CMC Markets and Spread Bettingoption to start out. It should be a good option, especially with an initial account of only about 1000.

I've checked, and minimum account is only £200, theres no commission on the trades, they require only aroun 3 - 5% margins for UK stocks, and the spreads seem tighter than IG Markets for example...

Will simply give it a go and see what happens - I'll try to post my pair trades but I'm not promising anything... (although will try to post some summaries once im on the go)


----------



## beamstas

daCoops said:


> It should be a good option, especially with an initial account of only about 1000.




You wont be just paddling upstream with this amt 
You'll be paddling up a waterfall, with no paddle!

I'd suggest looking at other methods with small capital

Pairs trading you can't really let profits run, you are taking small fast profits and paying 2x the brokerage

As opposed to longer term where you are only paying 1 lot of brokerage much less frequently

There will still be pairs trades next week.. next month.. next year.. next 10 yrs..


----------



## skc

daCoops said:


> Hi All,
> 
> Thanks for the advice guys with respect to the CFD vs Spread Betting. I've been taking a look at the various brokers and things, and think that I'm going to go ahead with CMC Markets and Spread Bettingoption to start out. It should be a good option, especially with an initial account of only about 1000.
> 
> I've checked, and minimum account is only £200, theres no commission on the trades, they require only aroun 3 - 5% margins for UK stocks, and the spreads seem tighter than IG Markets for example...
> 
> Will simply give it a go and see what happens - I'll try to post my pair trades but I'm not promising anything... (although will try to post some summaries once im on the go)




Couldn't help but to have a quick look at CMC Spread Betting website. No commission and 0.075% fixed spread on FTSE100 equities. That's actually not bad at all. The spread roughly equals commission in percentage terms, but works for a small account as they have no minimum charge.

Sure you can't profit big time with a grand, but you can learn a lot hopefully.

Good luck.

BTW - if you do post your trades, consider starting a new thread.


----------



## Pairs Trader

New trade 

Long LGL @ 3.23
Short SGX @ 6.03


----------



## akzidenz

@Pairs Trader, great thread, thank you for posting all this information, I enjoy keeping up with it.

You have posted your win/loss/scratch stats, but not number of trades open. Are you running any unrealised losses in there?

Also, as you've now been doing this journal for almost 3 months, would you have the time to prepare a summary of trading during that quarter, with slightly more info? I hope that doesn't sound onerous and doesn't need to be. I'm just very interested to know things like biggest/average/total: win/loss %; days in market; exposure; and anything else. 

Keep up the great work here, and I wish you profitable trading!


----------



## Truth

Pairs Trader,

Good Morning from Atlanta.  I have a question.  Is it reasonable for a trader to trade this method on an end of day basis, placing orders at night to be filled at the open?  Or, do they need to be placed intraday?


----------



## So_Cynical

Hey pairs

First time ive looked at this thread

Long LGL @ 3.23
Short SGX @ 6.03

As a long term Gold watcher and investor i can see where this combination 
comes from...also can see how the short could go very very wrong.

By backing 2 stocks arnt u doubling the risk...u need 2 directions to go your 
way...i find getting one stock to move my way hard enough.

GL


----------



## MRC & Co

So_Cynical said:


> By backing 2 stocks arnt u doubling the risk...u need 2 directions to go your
> way...i find getting one stock to move my way hard enough.




Yes, it is infact doubling the risk, but at the same time, 'hedging' it.  If that makes sense?  If the spread continues to blow out, you are going to take a beating on both sides of the equation, but it is market neutral at the very least, and Pairs uses a rolling mean and I think a 1 standard deviation exit at times, so at the very least, he has some form of exit strategy.

Pure mathematical correlations.


----------



## So_Cynical

MRC & Co said:


> Yes, it is infact doubling the risk, but at the same time, 'hedging' it.  If that makes sense?
> 
> Pure mathematical correlations.




There is a real casino - roulette element to that, the mathematics and hedging.

I suppose success is super dependent on the entry timing and stock selection.


----------



## Pairs Trader

akzidenz said:


> @Pairs Trader, great thread, thank you for posting all this information, I enjoy keeping up with it.
> 
> You have posted your win/loss/scratch stats, but not number of trades open. Are you running any unrealised losses in there?
> 
> Also, as you've now been doing this journal for almost 3 months, would you have the time to prepare a summary of trading during that quarter, with slightly more info? I hope that doesn't sound onerous and doesn't need to be. I'm just very interested to know things like biggest/average/total: win/loss %; days in market; exposure; and anything else.
> 
> Keep up the great work here, and I wish you profitable trading!




I only have 3 open positions and my index pair trade on AXJO vs N225 is slightly down. Im up 36% since starting this journal, includes both closed and open equity. My win rate is 91% and win:loss ratio is 1.31. Average trade length is several days. I usually only have 1-3 positions open at any given time. I trade very conservatively and keep overall portfolio risk and exposure levels very low.


----------



## Pairs Trader

Truth said:


> Pairs Trader,
> 
> Good Morning from Atlanta.  I have a question.  Is it reasonable for a trader to trade this method on an end of day basis, placing orders at night to be filled at the open?  Or, do they need to be placed intraday?




Yes many traders use it on an EOD basis, you just gotta make sure your orders filled the next day are still within reason for taking the trade. Its more than possible to take trades based on signals received yesterday, I do it all the time, a pair might have generated a signal yesterday and the pair continued to divergence from the mean allowing for a better entry.


----------



## Pairs Trader

So_Cynical said:


> Hey pairs
> 
> First time ive looked at this thread
> 
> Long LGL @ 3.23
> Short SGX @ 6.03
> 
> As a long term Gold watcher and investor i can see where this combination
> comes from...also can see how the short could go very very wrong.
> 
> By backing 2 stocks arnt u doubling the risk...u need 2 directions to go your
> way...i find getting one stock to move my way hard enough.
> 
> GL




I would be interested to hear how it could go very wrong. You may have a fundamental bias and thats fine, I am however trading the technicals looking for a quick snapback within a day or two, taking advantage of share price volatility, fundamentals only apply if your holding time is greater than a month imo. Pair trading isn't double the risk, its actually the opposite, because it negates market and sector risk and you are only betting on the relationship of two correlated shares, and typically you make more money on one side than you lose on the other, so you don't need 2 directions to go your way.


----------



## cooper1308

So_Cynical said:


> Hey pairs
> 
> First time ive looked at this thread
> 
> Long LGL @ 3.23
> Short SGX @ 6.03
> 
> As a long term Gold watcher and investor i can see where this combination
> comes from...also can see how the short could go very very wrong.
> 
> By backing 2 stocks arnt u doubling the risk...u need 2 directions to go your
> way...i find getting one stock to move my way hard enough.
> 
> GL




An outright long in my opinion would carry FAR more risk, both on a fundamental and trade pysche level...

You don't need 2 trades to go your way, infact this is very rare... Out of the 24 profitable trades tell me how many times have both positions moved in favour?? once, twice??

All that matters is one position more than offsets the other. And 90% of the time this will happen


----------



## Truth

Will a future version of PairTrade Finder have a direct connection to a broker or a partnership with say, NinjaTrader, so that it could do the following?:

1) When a pair from your list pops up, and you decide to trade them, you just click one button and the software would auto position size the pair and send the order to the broker.

2) When the pair got back to within 1 std dev (or whatever setting), an order is auto sent to broker to exit.


----------



## skc

So_Cynical said:


> There is a real casino - roulette element to that, the mathematics and hedging.
> 
> I suppose success is super dependent on the *entry timing and stock selection*.




How's this not the case for any other form of trading? 



Pairs Trader said:


> I would be interested to hear how it could go very wrong. You may have a fundamental bias and thats fine, I am however trading the technicals looking for a quick snapback within a day or two, taking advantage of share price volatility, fundamentals only apply if your holding time is greater than a month imo. Pair trading isn't double the risk, its actually the opposite, because it negates market and sector risk and you are only betting on the relationship of two correlated shares, and typically you make more money on one side than you lose on the other, so you don't need 2 directions to go your way.




The worst thing that can happen is probably if LGL launches a takeover bid for SGX. That would be a pair traders worst nightmare. But even that, say a 30% takeover premium with a 10% fall in LGL, you take a 40% hit to your positions. If you only risk 25% of your capital for any one trade, then that's a 10% hit to the capital. Bad but not catastrophic in the long run if you win rate is high enough. Some pair traders recommend avoid shorting the smaller stock to prevent this.

I tried to trade a gold pair on Friday as well - short SGX and long KCN. SGX jumped >5% in the morning, setting off all sort of signals against other gold sector stocks, whereas KCN hardly moved as all. So I opened the long side first, and have an order for the short ready to fire. I ended up closing the long after KCN caught up with SGX on an intraday basis, and never needed to open the short... I think this is called leaning on the long (or something like that).


----------



## Pairs Trader

Truth said:


> Will a future version of PairTrade Finder have a direct connection to a broker or a partnership with say, NinjaTrader, so that it could do the following?:
> 
> 1) When a pair from your list pops up, and you decide to trade them, you just click one button and the software would auto position size the pair and send the order to the broker.
> 
> 2) When the pair got back to within 1 std dev (or whatever setting), an order is auto sent to broker to exit.




Yes we will be having those capabilities in the near future.


----------



## Truth

Pairs Trader said:


> Yes we will be having those capabilities in the near future.




Excellent.


----------



## Truth

I'm checking out a current thread on EliteTrader by Jonnysharp, whose using your program, and there's a quote by "forsalenyc" that sort of bothers me:

_*" Johnny, as a fan of your thread, I want to ask you if you're convinced that Pairtrading is the way to go, or vice versa? I still pairtrade occasionally, but I try to keep it intraday. 

In one of the posts, you quoted that you're down so far using this strategy. well, when I actively pairtraded, I was 39-0. and when it became 39-2, it pretty much wiped out all my gains. I reckon its the case with you.......running the losing pairs. "*_

What's your opinion on this?  Is this just a case of someone using horrible position sizing judgement and putting too much of his account on one or two trades?  Or is this something that has a decent probability of occurring since stops are not used with this system.  I know there's not a whole lot of info there, but maybe you could still comment.

http://www.elitetrader.com/vb/showthread.php?threadid=134253&perpage=6&pagenumber=42


----------



## Pairs Trader

Yes that may have been that guys experience, and I can see how it can happen, by simply putting to much on your account in one trade, now what I would call a black swan event of one of your stocks opening 50% higher or lower than previous close if you only have 20% of your a/c in that stock your overall a/c would be down 10% which is well within acceptable drawdown levels and you can mitigate the chance of this occurring by not trading ''hot'' stocks like BNB was after **** hit the ceiling or not trading stocks just before earnings release or stock with pending news, like drug stocks awaiting government approval, stick to the well know, liquid big cap stocks and this chance of this occurring is very minimal, once again you can blowup your a/c using the most successful trading system in the world if you have the wrong risk management, anyone that does blow an a/c was over leveraged with concentrated exposure plain and simple.


----------



## Edward deVeres

Dear PT:

I've owned your software for the past month, during which I've papertraded avidly pairs of stocks in the US.  I've made a couple of bad choices in that time, which were a great learning experience, and cheaper than cash!  Every week that I've put off actually trading I find I've learned another bunch of lessons that make me thankful I'm waiting.

On the other hand, even with the 2 big losses, (I didn't pay enough attention to the charts) I'm ahead about 3% on 23 trades, with closed trades of 12, all with good profits, and (as usual) the open trades at much more of a loss--however, none of them are over 4 days old, so I'm hoping.

I've learned a huge amount from this Forum.  No other software developer has had the courage to trade his system in real time on the Net.  This puts you light-years ahead of almost all others.  It's a great sales tool as well as great teaching device.

A few questions, none to challenge you, but for understanding, as I've read this thread 3 times struggling to gain an insight into how you are able to read so much into these charts.

(1)  Since you started, you have changed the spread chart to the RSI Ratio chart & back to the spread chart, and I wondered if you are still tinkering with your own understanding of which 4 charts to put up?  Despite years of eyeballing such RSI charts, I admit I still can't make much of divergencies on the RSI chart--I find divergencies to be in the eye of the beholder...so any gain your experienced eye may behold may be due to your experience.  But, have you given up on the RSI chart in favor of the 50-say spread chart?   Also I notice that sometimes you seem to ignore the "fade-the-50-day" spread rule?  Any comment?

(2)  A few days/weeks ago, you changed the Plus-Minus Chart from 365 days to 150.  I initially put mine at 91 days and counted the movements from plus-minus 1.50 to gain a sense of how much oscillation the pair had and kept track of that.  Why did you change from 365 to 150?   Have  you now settled on 150, or is all this viewing and settings of the charts a work in progress?

(3)   At the same time, you changed the %-from-Mean chart from 365 to 150days.  Same comment and same question--are all these chart settings a work in progress?  I'm going to imitate your charts on my computer so I will be looking at the same view you have in an effort to gain the understanding you have.

(4)  Maybe because I'm new at this, but I'd love to see in PTF not one page of 4 charts, but 2 pages of 4 charts, so that I can FLIP from one set to another as I'm studying a pair.  I like about 6 of the 8 available charts, so I have to make an agonizing choice of what to leave out when I set up my software.

I've found that the NWS trades here in the States, and I'm hoping to trade it too.

I see you're preparing to be able to trade directly out of PTF in Ver. 3.0...I hope this will connect to Interactive Brokers here in the States, as they seem to be the best for pair trading.  A trader can obtain more margin from them with a balanced portfolio than from other brokers.  Without committing you to the event, when do you think Ver. 3.0 will be ready?  Weeks?  Months?

And lastly, a surprising request:  I think you should charge for updates.  The work you and your programmer have put into PTF is huge, that is evident, and exceptionally well-thought-out.  I for one am willing to pay more for the continued development of the product.  I'd hate for you to find that you let the development of the program languish for lack of purchasers' dollars.  I think the program is worth several thousand dollars--although I'll grant it is hard to sell that to traders right now.  For reasons that escape me, the average trader is obsessed with directionality.  However, if you continue to improve it, in time it will become a tremendous success.  That might mean that its value will diminish (paradoxically) as more people use it, but on the other hand, there are so many thousands of pairs world-wide that that's unlikely.

Lastly, you might think about 2 versions: a PTF Light, and a PTF Pro.  Those who want to try the product could buy in at $500, and those who want the advanced features, pay quite a bit more.  Perhaps the Light version would only do 50 pairs in the Console, and only 4 charts, whereas the Pro version would be unlimited, with 2 pages of 4 charts each.   The new Port. Manager might only carry 10 pairs, while the Pro version could be unlimited.  I suppose there could be several other differences, but I can't think of them just now.

Many thanks again,

Yours, Edward deVeres.


----------



## Pairs Trader

Yes some consider it a risk making real time trades in front of everyone because it might not work, or I may hit a losing streak, or plain doesn't work, however I have a high level of conviction in the software, plus with my experience I wasn't worried at all starting this journal and full confidence in being profitable and crushing the market averages, it is quite doable contrary to popular belief, people forget that the benchmark ASX200 index that so many people ''invest'' in is a trading system in itself, comprised of a market weighting mechanism of blue chips, rotating into and out of stocks with the index adds/deletes, and its long only, without a stop loss or profit target, who says this is the best trading system or the best way to invest? look at the drawdown's such a system gives, where is the competitive edge if everyone is doing it? who says you can't do better in terms of return and drawdown than the ASX200 trading system?

This is how I filter my trade signals, first I have an optimal universe of pairs on my radar from backtesting, a have diverse lists of pairs from all reaches of the trading world, I only post my ASX and index pair trades here.

Then I have audio alerts for entry and exit signals enabled, when I get a alert the first thing I look at is the pairs correlation, I want it to be above 70%, then I analyse the pair, I want to see a non-trending ratio chart that displays a regular oscillating pattern in that the pair diverges and converges in a repeating pattern, then I what to see the % from the mean in the top quarter of its historical extreme, so if I pair regularly diverts from its mean around 5%, I would be reluctant to take a signal at 2%, I may wait for it to diverge more if it does at all, then Il do the same thing with the +/- chart but less strict, ideally the more extreme the +/- the better especially if there is no price sensitive news just been released that could explain it, for eg....if you had a pair with a 3stdev divergence on no news released, that is an anomaly and should be exploited. Then finally I like to fade the 50day spread chart, if I have a signal too go long the cheap share and short the expensive share, Its a bearish spread signal, we are betting the spread between the two stocks is going to decrease, in this scenario I want to see the 50 day spread chart at new 50day highs or near abouts, vice versa if we are bullish the spread. If a signal passes these tests, about 1 in 5 do for me, takes me about 30 seconds or less to determine if il take the trade or not, all thats left is to execute the trade.

Once you get a thorough understanding of pair trading and why it works these filters will come naturally, Im not saying my filters are the best or there is even a best set of filters, pair trading(or trading in general) is part science, part art, there are no hard and fast rules. 

Thanks for the kind words and feedback, its refreshing to hear a client that's willing to pay more for the product, you obviously know the value of quality, we have spent 1000s of hours to arrive where we are at now, in terms of design, structure, framework, feasibility studies, programming, testing, re-design, more testing, debugging, adapting, documentation, support and implementation, and we have a combined 26 years of programming/trading experience, its been no small feat and I can assure you we have some more big developments in the pipeline. All the features have been built based on client feedback/requests and quite a few clients have co-sponsored the cost of developing those features. Its always a work in progress of continual improvement.


----------



## skyQuake

Hi Pairstrader, with regards to a trade, how would you take into account technicals and overall trend? For example SGX has formed a nice breakout at the 5.70s while LGL is chopping around.


----------



## Pairs Trader

I don't look at the tech/a of individual stocks when analysing a pair, plus you say there was a breakout of SGX, well if you program that breakout and try and see if there is any predictable pattern after that breakout that would influence your decision in taking a trade you would find out that price breakouts have absolutely no statistical predictive measures in forecasting price, doesn't mean you can't profit from breakouts(you can marginally with the right setup), just means that because a price breaks a 20, 50, 100 day high/low doesn't mean price will follow through on subsequent days, actually the opposite is more true, when I traded directionally I use to fade price breakouts on an intra-day scale. 

The largest profit potential is when the largest amount of people are wrong, you can't make money by following what everyone else is doing, it amazes me how many people trade breakouts or think that is the way to profitably trade, now we can argue all day long about this or we can look at the facts, I don't know of any hedge funds that trade breakouts, I know of thousands that successfully use arbitrage, actually the last most popular breakout trader was richard dennis, the guy who incubated the turtle traders group, Richards hedge fund blewup about 7 years ago, and he claimed ''markets had changed, information was being disseminated and priced in quicker, making trend following obsolete'' in other words he said ''the market changed and I didn't adapt in time''

Tech/a on individual stocks is good for determining trend, support, resistance, chart patterns, which can be used to give a loose forecast of a trading range, likely direction, etc....however it doesn't mean you can profitably trade using it though....largely because by the time you recognize the formation or setup, the attractive risk/reward profile has been sucked out of the equation, take for example the ''hammer'' formation on a candlestick chart, now its does have some predictive characteristics with other filters, however its not a profitable trading system, if you enter right at the close when the hammer formation will be shown on the daily chart, if you could enter in the bottom 10% of the hammer formation, i.e....near the low for the day, the system becomes profitable, however when the stock was at the low during the day, the hammer formation was unknown.

judging by the 100'000s of views on the numerous breakout threads around here, id imagine I would have stirred quite a few cups of tea out there by saying breakouts and tech/a is close to a load of crap and thats fine, its no co-incidence 90% of traders lose and 90% of traders only buy stocks, and most of them use ''breakouts'', well pro's buy and short stocks, the biggest hedge fund in the world is based on the pair trading concept and I can assure you all no successful hedge funds out there are trading ''hammers'' on the candlestick chart, lol 

p.s. this isn't a stab at you, skyquake, more just stating my general opinion to the many subscribers of this journal.


----------



## skyQuake

Pairs Trader said:


> The largest profit potential is when the largest amount of people are wrong, you can't make money by following what everyone else is doing, it amazes me how many people trade breakouts or think that is the way to profitably trade




Agree *so much* with you there. 

No offence taken, I traded SPI and my fave play is false brks... But disagree slightly with you on Brkout trades. Sometimes the break is legit and it can run really hard with spec money jumping in, esp in market conditions where there is a lot of spec money sloshing around. 

Cheers


----------



## Truth

You, as well as, other pair traders have said you like to see a "non-trending ratio chart".  I don't think I'm understanding this correctly.  Your QAN/MAP ratio chart on pg. 3, appears to be trending up.  I suppose it's ok for oscillation as a whole to be trending up or down, as long as the ratio continues to cross the mean, back and forth?  Is this right?

https://www.aussiestockforums.com/forums/showthread.php?t=14508&page=3


----------



## So_Cynical

So_Cynical said:


> Long LGL @ 3.23
> Short SGX @ 6.03
> 
> As a long term Gold watcher and investor i can see where this combination
> comes from...also can see how the short could go very very wrong.






skyQuake said:


> For example SGX has formed a nice breakout at the 5.70s




Noticed that too.




So_Cynical said:


> There is a real casino - roulette element to that, the mathematics and hedging.
> 
> I suppose success is super dependent on the entry timing and stock selection.






skc said:


> How's this not the case for any other form of trading?




The hedging is something ive never seen in trading before this thread...very common in 
Roulette systems, still the bottom line is u have to get it right "the punt" with any multiple 
punt system there are degrees of winning.

Pairs trading would appear to be no different...its like having a punt on Red and evens on 
a roulette table....there's low chance of winning both bets, even money to win one and get 
your money back, and low chance to lose both...especially if u hedge with a small punt on 0 
and perhaps a small (large square) or column bet.


----------



## cooper1308

I don't get it 

Talking breakouts is irrelavent when these trades are based on quantative measures?

I mean, if you tell me "Double bottom on XYZ" and I come back with something fundamental such as " XYZ's Tobins Q Ratio is out of whack relative to peers" what would you say? Assuming you are profitable you wouldn't really care, you have your system and I have mine.

It's two completley different forms of analysis

Roullete analogy isn't the greatest either as you still have a negative expectation if you bet a colour and 0 




So_Cynical said:


> Noticed that too.
> 
> 
> 
> The hedging is something ive never seen in trading before this thread...very common in
> Roulette systems, still the bottom line is u have to get it right "the punt" with any multiple
> punt system there are degrees of winning.
> 
> Pairs trading would appear to be no different...its like having a punt on Red and evens on
> a roulette table....there's low chance of winning both bets, even money to win one and get
> your money back, and low chance to lose both...especially if u hedge with a small punt on 0
> and perhaps a small (large square) or column bet.


----------



## tatankov

PairsTrader,

Many thanks for your valuable contribution.
I still have some questions and doubts (regarding different time-frames) I should be able to understand after some practicing.

Since you have been a such a nice person I would like to hear some recommendations regarding the following:

* How often do you add/remove stocks to your "optimal universe of pairs" ?
* How many stocks do you have on your universe of pairs?
* Besides ASX and USA, what other stock markets do you recommend?
* Do you use layers on your trading? Do you recommend average down on losing positions?
* How much do you allocate in each pair? 5% ? 10 % ?
* How important is to you, RSI overbough/oversold levels?

Many thanks!


----------



## Pairs Trader

Truth said:


> You, as well as, other pair traders have said you like to see a "non-trending ratio chart".  I don't think I'm understanding this correctly.  Your QAN/MAP ratio chart on pg. 3, appears to be trending up.  I suppose it's ok for oscillation as a whole to be trending up or down, as long as the ratio continues to cross the mean, back and forth?  Is this right?
> 
> https://www.aussiestockforums.com/forums/showthread.php?t=14508&page=3




You could say its slighty uptrending, once again its up to the trader to identify a good ratio chart, its really not that hard, and at the end of the day the system is still profitable with un-filtered trades.


----------



## Pairs Trader

tatankov said:


> * How often do you add/remove stocks to your "optimal universe of pairs" ?
> * How many stocks do you have on your universe of pairs?
> * Besides ASX and USA, what other stock markets do you recommend?
> * Do you use layers on your trading? Do you recommend average down on losing positions?
> * How much do you allocate in each pair? 5% ? 10 % ?
> * How important is to you, RSI overbough/oversold levels?
> 
> Many thanks!




I do a complete delete/backtest/add new pairs about every 2 months, I have about 200 pairs on my radar, LSE and TSX are good exchanges to trade on, yes some trades I layer, not in this journal though, layering is for more experienced pair traders, I allocate between 20-40% per trade, RSI divergences are good, not so much overbought/oversold levels.


----------



## MRC & Co

Pairs Trader said:


> by saying tech/a is close to a load of crap and thats fine, its no co-incidence 90% of traders lose
> 
> well pro's buy and short stocks, the biggest hedge fund in the world is based on the pair trading concept and I can assure you all no successful hedge funds out there are trading ''hammers'' on the candlestick chart, lol




Love the thread and your idea Pairs.

But I have to disagree, some of the richest traders in the world, don't use a pairs trading concept, nor do some of the best performing Hedge Funds.

Let's look at some of the best known (and wealthiest) traders:  Paul Tudor Jones 2, uses t/a.

Stanley Druckenmiller and George Soros are two great traders, with billions to their names and aren't statarb, but global macro and Druckenmiller uses t/a himself.  

Then you have Victor Niederhoffer, who is/was one of the leading experts on the subject of statarb from what I am aware, with a fund of which blew itself up.

I wouldn't keep referring to 'the pros' as those who spread trade.  It is just one form of many methods which can see significant profits and similar risks IMO.

Agree on break-out trading though, most of the time.


----------



## Pairs Trader

Closed trade

Sold AXJO @ 3952 (2.33% profit)
Covered N225 @ 9732 (4.21% loss)

20 wins
1 scratch
2 losses


----------



## Pairs Trader

MRC & Co said:


> Love the thread and your idea Pairs.
> 
> But I have to disagree, some of the richest traders in the world, don't use a pairs trading concept, nor do some of the best performing Hedge Funds.
> 
> Let's look at some of the best known (and wealthiest) traders:  Paul Tudor Jones 2, uses t/a.
> 
> Stanley Druckenmiller and George Soros are two great traders, with billions to their names and aren't statarb, but global macro and Druckenmiller uses t/a himself.
> 
> Then you have Victor Niederhoffer, who is/was one of the leading experts on the subject of statarb from what I am aware, with a fund of which blew itself up.
> 
> I wouldn't keep referring to 'the pros' as those who spread trade.  It is just one form of many methods which can see significant profits and similar risks IMO.
> 
> Agree on break-out trading though, most of the time.




Im not saying every successful trader uses pair trading, just the majority of them use a variation of it. Yes some of those big time traders use tech/a but not in the sense that is portrayed in tech/a books or how most retail traders use tech/a.


----------



## awg

Pairs Trader said:


> Closed trade
> 
> Sold AXJO @ 3952 (2.33% profit)
> Covered N225 @ 9732 (4.21% loss)
> 
> 20 wins
> 1 scratch
> 2 losses




what are yr criteria to exit a losing trade?


----------



## Pairs Trader

the same for a profitable trade, when the pair comes back(or near enough) to its mean.


----------



## Pairs Trader

New trade, first trade in financial's in a long time

Long NAB @ 22.12
Short ANZ @ 16.68


----------



## skc

Pairs Trader said:


> New trade, first trade in financial's in a long time
> 
> Long NAB @ 22.12
> Short ANZ @ 16.68




NAB going ex-div today probably contributed a lot to the signal?


----------



## Pairs Trader

yes it did, however its still oversold relative to the sector taking into a/c the 73c dividend.


----------



## Pairs Trader

New trade

Long UGL @ 10.11
Short MND @ 11.18


----------



## megadave

Hi Pairtrader!

I wanted to thank you for sharing your great ideas and approach.
There is still some questions i would like to ask you.

Does the Sell Ratio - Buy Ratio give you your profit (% change) of your whole position?
How do you calculate your p&l by only using your ratio entry and exit?

Can you explain to me what a RSI divergence is. I still don ´t get it.

Why is a spread price at a low or high a signal? Doesnt it mean the price is trending and by doing new high or lows - this should be a bad sign?
If a ratio is at a new high or low this would definetly be not good!

I found out that there is not so much high correlating stocks in australia. There is nearly noone correlating more than 90%. So this is quite a tough market it seems.

Will there be a way in the future of screening for non trending ratios. This would simplify the backtesting. I mean by filtering out strong trends or pairs that are still in a trading range, this could really save some time.

Will there be a tool to track positions better in the future?

Will you add on something for IG markets to trade directly out of pairtrade-finder?

Is it possible to filter for both correlations above 85% and other indicators (%mean, std, etc.)

Thanks you

Megadave


----------



## Pairs Trader

Exited trade

Sold LGL @ 3.22(0.31% loss)
Covered SGX @ 6.40 (6.13% loss)


----------



## Pairs Trader

Megadave,

I calculate PnL by the % difference between the exit price and entry price, don't use the ratio at all. A RSI divergence is where the RSI is moving in one direction and the ratio is moving in another, you want to trade in the same direction of the RSI. Ideally you want to fade new highs/lows on the spread chart as most of the time it will move back into its normal range. I have quite a few ASX pairs above 90% correlation. Yes we are constantly improving the software and filters are something we are going to incorporate soon. Yes we are working on an API connection and a front end direct to a broker.


----------



## megadave

Hi!

Does pairtradefinder reload all the stocks after every new start?
IT takes quite a lot of time.
Is there a way to not do that?

Thanks
Megadave


----------



## megadave

hi i looked into 2 trades
could you do your analysis on it?

BBV and STD in us (long bbv short STD)

and AMTD short SWIM LONG

both highly correlated 


thanks

megadave


----------



## Pairs Trader

Closed 2 trades this morning

Sold MLB @ 1.80 (12.22% loss)
Covered IRE @ 6.48 (2.00% profit)

Sold UGL @ 10.25 (1.38% profit)
Covered MND @ 10.81 (3.42% profit)

21 Wins
4 Losses
1 Scratch


----------



## Pairs Trader

megadave said:


> hi i looked into 2 trades
> could you do your analysis on it?
> 
> BBV and STD in us (long bbv short STD)
> 
> and AMTD short SWIM LONG
> 
> both highly correlated




Nice pairs you found there, yes they both look fine trade candidates to me, remember though its not trade by trade results, rather your collective results after a number of trades, if you keep taking trades like these you will show results.

PTF only fetches the latest data or data up until the last data saved into the program in each start, it shouldn't take too long to load, but thats subjective on how many pairs you have in the console, your computer RAM, processor, internet speed and how many other programs you have open, I usually open my program and let it update for 5mins before I do anything, since its crunching enormous amounts of data.


----------



## Pairs Trader

New trade

Long UGL @ 10.18
Short MND @ 11.75


----------



## skc

Hey PT, Long HVN Short DJS is showing up on my program as a signal. 

To me it looks good, with the exception that DJS/HVN has been tradning up strongly so we are looking for a move against the trend. So I've entered the trade, although it is slightly against me at the moment.

I know you've trade this pair before. Have you made a concious decision not to trade the signal this time? If so, would like to hear your thinking.


----------



## Pairs Trader

Yes Ive been watching that pair over the last several sessions, was considering opening a position in it today, however I found myself pondering over it too long, and my rule is ''if in doubt, stay out'' and for several reasons im staying aside on this one, the % from the mean isn't near historical extremes, especially in the previous sessions when it first triggered, its getting closer to it today, not too far off, and I don't like the look of the ratio chart, breaking out to new highs and trending upwards, looks like blue sky ahead, the +/- is fine and spread chart is fine, however the ratio chart is what im primary concerned with and It doesn't tickle my fancy, although all that being said it may snap back to the mean tomorrow or soon enough, nothing wrong with trading it, the system is still extremely profitable without applying filters, I just try to improve on the system by filtering the signals, although plenty of guys will take all signals regardless and that's fine.

p.s. did you see my short position in MND I put on today? closed down 5.57% from my entry price! trade moved in my favor straight away, should be good to take off the table tomorrow for very nice profits.


----------



## megadave

THanks Pairstrader!

Could you name your favourite index pairs please.

s&p and qqqq, do you ever trade this?

thanks


----------



## megadave

FRO / TNP

would you short the spread right now?
pretty strong right now


thanks pairstrader


----------



## skc

Pairs Trader said:


> Yes Ive been watching that pair over the last several sessions, was considering opening a position in it today, however I found myself pondering over it too long, and my rule is ''if in doubt, stay out'' and for several reasons im staying aside on this one, the % from the mean isn't near historical extremes, especially in the previous sessions when it first triggered, its getting closer to it today, not too far off, and I don't like the look of the ratio chart, breaking out to new highs and trending upwards, looks like blue sky ahead, the +/- is fine and spread chart is fine, however the ratio chart is what im primary concerned with and It doesn't tickle my fancy, although all that being said it may snap back to the mean tomorrow or soon enough, nothing wrong with trading it, the system is still extremely profitable without applying filters, I just try to improve on the system by filtering the signals, although plenty of guys will take all signals regardless and that's fine.
> 
> p.s. did you see my short position in MND I put on today? closed down 5.57% from my entry price! trade moved in my favor straight away, should be good to take off the table tomorrow for very nice profits.




Thanks for the comment on HVN/DJS pair. Fundamentally I don't understand why DJS and JBH both went up 5-6% on the consumer figure, while HVN only managed ~2%. Anyway, will see how this trade turn out.

Nice job on the MND. I got the signal but didn't get in. Already have 4 pairs (inlcuding the one above) so don't really feel like having more than that open. Was going to just lean on a long DOW or UGL, as the market was looking very strong, but that wouldn't have worked terribly well.

The Trigger tab in the latest version of PTF is a great improvement so well done to your team.


----------



## cooper1308

Hi Pairs, 

Just a couple of thoughts.

Firstly. I picked this up from another forum:

"I've noticed that whether or not you get a signal depends in part on which item is on the left and which is on the right. My sense is that the instrument with the higher price should be on the left. (It appears to me that ratios and SDs are worked out to 2 decimal places; dividing the higher number (on the left) by the lower number (on the right) gives more significant digits to work with. eg: if RDSB is at 1562 and BP is at 461, then RDSB / BP = 3.39, but BP / RDSB = 0.30; a 15p rise in BP's share price gives ratios of 3.28 vs 0.30 respectively - a significant change in one case vs no change in the other case.)"

What are your thoughts?

Secondly, I have noticed that you sometimes enter trades that have trending ratios (UGL/MND). I understand it is taboo to trade trending ratio's, however:

Assuming PTF tells me to long (or short) a ratio due it being below (or above) the rolling mean.....is it fine to long a ratio that is trending up (or short a ratio that is trending down)? From what I see you are trading a reversion to the mean, however, If that fails you are getting the added backup in that the trend of the ratio must also change. 

So, for the trade to lose money (a) mean will revert at a loss (as with any normal pair trade) but also (b) the ratio trend must change. 2 things need to move against you as opposed to one. 

For example I went long the below ratio on this basis:


----------



## Pairs Trader

Closed trade for small profits

Sold NAB @ 22.29 (0.76% profit)
Covered ANZ @ 16.68 (break-even)


----------



## Pairs Trader

megadave said:


> FRO / TNP
> 
> would you short the spread right now?
> pretty strong right now
> 
> 
> thanks pairstrader




Yes looks fine to me. Keep position size small relative to your a/c size.


----------



## Pairs Trader

cooper, in the signal formula's we use 4 decimals to mitigate that issue you describe, plus we advise you pair trade stocks with similar prices, i.e...don't pair a $100 stock with a $1 stock. Yes normally you don't want to trade trending ratio charts, you could trade in the direction of trending ratio, not my cup of tea as trend reversals can be sharp. Your trade looks fine to me.


----------



## cooper1308

Pairs Trader said:


> we advise you pair trade stocks with similar prices, i.e...don't pair a $100 stock with a $1 stock




What is the theory behind this? 

Not doubting it at all..... But if we have a stock with market cap of 5b trading at $1, another at $100, then theoretically one shouldn't outpace the other purley because of stock price?


----------



## Pairs Trader

Well for eg.. if a $1 stock trades up 1c, that is a 1% price change, whereas a $1 movement would be required for a $100 stock to move 1%, backtesting shows similar priced stocks perform better aswell. Ideally you want the 2 stocks in the pair to be as similar as possible.

Exited trade for profits

Sold UGL @ 10.43 (2.45% profit)
Covered MND @ 11.56 (1.64% profit)


----------



## Pairs Trader

New trade

Long STO @ 14.99
Short OSH @ 6.03


----------



## Aurum

I've got the trial version of the software. I have now got it to show the pair you have just traded but my version shows completely different entry exit points.

How do I set it up so it is the same as yours so I can try and figure out why you are entering these trades?

Note also that I don't have a trigger button.

Aurum.


----------



## NAT88S

Hey Pairs Trader,

I have been reading your thread with interest.

I just had a thought though, what if you were to compare a stock to the index?

Find a stock which correlates strongly with the index and maybe even has a beta close to 1?

I guess the index could be the ASX200, but maybe it would be better to use the industry specific index. Therefore, instead of pairing 1 stock with another, you would be pairing 1 stock against the performance of a range of stocks in a similar industry.

Obviously you would just trade the 1 stock though.

I am assuming the software would be able to do this the same way as any other pair.

This is untested and I don't have your software, just me thinking out loud.


----------



## Trembling Hand

NAT88S said:


> Obviously you would just trade the 1 stock though.




How is that pairs trading then?


----------



## NAT88S

Um, the other pair would be the index.

If you want you can call it pairs analysis.

You could take the opposite position with the index, but I dont think it would be very successful.


----------



## beamstas

NAT88S said:


> Um, the other pair would be the index.
> 
> If you want you can call it pairs analysis.
> 
> You could take the opposite position with the index, but I dont think it would be very successful.




OR you could Buy/Sell Futures contracts of the given index?
BUT you'd have to have alot of capital

Becuase to be dollar neutral you'd have to buy/short apporx $100,000 worth of shares for each contract.


Brad


----------



## NAT88S

Yeah true, but I guess a better way to pair against the ASX200 index would probably be to buy/sell the ETF: STW.

However, I've had a look around for industry specific ETF's or similar to replicate the performance of individual industries but I cant find any.

The reason I was saying it would probably be better to just trade the stock is because the stock should move with the index. But, if a stock is for some reason out of sync with the index chances are the stock will move to close its gap with the index. The index won't be moving to close the gap with an individual stock.


----------



## Trembling Hand

NAT88S said:


> The reason I was saying it would probably be better to just trade the stock is because the stock should move with the index. But, if a stock is for some reason out of sync with the index chances are the stock will move to close its gap with the index. *The index won't be moving to close the gap with an individual stock*.




Thats what I thought you were getting at with my last comment.

And its very wrong.


----------



## skc

NAT88S said:


> Yeah true, but I guess a better way to pair against the ASX200 index would probably be to buy/sell the ETF: STW.
> 
> However, I've had a look around for industry specific ETF's or similar to replicate the performance of individual industries but I cant find any.
> 
> The reason I was saying it would probably be better to just trade the stock is because the stock should move with the index. But, if a stock is for some reason out of sync with the index chances are the stock will move to close its gap with the index. The index won't be moving to close the gap with an individual stock.




There are other ETF like SLF for REITs plus some of the friendly CFD providers off sector index products. 

One thing to watch with this is because the stock is inevitably contained in the index, you will always lose a little bit on the spread for the component in the index. E.g. Pairing SLF with WDC would be somewhat pointless as Westfield makes up ~half of SLF. Same with Big 4 in the banking sector (probably ~20-22% each).


----------



## Pairs Trader

New trade

Long TSE @ 2.67
Short UGL @ 10.75


----------



## skc

Pairs Trader said:


> New trade
> 
> Long TSE @ 2.67
> Short UGL @ 10.75




I can't short UGL with my IG account. Which provider are you using for the short leg?


----------



## Pairs Trader

Yes I noticed that aswell, had to use my CMC a/c to short it.


----------



## Pairs Trader

Closed trade for profits

Sold STO @ 15.03 (0.26% profit)
Covered OSH @ 5.83 (3.43% profit)

24 Wins
1 scratch
4 losses


----------



## Pairs Trader

New trade

Long PPT @ 28.79
Short AMP @ 5.15


----------



## Aurum

Well, I'm getting a little frustrated with pair trading. I asked a question a few posts back that has been ignored. I joined the pair trade forum 4 days ago and am still awaiting the confirmation email but have received 3 promotional emails in the same time. This is not a good start.

Aurum.


----------



## Pairs Trader

Aurum, I have sent you a private message.


----------



## Pairs Trader

Closed trade this afternoon for nice profits

Sold TSE @ 2.65 (0.75% loss)
Covered UGL @ 9.81 (9.85% profit)


----------



## Sir Burr

Aurum said:


> 3 promotional emails in the same time




Well, when there's only 30 Copies Left - once there gone, there gone!

:sheep:


----------



## rainylake

The 6/15 post shows PPT @ 28.79 and AMP @ 5.15.  It looks to me like the prices are reversed.  Shouldn't Amp be priced at 28.79 and visa versa?  Or is my Dyslexia coming back.


----------



## skc

rainylake said:


> The 6/15 post shows PPT @ 28.79 and AMP @ 5.15.  It looks to me like the prices are reversed.  Shouldn't Amp be priced at 28.79 and visa versa?  Or is my Dyslexia coming back.




Make sure you are looking at the right exchange! PPT and AMP are aussie ASX stocks I'd imagine.

Or take ur medication


----------



## cooper1308

Pairs Trader said:


> New trade
> 
> Long PPT @ 28.79
> Short AMP @ 5.15




Hi Pairs,

Nice trade thus far.

When I look at the ratio chart it seem very close to it's mean and no where near all time highs or lows. I know that isn't the only indicator you use but in the past I have been auto-disqualifying charts that look like that...can you explain what im doing wrong with this?

Also how are you tracking the volality of the pair with no vol chart?

Cheers


----------



## Pairs Trader

rainylake said:


> The 6/15 post shows PPT @ 28.79 and AMP @ 5.15.  It looks to me like the prices are reversed.  Shouldn't Amp be priced at 28.79 and visa versa?  Or is my Dyslexia coming back.




Yes your looking at the NYSE codes.


----------



## Pairs Trader

cooper1308 said:


> Hi Pairs,
> 
> Nice trade thus far.
> 
> When I look at the ratio chart it seem very close to it's mean and no where near all time highs or lows. I know that isn't the only indicator you use but in the past I have been auto-disqualifying charts that look like that...can you explain what im doing wrong with this?
> 
> Also how are you tracking the volality of the pair with no vol chart?
> 
> Cheers




Yes I see what you mean, your viewing the charts correctly, however I like this pair, typically AMP has been a good stock to pair trade, hence the reason for taking the trade, don't concern yourself too much with this, the system is still highly profitable un-filtered. I look at volatility in the console, I don't analyze the volatility chart, just more of a reference.


----------



## cooper1308

No worries.....

How can I do a quick estimation for profit....when looking at the ratio chart?

Assume i'm trading 10k per side

For example.. The mean is 1.8, and the ratio currently at 1.5.

If the mean were to revert instantly would I be in profit .3/1.8*20 000 ??





Pairs Trader said:


> Yes I see what you mean, your viewing the charts correctly, however I like this pair, typically AMP has been a good stock to pair trade, hence the reason for taking the trade, don't concern yourself too much with this, the system is still highly profitable un-filtered. I look at volatility in the console, I don't analyze the volatility chart, just more of a reference.


----------



## cooper1308

cooper1308 said:


> No worries.....
> 
> How can I do a quick estimation for profit....when looking at the ratio chart?
> 
> Assume i'm trading 10k per side
> 
> For example.. The mean is 1.8, and the ratio currently at 1.5.
> 
> If the mean were to revert instantly would I be in profit .3/1.8*20 000 ??




Sorry it should read .3/*1.5**20000

??


----------



## Pairs Trader

It would be 1.8 / 1.5 = 1.2 which is 20% gain in the ratio which would be a 10% gain on funds invested since we have both a long and short.

Closed trade for profits

Sold PPT @ 29.48 (2.39% profit)
Covered AMP @ 5.07 (1.57% profit)


----------



## cooper1308

Cheers.... Our formula's are actually the same if I multiply by half my position instead of whole (10k instead of 20k)



Pairs Trader said:


> It would be 1.8 / 1.5 = 1.2 which is 20% gain in the ratio which would be a 10% gain on funds invested since we have both a long and short.
> 
> Closed trade for profits
> 
> Sold PPT @ 29.48 (2.39% profit)
> Covered AMP @ 5.07 (1.57% profit)


----------



## retroaugogo

Been following your trades with interest.

I generally follow the major trend with a basket of stocks but in a sideways market have found it difficult to make money.If I can get pairs trading to make money at these times it would be ideal. 

Downloaded the software and have tried to join your forum but it's been days and my membership is still not confimed??


----------



## Pairs Trader

If your username is retro, Ive just confirmed it, apologies, we have been getting swamped with spam, so new members require admin approval.


----------



## Pairs Trader

New trade

Long GNS @ 0.875
Short ABC @ 2.26


----------



## keroppi

Have you ever done tests on stop losses?  It seems that some trades end up with big losses so having a stop loss in place would limit that.

Also, when will PTF v3 be released?  I am looking forward to doing some backtests on the exit criteria.


----------



## Pairs Trader

Yes using a 10 day time stop can improve performance and prevent large losses. PM me if you want the latest update, custom exits, improved backtesting, email/twitter alerts.

Just closed a very nice trade

Sold GNS @ 1.02 (11.65% profit)
Covered ABC @ 2.31 (2.21% loss)


----------



## Pairs Trader

Happy new financial year everyone, may we all make more money than last year!

New trade

Long EQN @ 2.70
Short OMH @ 1.38


----------



## beerwm

dont take this the wrong way,

but why are you selling a system which is apparently so successful.


----------



## Trembling Hand

beerwm said:


> dont take this the wrong way,
> 
> but why are you selling a system which is apparently so successful.




The lack of business sense of people on a stock forum never ceases to astound. 

:bunny:


----------



## beerwm

Trembling Hand said:


> The lack of business sense of people on a stock forum never ceases to astound.
> 
> :bunny:




what?


----------



## skc

beerwm said:


> dont take this the wrong way,
> 
> but why are you selling a system which is apparently so successful.




There are few reasons why you wouldn't want to sell a successful system.

1. By selling the system and having lots of people following it, your system loses its effectiveness or edge. This is not the case with Pairs Trader. It is not actually a system, but a calculation tool with alerts set to YOUR system.

2. You have made so much money that you couldn't be bothered exploiting the other assets of your business - i.e. the software program.

There are always risks with trading, pairs trading included. It's a no brainer to supplement that with a low risk software vending business at very low incremental cost.


----------



## Pairs Trader

beerwm said:


> dont take this the wrong way,
> 
> but why are you selling a system which is apparently so successful.




Valid question. There are many reasons why I do this. Firstly im targeting a niche in the trading services industry, providing something that actually works, this separates me from 99% of the garbage out there and selling it doesn't harm my trading in the slightest, it actually improves it, ive built a community of pair traders some new, some experienced and just about all of the enhancements/features have been based on client feedback, suggestions and requests and ive learnt an aweful lot from other people using it. Its also helped build my contact list and meet alot of new people, I talk to hedge funds, stock brokers, prop traders & industry professionals on a daily basis, so when I launch my own hedge fund I will have no shortage of potential clients. Plus no 2 traders will make exactly the same trades over a period of time and the system is highly customizable so there isn't everyone trading on exactly the same stock at exactly the same price and hedge funds use this strategy with billions of dollars and it still works, this is because there is more money floating around that causes these divergences than money looking to arb them away. Institutional buying/selling pressure according to their shopping lists causes these moves and we come in and provide liquidity and aide in price discovery based on the theory of relative value. Also successful trading is a bit boring and lonely, I like to have interaction with other traders and I get a real kick out of helping other people, Ive had guys tell me they payed for the program within an hour of purchasing, this gives me immense satisfaction.


----------



## Pairs Trader

New trade

Long SGX @ 4.90
Short NCM @ 31.27


----------



## Pairs Trader

New trade

Long STO @ 13.34
Short OSH @ 5.33


----------



## bochman

PT: 

SGX & NCM looks good now, may be time to close out?


----------



## Pairs Trader

Yes bochman, Im all over it like a rash, thanks for watching out.

Sold SGX @ 4.92 (0.40% profit)
Covered NCM @ 29.52 (5.92% profit)


----------



## Pairs Trader

New trade

Long WOR @ 21.59
Short WES @ 23.04


----------



## Pairs Trader

New trade

Long ANN @ 8.18
Short AMC @ 5.02


----------



## samgribbles

Pairs Trader:  top thread.  I've just joined the forum to keep tabs on this thread and will be checking out your software.

Posters:  a basic record of PT's record on this forum attached. 
- avg trade return 3.8% (gross)
- cumulative return 126%
- over 33 closed trades
- max loss 9% (or 90% if using CFDs on 10% margin)

I think the numbers show that the approach can work over the LT.


----------



## skc

samgribbles said:


> Pairs Trader:  top thread.  I've just joined the forum to keep tabs on this thread and will be checking out your software.
> 
> Posters:  a basic record of PT's record on this forum attached.
> - avg trade return 3.8% (gross)
> - cumulative return 126%
> - over 33 closed trades
> - max loss 9% (or 90% if using CFDs on 10% margin)
> 
> I think the numbers show that the approach can work over the LT.




The return calculations you have stated are no strictly correct. It depends on his position size relative to total capital.

Suppose PT had $100K and put $10K (10%) on each leg of the transaction... he has returned 126% x $10K = $12.6K. Divide this over his total capital $100K = 12.6%.

Basically you need to multiply the 126% return x size of each leg, assuming that he did not risk his full capital on each leg. 

Still great outcome regardless, but not 126%. And thanks for collating and sharing the spreadsheet.


----------



## samgribbles

PT: Am just making my way through your demo and recent trades posted.  re the last STO/OSH trade that is still open - on your software platform the correlation coefficient between the two has decreased from around 90% early May to a current 7%.  

- is this not the main variable (the premise of pairs trading) you use to screen for pairs?
- why did you take this trade?

Thanks.


----------



## Pairs Trader

Thanks for doing the summary sam, and yes I use about 30% of my a/c for each trade position sizing. So my return since the start of this journal is about 48%, pretty good considering Ive only taken 37 trades since February and my overall a/c exposure is usually pretty low.

Yes OSH/STO has un-usually low correlation at the moment and I wouldn't normally take a trade on a pair with corr this low, however Ive always liked this pair and its produced good results so I can break that rule this time, but generally I only stick to pairs above 70% correlation, you have rules, but you gotta know when you can break them, it comes with experience.


----------



## nkny

Pairs Trader said:


> I only have 3 open positions and my index pair trade on AXJO vs N225 is slightly down. Im up 36% since starting this journal, includes both closed and open equity. My win rate is 91% and win:loss ratio is 1.31. Average trade length is several days. I usually only have 1-3 positions open at any given time. I trade very conservatively and keep overall portfolio risk and exposure levels very low.




I pairs, I was curious what your position is for each leg in relation to your account.

BTW, congrats of your performance.  



Nick


----------



## bochman

PT:

the EQN & OMH pairs seem to be doing badly.
Are you out, or averaging in (more)?


----------



## Pairs Trader

nkny, 30% for each leg. 
bochman, yes that pair is currently down, holding onto it, not layering in.

new trade

Long PPT @ 25.29
Short AMP @ 4.65


----------



## Pairs Trader

Closed trade for profits

Sold STO @ 13.45 (0.80% profit)
Covered OSH @ 5.20 (2.40% profit)


----------



## nkny

HI Pairs, curious if you have any plans to ad other real time services or even the ability to partner with a broker like IB  for quotes.  

Thanks

NK


----------



## samgribbles

PT:  can you pls provide brief critical comment on AIX/MAP as a trade (using your software)

Thanks


----------



## Charlie Whiskey

Hi PT, I registered on the forum just to follow this thread. This strategy sounds very promising and I'll be doing my research over the next few weeks. Looking forward to try out Pairtrade Finder but in the mean time I've the following questions if you don't mind:

As a vanilla investor I've had no exposure to shorting. My question is, are your short positions held as simple short positions with a broker or are you using any derivative instruments?

Another newbie question - in your experience, how quickly do you have to respond to the close position signal to make this strategy work? I can check the market 3 times a day but really can't be on standby all day long so if that's what required then I guess this profit is not for my pocket.

Suggestion here though - any chance that you can adapt the software to run on a server at home which sends a signal to an app on an iPhone over the internet which then sounds the alarm? Further suggestion - a "heart beat" mechanism to make sure the link is up.


----------



## Pairs Trader

Closed trade for nice profits

Sold PPT @ 27.85 (10.12% profit)
Covered AMP @ 4.79 (3.01% loss)


----------



## Pairs Trader

closed trade for nice profits

Sold WOR @ 23.78 (10.14% profit)
Covered WES @ 23.69 (2.82% loss)


----------



## bochman

Good one, PT.

Have been following, but not necessary getting in.
Keep up the good work


----------



## Pairs Trader

closed trade for small loss

Sold EQN @ 2.65 (1.88% loss)
Covered OMH @ 1.39 (0.72% loss)


----------



## Pairs Trader

NK, yes we are always looking at other data providers besides yahoo and IQfeed, there is the possibility for IB in the near future and a few others, will keep you all informed.

Sam, there isn't any recent data on AIX (unusual for yahoo i know) available, so no analysis to do.

Charlie, yes just plain normal short positions, no derivatives, and yes you don't have to watch the software all day, we have audio alerts, email and twitter alerts, you can receive your signals straight to your mobile phone, so you can trade anywhere, anytime.


----------



## Pairs Trader

New trade

Long ABB @ 9.04
Short CSR @ 1.76


----------



## Charlie Whiskey

PT, thanks for your reply.



Pairs Trader said:


> closed trade for small loss
> 
> Sold EQN @ 2.65 (1.88% loss)
> Covered OMH @ 1.39 (0.72% loss)




Sometimes things that go wrong provide more intuition than otherwise. I noticed you just quitted a trade at a small loss, can you elaborate on what triggered you to close this trade?


----------



## cooper1308

Charlie Whiskey said:


> PT, thanks for your reply.
> 
> 
> 
> Sometimes things that go wrong provide more intuition than otherwise. I noticed you just quitted a trade at a small loss, can you elaborate on what triggered you to close this trade?




Read the thread it's all in here


----------



## Pairs Trader

Yes charlie exited because it was close to the mean plus I held the pair for 2 weeks, I always exit within 2-3weeks.

Closed trade for more profits

Sold ANN @ 8.97 (9.65% profit)
Covered AMC @ 5.17 (2.98% loss)

Closed trades 38
Wins 32
Losses 5
Scratch 1

Account is up 59.8% since starting journal.


----------



## samgribbles

re AIX/MAP.  Your software downloads current prices on mine?


----------



## Pairs Trader

do you have historical data for AIX? in yahoo there is a chunk missing.


----------



## Sugar Dunkaton

Pairs,

I have been trading this system for probably close to a month maybe two... and although trading positively, I am positive so far at around 60% of the time, and only really returning on average between .5-1% per trade after commissions.

I have been trading similar pairs to you, but are missing some of your trades due to our brokers not providing stock of all ASX stocks.

I have also taken a few bigger hits - ie 7-10% losses on occasion, and we really wish to negate this as much as possible.

I have noticed that your system is definitely hitting a far more productive winning percentage than I am. Did you find that it took a while to pick up the cues to trade, or could this be a difference in the pairs/signals we are trading or a combination of both.

So far I have not used a time stop on our system, but i have noted that the longer trades are returning less.


----------



## samgribbles

Sugar:  I've just started trying to give this system and software a proper go.  In the interests of us both picking it up (and others) maybe we should post and critique each others trades as well as seeking advice from PT?

- are you sticking to large cap stocks?
- do you look at individial stock charts for confirmation signals?  ie, PT may identify two stocks away from their mean but you should have a signal that that divergence is slowing on each stock.  Do you check each chart for slowing momentum etc?

Can you post your trades as you take them as well?


----------



## samgribbles

PT:  OK, I see that now.  But the missing data is very difficult to pick up on in the software.  It is not evident when clicking "analyse pair", you can only pick it up when opening up a price chart but even then it is hard as the timescale on the x-axis doesnt work.

Is there an easier way to quickly verify that you have a full data set?

Thanks


----------



## Pairs Trader

New trade

Long APN @ 1.48
Short FXJ @ 1.29


----------



## retroaugogo

Come on Pairs read your pm's.

I'm still unable to work with the latest version as it rejects my email.


----------



## Pairs Trader

Sugar Dunkaton said:


> Pairs,
> 
> I have been trading this system for probably close to a month maybe two... and although trading positively, I am positive so far at around 60% of the time, and only really returning on average between .5-1% per trade after commissions.
> 
> I have noticed that your system is definitely hitting a far more productive winning percentage than I am. Did you find that it took a while to pick up the cues to trade, or could this be a difference in the pairs/signals we are trading or a combination of both.




Yes Ive got the benefit of experience to aide my trading, plus I trade very conservatively, you will develop the ''eye'' for picking the best trades as times goes on, its just like any other skill, your not going to be at your peak straight away, it takes several years of discipline to fine tune your art, doesn't mean you can't be profitable from the start, but don't expect fireworks to begin with, just stick at it.


----------



## Pairs Trader

retroaugogo said:


> Come on Pairs read your pm's.
> 
> I'm still unable to work with the latest version as it rejects my email.




Ive replied to you. 

Can I please ask members who have questions un-related to this journal please send us an email instead of PM, as we are on the emails all day and the ASF PM system doesn't have an alert function.


----------



## skc

Pairs Trader said:


> New trade
> 
> Long ABB @ 9.04
> Short CSR @ 1.76




I think ABB is the subject of corporate activity - it is due to merge with Canada's Viterra group. Not sure about the nature of the deal, but definitely sure that ABB is no longer moving "naturally".


----------



## awg

skc said:


> I think ABB is the subject of corporate activity - it is due to merge with Canada's Viterra group. Not sure about the nature of the deal, but definitely sure that ABB is no longer moving "naturally".




ABB is subject to a merger with Vitera at $9.40, so at least that half of the pair is on potentially the correct side of the equation


----------



## Pairs Trader

New trade

Long TOL @ 6.20
Short JHX @ 4.62


----------



## skc

Pairs Trader said:


> New trade
> 
> Long TOL @ 6.20
> Short JHX @ 4.62




PT,

JHX spiked up today and I got quite few signals to short it along with other building materials stock (e.g. GWT, CSR, FBU). TOL seems an odd choice. Any comments?

This lead me to the next question.

Do you keep each share with a single, unique pair? i.e. Do you only have JHX with TOL in your program, or JHX with a range of other shares that fit your criteria?


----------



## Pairs Trader

skc, I let you in on a little secret of mine  I have every stock in the ASX100 paired with the ^AXJO which is the ASX200 cash index, periodically throughout the day I will rank by the +/- column and look for stocks that are -2 or +2 against the index, if I find 2 stocks where one is overbought and the other oversold and they are in the same sector il backtest them to see if the pair history is profitable and if so pair them up and make a trade, a like this situation because both stocks are out of whack with the market and generally when you pair them together the +/- is above/below 2.50, in JHX/TOL case it is 2.83, the best trade you can have is when a pair is more than 3stdev from its mean on no news.


----------



## Pairs Trader

Guys, if there are any questions regarding IGmarkets trading accounts please PM me and I will respond immediately, I want to keep this journal strictly for posting and discussing pair trades.

Thankyou.


----------



## Pairs Trader

New trade

Long WDC @ 11.27
Short JBH @ 16.55


----------



## Pairs Trader

Closed trade for profits

Sold APN @ 1.61 (8.78% profit)
Covered FXJ @ 1.355 (5.03% loss)

Ive only had 1 loss in the last 14 closed trades.

Account is up over 60% since starting this journal in March.


----------



## johnnyg

JBH and HVN looks to of had a big deviation, and from the closes today are starting to head back?


----------



## skc

johnnyg said:


> JBH and HVN looks to of had a big deviation, and from the closes today are starting to head back?




You want to trade stocks when there are no news. HVN reported disappointing sales, so the deviation is not statistical but more fundamental.


----------



## Pairs Trader

spot on skc


----------



## johnnyg

Ah cheers for pointing that out. Wasn't aware there was news out, just browsing threw the charts.


----------



## gemtrawler

Pairs Trader

can I ask you what happens during reporting seasons when 2  stocks that have shown a strong past correlation  report 2 different results - one surprisingly good - one surprisingly bad.

does that throw the past correlations out the window?


Also what net profit result do you hope to achieve based on a $20 k trade - i.e.e $10 k long and $10 k short pair.,, after all fees and what have you been netting on an average trade in this present exercise/demonstration ?


----------



## samgribbles

long AIX at 1.40
short MAP at 2.51


----------



## awg

One thing you do have to be very careful, is to at least check the ASX website for past dividend dates, before you place your trades, as they will whack you.

Profit guidance announcements can as well.

The worst thing is if A takes over B, and you are on the wrong side.

You still have to do your research


----------



## skc

samgribbles said:


> long AIX at 1.40
> short MAP at 2.51




Mate... the major Macquarie stable of funds are going a bit gaga recently. Look at MIG's range! 

MAP is now halted. I hope it works out for your sake.

Like awg says, you really want to know the companies quite well so you don't step into a dude pair.


----------



## samgribbles

rationale for the trade was
- high correlation between the two
- GSJBW favour AIX over MAP and suggest switching from MAP into AIX
- GSJBW TP for MAP = $2.67 = 6% upside from $2.51
- GSJBW TP for AIX = $1.82 = 30% upside from $1.40
- MAP stronger than AIX lately, met PT's SD criteria
- MAP up 9.5% today, AIX up 2.5%
=> entered to catch a few %  pullback on MAP

if there are signs that this was a trade not to be entered what were they?


----------



## skc

samgribbles said:


> rationale for the trade was
> - high correlation between the two
> - GSJBW favour AIX over MAP and suggest switching from MAP into AIX
> - GSJBW TP for MAP = $2.67 = 6% upside from $2.51
> - GSJBW TP for AIX = $1.82 = 30% upside from $1.40
> - MAP stronger than AIX lately, met PT's SD criteria
> - MAP up 9.5% today, AIX up 2.5%
> => entered to catch a few %  pullback on MAP
> 
> if there are signs that this was a trade not to be entered what were they?




The sign was that there is a buzz on MIG about internalisation / privatisation / takeover etc. And MAP moved in tune as a result. It was just a risk in my view as to what might happen given the uncertainty.

A re-valuation of MAP will pull AIX up as well no doubt. So the trade might work out for you. I am just too risk adverse to take it. Good luck.


----------



## samgribbles

Thanks.



		HTML:
	

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAJudd8sJv_E


Its just MQG and MAP in a halt.  Should just be formal announcment of the Japan Airport sale being finalised (19.9% held by MAP and MQG)?  We shall see


----------



## TradePro

I have been following this thread. What a great source of information its been for a newbie like me...

I will like to get some information about pairing indexes. If trading index pairs, what criteria should be used to choose good pairs? 

Like for instance when stock pairs are chosen one of the criteria is that the stocks should be in the same industry group. So what is the rationale behind pairing indexes such as ASX200 and N225? Can any global index be paired with any other index and used as long as the correlation is high? Or is there a method of pairing indexes (like any fundamentals that need to be met before pairing them)?


----------



## bochman

Nothing much with MAP halt, gone back down now.
So the pair AIX & MAP is back to normal, just a scare for samg, LOL


----------



## samgribbles

closed AIX/MAP
AIX at 1.44 (+2.9%)
MAP at 2.54 (-2.7%)
net profit 5.5%
FYI for those watching the thread.  With CFDs and 10% margin this is a net return of 25.4% ROC (return on capital).  If you want to rule of thumb convert PT's reported net gains to ROC using CFDs on 10% margin, halve his gain, times it by ten (leverage), then times it by 0.9 (for fees).  So 5.5% => 5.5 x 0.5 x 10 x 0.9 = 25% ROC

I agree with SKC's comments that should have investigated the stocks beyond a couple of notes from GSJBW.  If MAP were to be sold I would have lost a bucketload on this trade.

Announcment was MAP bringing management internal.  Will save a few $ and make the company more attractive to investors and hence takeover.  An EPS neutral decision.

MAP might come off more than $2.54 but I've taken profits.


----------



## beamstas

samgribbles said:


> closed AIX/MAP
> AIX at 1.44 (+2.9%)
> MAP at 2.54 (-2.7%)
> net profit 5.5%
> FYI for those watching the thread.  With CFDs and 10% margin this is a net return of 25.4% ROC (return on capital).  If you want to rule of thumb convert PT's reported net gains to ROC using CFDs on 10% margin, halve his gain, times it by ten (leverage), then times it by 0.9 (for fees).  So 5.5% => 5.5 x 0.5 x 10 x 0.9 = 25% ROC
> 
> I agree with SKC's comments that should have investigated the stocks beyond a couple of notes from GSJBW.  If MAP were to be sold I would have lost a bucketload on this trade.
> 
> Announcment was MAP bringing management internal.  Will save a few $ and make the company more attractive to investors and hence takeover.  An EPS neutral decision.
> 
> MAP might come off more than $2.54 but I've taken profits.




Why multiply it by 10?


----------



## samgribbles

leverage.  10% margin.

With CFDs if you buy a stock on 10% margin and it goes up 2%, you make 20% on your capital.

$10k of shares at $1 each => need $1k capital ($9k borrowed)
SP goes from $1.00 to $1.02 = 2%
shares now worth $10,200
return = $200
so 2% SP move made 20% ROC
ROC = 200/1000 = 20%
neglecting fees


----------



## beamstas

But isn't taking 10x larger positions a bit risky?


----------



## samgribbles

hence "pairs trading" or hedging the position
a) try not to enter stocks that may be susceptible to price spikes (unless in your desired direction) => stick to large caps with stable trading and no impending significant newsflow
b) hedge the position.  In stable trading conditions you may long RIO and short BHP at the same time if you thought RIO had more upside than BHP


----------



## skc

samgribbles said:


> leverage.  10% margin.
> 
> With CFDs if you buy a stock on 10% margin and it goes up 2%, you make 20% on your capital.
> 
> $10k of shares at $1 each => need $1k capital ($9k borrowed)
> SP goes from $1.00 to $1.02 = 2%
> shares now worth $10,200
> return = $200
> so 2% SP move made 20% ROC
> ROC = 200/1000 = 20%
> neglecting fees




You should really forget about ROC calculations taunted in some CFD publications. It is essentially meaningless.

It is the amount you are risking that is important. The amount you are risking has no bearing on the margin requirement of the CFD provider, and is not limited to your "margin capital".

What if I let you trade with no margin? Your ROC is infinite but also senseless. 

However... good job on the trade.

Now don't you go and short NUF now


----------



## lips1977

Hi from another interested reader of this thread.

Just with reference to the calcs used above by Sam.

_closed AIX/MAP
AIX at 1.44 (+2.9%)
MAP at 2.54 (-2.7%)
net profit 5.5%
FYI for those watching the thread. With CFDs and 10% margin this is a net return of 25.4% ROC (return on capital). If you want to rule of thumb convert PT's reported net gains to ROC using CFDs on 10% margin, halve his gain, times it by ten (leverage), then times it by 0.9 (for fees). So 5.5% => 5.5 x 0.5 x 10 x 0.9 = 25% ROC_

Be careful using this much leverage. On a winning trade this is fantastic, but consider the outcome of having a trade with a net loss of 5.5%.

So -5.5% => -5.5 x 0.5 x 10 x 1.1 (since fees work against you) = -30.25% ROC

Using this much leverage, 3 consecutive losing trades (which is probable at some stage in the lifespan of ANY trading system) and you will have blown up your account. 

Just my  worth...


----------



## Pairs Trader

Thankyou for the positive feedback, great to know your learning something.

Regarding pair trading indices, yes pretty much all global stock market indices are correlated to each other, mostly following the US markets.

I have however done some extensive testing recently and have concluded that pair trading stocks is more profitable than indicies, before I had to use increased leverage on the indicies to generate the same return which is ok because of the subdued risk inherent in indicies, however the inefficiences in stocks is much more potent than indicies so I strictly only pair trade stocks now.



TradePro said:


> I have been following this thread. What a great source of information its been for a newbie like me...
> 
> I will like to get some information about pairing indexes. If trading index pairs, what criteria should be used to choose good pairs?
> 
> Like for instance when stock pairs are chosen one of the criteria is that the stocks should be in the same industry group. So what is the rationale behind pairing indexes such as ASX200 and N225? Can any global index be paired with any other index and used as long as the correlation is high? Or is there a method of pairing indexes (like any fundamentals that need to be met before pairing them)?


----------



## Pairs Trader

guys, in regards to position sizing and ROI, keep it simple, I can't emphasize this enough.

Only trade large caps, don't put more than half of your a/c in any one stock, if stock drops 20% overnight, your lost 10% of your a/c, no doomsday scenario.

Calculate ROI on your a/c, not margin required.


----------



## bochman

Pt:

How do you decide when to average down, like the TOL & JHX pair, if you do want to? Is it based on days like the cut loss? Or based on % movement? or the running ratio that you have?

WDC & JBH pairs seem ok at the moment.


----------



## korrupt_1

Pairs Trader said:


> ...money management is don't place more than 25% of my a/c on any position, I hand pick on my own which entry signals to take then strictly stick to the system....




so,.. if you have a $20,000 account

does that mean that you can only commit $5,000 per pair trade (or to be exact, $2,500 on each of the stock)?

Furthermore, is that $5,000 of stock value or $5,000 of margin? ie... say if margin was 10% (on both pairs)... then your market value is really $50,000??


----------



## dracula

korrupt_1 said:


> so,.. if you have a $20,000 account
> 
> does that mean that you can only commit $5,000 per pair trade (or to be exact, $2,500 on each of the stock)?
> 
> Furthermore, is that $5,000 of stock value or $5,000 of margin? ie... say if margin was 10% (on both pairs)... then your market value is really $50,000??





In my opinion, if you have a $20,000 account the risk should be no more than 2% per pair trade, so $400...

If you go long $2,000 and short $2,000 ($4,000 of stock value per pair trade), the maximum loss per pair trade would be 10% or $400, assuming you lose 5% on which side. This doesn't take into consideration the brokerage and interest on the long position.

There would be no need to have the whole $20k in the account.


----------



## korrupt_1

Pairs Trader said:


> skc, I let you in on a little secret of mine  I have every stock in the ASX100 paired with the ^AXJO which is the ASX200 cash index, periodically throughout the day I will rank by the +/- column and look for stocks that are -2 or +2 against the index, if I find 2 stocks where one is overbought and the other oversold and they are in the same sector il backtest them to see if the pair history is profitable and if so pair them up and make a trade, a like this situation because both stocks are out of whack with the market and generally when you pair them together the +/- is above/below 2.50,




Hi PT

Just so that I understand what you wrote above correctly...

See attached image.

1) Comparing  XJO against ASX100 stocks
2) Filtered the result for values >2 OR <-2
3) Select two stocks in the same sector that are on the opposite ends... ie in the example attached I'd be pairing the financials; AMP(-2.04) with QBE(+2.40) ??

4) backtest that pair to see if they correlate well then...

5) if all good, then I guess you would go Long and AMP and Short on QBE?


----------



## saico

Hi pair traders,

about 8 to 9 out of 10 trades I take are winners. At the first glance thats pretty good. But the bad thing is, that the losing trades reduce my profits by 50%, or sometimes even more. Do you have any advice to get around of that? 

Much thanks in advance!

Saico


----------



## WRONG'UN

Hi Korrupt_1
Are you sure it's not the other way around with AMP and QBE? As confirmation, I have AMP and QBE paired in an ASX 20 group - it gave an "enter trade" signal yesterday at +2.73 x sd - short AMP at 5.05, long QBE at 19.38


----------



## korrupt_1

WRONG'UN said:


> Hi Korrupt_1
> Are you sure it's not the other way around with AMP and QBE?




haha... probably... i'm still muddling my way through this style of trading


----------



## craig18278

Pairs Trader said:


> skc, I let you in on a little secret of mine  I have every stock in the ASX100 paired with the ^AXJO which is the ASX200 cash index, periodically throughout the day I will rank by the +/- column and look for stocks that are -2 or +2 against the index, if I find 2 stocks where one is overbought and the other oversold and they are in the same sector il backtest them to see if the pair history is profitable and if so pair them up and make a trade, a like this situation because both stocks are out of whack with the market and generally when you pair them together the +/- is above/below 2.50, in JHX/TOL case it is 2.83, the best trade you can have is when a pair is more than 3stdev from its mean on no news.




Could I ask how you added the pairs of ASX 100 codes with the index as the software doesn't seem to allow you to pair codes from two different groups. Yu have two groups because you have one pulling from ASX and one pulling the index from NYSE.

Edit, Please ignore I just worked this out you simply add .ax to the codes when adding stocks through the NYSE group


----------



## johnnyg

skc said:


> You want to trade stocks when there are no news. HVN reported disappointing sales, so the deviation is not statistical but more fundamental.






Pairs Trader said:


> spot on skc




I was thinking about this today, and if I remember correctly wasn't your first ever trade on here Pairs BHP/RIO after BHP announced that it was dropping its takeover bid? Surely that trade was based on news? Have you changed your method since then?


----------



## gemtrawler

pairs trader

 .. your advice has been to pair trade large caps but I've noticed you've also been trading some smaller caps.

For instance ..

SSM, GCL, MLB, SMX

What made you choose the above stocks - and when is it appropriate to trade the smaller stocks ? .. 

would you trade these smaller caps vs other small caps or against the large caps ?


----------



## Pairs Trader

guys, il get to answering all your questions after market close, just very busy now.

New trade

Long GNS @ 0.96
Short ABC @ 2.36


----------



## gemtrawler

what about BSL and OST ? .. is that a pair trade at the moment ?


----------



## Pairs Trader

bochman said:


> Pt:
> 
> How do you decide when to average down, like the TOL & JHX pair, if you do want to? Is it based on days like the cut loss? Or based on % movement? or the running ratio that you have?
> 
> WDC & JBH pairs seem ok at the moment.




I'm not averaging down in this journal, im keeping it simple for all to see, if I do average down its when the pair has moved another 0.50+/- from my entry point on no news, nothing complicated.


----------



## Sugar Dunkaton

do you mean reducing the size of your positions if it does not initially move in your favour?


----------



## Pairs Trader

korrupt_1 said:


> so,.. if you have a $20,000 account
> 
> does that mean that you can only commit $5,000 per pair trade (or to be exact, $2,500 on each of the stock)?
> 
> Furthermore, is that $5,000 of stock value or $5,000 of margin? ie... say if margin was 10% (on both pairs)... then your market value is really $50,000??




if you have a 20k a/c, ideally you want your position size in each stock/each leg to be between 5k-10k, so no more than 50% of your a/c in one stock. use of leverage is up to the trader, some prefer to be conservative(me) others prefer to be aggressive, to each their own.


----------



## awg

Pairs Trader said:


> I'm not averaging down in this journal, im keeping it simple for all to see, if I do average down its when the pair has moved another 0.50+/- from my entry point on no news, nothing complicated.






Sugar Dunkaton said:


> do you mean reducing the size of your positions if it does not initially move in your favour?




Pls correct me if i am wrong

but i believe experienced/aggressive traders actually increase their position size if the standard deviation increases, on the basis that when the stocks return to the mean that will be a profitable strategy


----------



## Pairs Trader

Sugar Dunkaton said:


> do you mean reducing the size of your positions if it does not initially move in your favour?





averaging down, layering both mean increasing/adding to your position.


----------



## Pairs Trader

Yes that is correct. Each position in its own right is a good trade, your looking for stocks that are overbought/oversold relative to the market for no good reason, by placing 2 opposing trades at the same time we remove market and sector risk which only leaves stock specific risk, sometimes it can be hard to find the reason a stock has moved, you have to hunt around, for example last week I shorted James Hardie(JHX) because it went up on no news, however upon closer look, on thursday night in the US, news came out that US sales were up 3.4%, better than expected, which helps the industry JHX operate in, this happened after I placed the trade, however if I was more careful I would have noted that upcoming news item and its potential effect on the stock and have not placed the trade, doesn't matter though, Im still learning everyday myself. It pays to look at what happens in the US, as the rest of the world mostly follow their markets with 70% of worldwide liquidity being transacted there.



korrupt_1 said:


> Hi PT
> 
> Just so that I understand what you wrote above correctly...
> 
> See attached image.
> 
> 1) Comparing  XJO against ASX100 stocks
> 2) Filtered the result for values >2 OR <-2
> 3) Select two stocks in the same sector that are on the opposite ends... ie in the example attached I'd be pairing the financials; AMP(-2.04) with QBE(+2.40) ??
> 
> 4) backtest that pair to see if they correlate well then...
> 
> 5) if all good, then I guess you would go Long and AMP and Short on QBE?


----------



## craig18278

PT could you confirm I see in your screen shot of your pair trade finder that you have version 2.3c, is this available yet.

Also the data in your view of PTF seems different to mine. I see a std dev for this pair of 0.74 for 24/07 and 2.0 for today with not enter trade signal. Is yours set up differently.


----------



## Pairs Trader

just about all of your significant losses come from news being released that affects the stock after you have placed your trade, to mitigate this risk make sure the stock doesn't have upcoming earnings annoucements, stock sensitive pending announcements or any clouding market rumours, sometimes the reason is unknown, you do have to do some homework, it takes me no longer than 5mins to search for stock news for multiple sources, this is where a full service stockbroker can help, he is your man on the street and can let you know what the market talk is on any given stock. 

To reduce your losses try employing a 15 day time stop and close your position within this timeframe regardless of PnL, also you can try sticking to stocks that have a history of very few stock price sensitive news items, BHP would be the opposite of this example and I don't trade it, too many variables at play, ADRs, governments, contracts, etc.....very hard stock to trade. If you position size correctly you can takes losses no problem, you have it to be able stomach the losses and not take it personally or give reason to change your method, this is why succesfull trading flies in the face of how we are brought up to function, if we do something and its wrong that we need to change how we did it, whereas in trading this doesn't apply, you make more money from sitting on your hands than ''doing something''.

Its a numbers game, treat it just like that, numbers, don't measure your losses in the material equivalent like I just lost $500, that a nice weekend holiday gone, try and trade with the attitude, _''right im going to make 100 trades over the next 3months and I don't care if I breakeven, it will be a good experience and I will learn alot''_ going in with this attitude is good because your not expecting fireworks and any profit is going to please you.

Remember this is speculating, making an educated bet, not science. Trading is not placing a trade then thinking there might be a chance of a loss but it always turns into a winner for some sort of cheap thrill, you have to take losses, learn to love them, and treat like one step closer to another winning trade.




saico said:


> Hi pair traders,
> 
> about 8 to 9 out of 10 trades I take are winners. At the first glance thats pretty good. But the bad thing is, that the losing trades reduce my profits by 50%, or sometimes even more. Do you have any advice to get around of that?
> 
> Much thanks in advance!
> 
> Saico


----------



## Pairs Trader

johnnyg said:


> I was thinking about this today, and if I remember correctly wasn't your first ever trade on here Pairs BHP/RIO after BHP announced that it was dropping its takeover bid? Surely that trade was based on news? Have you changed your method since then?




Yes that is a type of trade I don't do in this journal, im keeping it very simple for everyone to see. I do take trades outside this journal in other markets too.

That trade was news biased, RIO got smashed down what I thought was too much for the known information at the time, and I bet against the market, I did make a small profit and got out too early, but it didn't turn out well as I thought it would. I don't recommend these type of trades for inexperienced trader, when you have been watching the market day in day out for years you develop a ''feel'' for it and if you pay particular attention to a handful of stocks you know when they are out of whack even when there has been news released, this is where trading becomes very similar to playing poker, Greg Coffey in London is the king of this game, its the old ''buy on rumor, sell on the news'' except Greg buys before rumor and sells on the rumor, front running everyone because he is intimately in touch with the market, also he is very very intelligent which helps.


----------



## Pairs Trader

http://www.youtube.com/results?search_query=trader+paul+tudor+jones&search_type=&aq=f

The above link is the movie ''trader'' made in 1987, its a documentary on the legendary trader Paul Tudor Jones, one of the best traders in the world with the most respectable long term records, the movie is in 7 parts and is a great insight into a real hedge fund manager daily life, he is managing 100m at that time, he gamed the '87 crash and made bucket loads in a time everyone else was staring into the abyss. Be sure to watch the movie soon as it was only uploaded 24 hours ago and may not remain there long as its rumored Paul brought all remaining copies of this doc because he thought it discloses too much. Great watch.


----------



## Pairs Trader

yes SSM is a stock I probably shouldn't be trading in this journal, I mostly stick with stocks in the ASX200, rarely venture out of the ASX300. I recommend staying within the ASX100 if possible, generally the larger the stock is the more safe it is, and I do mean generally.



gemtrawler said:


> pairs trader
> 
> .. your advice has been to pair trade large caps but I've noticed you've also been trading some smaller caps.
> 
> For instance ..
> 
> SSM, GCL, MLB, SMX
> 
> What made you choose the above stocks - and when is it appropriate to trade the smaller stocks ? ..
> 
> would you trade these smaller caps vs other small caps or against the large caps ?


----------



## Pairs Trader

craig18278 said:


> PT could you confirm I see in your screen shot of your pair trade finder that you have version 2.3c, is this available yet.
> 
> Also the data in your view of PTF seems different to mine. I see a std dev for this pair of 0.74 for 24/07 and 2.0 for today with not enter trade signal. Is yours set up differently.




Please PM me for instructions on how to download and install the latest version, its still in BETA, it works fine though.


----------



## johnnyg

Pairs Trader said:


> Yes that is a type of trade I don't do in this journal, im keeping it very simple for everyone to see. I do take trades outside this journal in other markets too.
> 
> That trade was news biased, RIO got smashed down what I thought was too much for the known information at the time, and I bet against the market, I did make a small profit and got out too early, but it didn't turn out well as I thought it would. I don't recommend these type of trades for inexperienced trader, when you have been watching the market day in day out for years you develop a ''feel'' for it and if you pay particular attention to a handful of stocks you know when they are out of whack even when there has been news released, this is where trading becomes very similar to playing poker, Greg Coffey in London is the king of this game, its the old ''buy on rumor, sell on the news'' except Greg buys before rumor and sells on the rumor, front running everyone because he is intimately in touch with the market, also he is very very intelligent which helps.




Thanks for clearing that up Pairs.

Regards John


----------



## Barndat

Pairs Trader said:


> http://www.youtube.com/results?search_query=trader+paul+tudor+jones&search_type=&aq=f
> 
> The above link is the movie ''trader'' made in 1987, its a documentary on the legendary trader Paul Tudor Jones, one of the best traders in the world with the most respectable long term records, the movie is in 7 parts and is a great insight into a real hedge fund manager daily life, he is managing 100m at that time, he gamed the '87 crash and made bucket loads in a time everyone else was staring into the abyss. Be sure to watch the movie soon as it was only uploaded 24 hours ago and may not remain there long as its rumored Paul brought all remaining copies of this doc because he thought it discloses too much. Great watch.




Thanks PT for the YouTube link, I'm sure it will be entertaining to say the least...


----------



## saico

Pairs Trader said:


> just about all of your significant losses come from news being released that affects the stock after you have placed your trade, to mitigate this risk make sure the stock doesn't have upcoming earnings annoucements, stock sensitive pending announcements or any clouding market rumours, sometimes the reason is unknown, you do have to do some homework, it takes me no longer than 5mins to search for stock news for multiple sources, this is where a full service stockbroker can help, he is your man on the street and can let you know what the market talk is on any given stock.
> 
> To reduce your losses try employing a 15 day time stop and close your position within this timeframe regardless of PnL, also you can try sticking to stocks that have a history of very few stock price sensitive news items, BHP would be the opposite of this example and I don't trade it, too many variables at play, ADRs, governments, contracts, etc.....very hard stock to trade. If you position size correctly you can takes losses no problem, you have it to be able stomach the losses and not take it personally or give reason to change your method, this is why succesfull trading flies in the face of how we are brought up to function, if we do something and its wrong that we need to change how we did it, whereas in trading this doesn't apply, you make more money from sitting on your hands than ''doing something''.
> 
> Its a numbers game, treat it just like that, numbers, don't measure your losses in the material equivalent like I just lost $500, that a nice weekend holiday gone, try and trade with the attitude, _''right im going to make 100 trades over the next 3months and I don't care if I breakeven, it will be a good experience and I will learn alot''_ going in with this attitude is good because your not expecting fireworks and any profit is going to please you.
> 
> Remember this is speculating, making an educated bet, not science. Trading is not placing a trade then thinking there might be a chance of a loss but it always turns into a winner for some sort of cheap thrill, you have to take losses, learn to love them, and treat like one step closer to another winning trade.




Thanks for the great comments on my question, Pairs! Its very appreciated.

Saico


----------



## gemtrawler

PT

i'm just trialing your software.

 - on the pilot view mode -  I notice that only about half of the pairs have charts, so i can't do the necessary analysis on them  (i.e. there's no  correlation chart, running mean average charts etc..).

i  also note that most of the ones you've traded do have charts.

So is it a risk trading the pairs that are uncharted ?

Also with these uncharted pairs  is the correlation %  that's given accurate and up to date ?


----------



## Pairs Trader

Exited trade for profits

Sold TOL @ 6.86 (10.64% profit)
Covered JHX @ 4.94 (6.92% loss)


----------



## mitchoby

Hi pairs,

Thanks for the journal ... have been following avidly ... although admittedly with L plates on.

ABB/CSR is an interesting one ... at what point do you personally call it a day on a pair ... aside from the 10 day rule? 

Its one of the nastier charts of seen to date so interested in your perspective.

Mitch


----------



## bochman

I think PT has mentioned that he is using the ratio to figure out whether it is time to quit (cut loss).

You would probably notice that the TOL & JHX pairs was way in the red just 2 days ago, like 10% down or something, before it make a massive turn around.

So, you can only hope that CSR & ABB turn around in your favour, or wait for the ratio to tell you to get out, or 10-15 days passed.


----------



## samgribbles

Gemtrawler - in Pilot, right-click the pair you are interested in and then Analyse Pair (from memory).  You should analyse the charts before entering (correlation, rato, etc)


----------



## gemtrawler

samgribbles said:


> Gemtrawler - in Pilot, right-click the pair you are interested in and then Analyse Pair (from memory).  You should analyse the charts before entering (correlation, rato, etc)




i've done that but only half the pairs have all the relevant charts drawn.
And I'm using stocks with > 1 bill market cap.

Also for those pairs  that don't have a correlation chart -  we are  still  given  an average correlation figure , but can we rely that this average correlation figure has nevertheless been updated and is still accurate. (i.e.  in the instance when charts don't exist)?

For instance try these pairs and see if they have charts - AQP/OZL and BSL/OST , FMG/OST - can we trust the average correlation as being accurate for these uncharted pairs ?


----------



## Pairs Trader

New trade

Long FXJ @ 1.40
Short APN @ 1.785


----------



## Mactavish

hey pairs trader, 
im interested in the settings you use for your pair trader program, ie the preferences in your signal settings and chart options.

thanks


----------



## samgribbles

gemtrawler:


----------



## gemtrawler

samgribbles said:


> gemtrawler:




thanks samgribbles .. i still can't get the charts for that pair ?
but for about half the pairs i can.
.. so maybe it's my trial version ?


----------



## Suprok

Perhaps all the main bugs haven't been ironed out yet - I'm having similar problems gemtrawler.  Don't always get the latest stock prices - but I do seem to have most charts.

For the example PairTrader gave above (APN/FXJ) I am missing a month's worth of prices for FXJ.   Jared is trying to resolve the problem with me at the moment.


----------



## jezzalad

Pairs Trader said:


> Closed trade for profits
> 
> Sold APN @ 1.61 (8.78% profit)
> Covered FXJ @ 1.355 (5.03% loss)
> 
> Ive only had 1 loss in the last 14 closed trades.
> 
> Account is up over 60% since starting this journal in March.




Hi,
I've been watching this journal for a bit now. Great stuff PT.
From what I can see, there have been several posts trying to work out returns on investment with this method.
By your 60% above, is it safe to say that if you started with $20K in account it would now be worth $32K?
Cheers


----------



## tone76

Suprok said:


> For the example PairTrader gave above (APN/FXJ) I am missing a month's worth of prices for FXJ.   Jared is trying to resolve the problem with me at the moment.




I'm having similar problems, which is possibly why I didn't get a signal for APN/FXJ.

Again, I'm another newbie that is hugely grateful to Pairs Trader for his support, software etc.  I hadn't heard of pair trading until a few days back and have just started paper trading using the PairTrade Finder software.  So far so good.  I can see myself putting my money where my mouth is shortly ...


----------



## Suprok

Ok, after poking around looking at the actual SQL database tables with Jared's help, we've realised it is not PairTradeFinders problem.  It is the sometimes flakey Yahoo data feed.

Specifically for FXJ (as of 31st July) there is only data until May - au.finance.yahoo.com/q/hp?s=FXJ.AX  (can't embed this url as I have less than 5 posts - serves me right for being a lurker)

Confusion arose because Jared is using the paid IQ data feed which is more reliable.


----------



## auric

yes thats the problem i downloaded  fxj.ax into amibroker to check yahoo data and 19th may is last quote
if jared is their an option to upload from your own database would be good
ie.normal ascii format then you could use your own eod data which i would be more comfortable with
have brought the software 

kenbeth


----------



## Sugar Dunkaton

Jared,

It just got mentioned that you are using a paid data feed... is it possible for myself to get this as well. I am loosing it having all the errors in Yahoos data.

Thanks


----------



## Mactavish

isnt IQ feed only for US stocks?


----------



## Suprok

Ooops, my mistake - making too many assumptions again. I don't know how Jared is getting a complete feed - I just saw the IQ conection in his screenshot & assumed that it did ASX as well.  But after looking at their website it seems not.  So not sure how he is getting accurate ASX data.


----------



## Pairs Trader

Yes sometimes yahoo has missing data for certain stocks, they usually correct it soon enough, this is the give and take of free data.

IQfeed is only for US stocks.

Why I have correct data for FXJ is that ive had this stock loaded in my program for awhile and daily data gets collected normally, there is missing historical data when you retrieve a back fill now if that makes sense.


----------



## Suprok

Just a heads-up for those who (like me) are learning & trying to follow PairTraders trades - the FXJ data appears to be complete again as of 3rd August.

(perhaps Jared has a deal with Yahoo to make sure we can't profit from his finds  kidding....)


----------



## dr3wfish

hi guys,

like many here, enjoying following this thread.

anyone using ib for their pairtrading? I'm using mqprime's cfds currently but am keen to move across for a number of reasons, not the least being significantly lower commisisions.

if you are using ib, do you use stocks or cfds (i assume these are the asx exchange traded ones..) ?

thanks,

drew.


----------



## bochman

yes, I would like to know how good IB is too.
Is it easy to access? etc.

If this is not the right thread for this discussion, please PM me re your opinions, etc, thanks.


----------



## skc

dr3wfish said:


> hi guys,
> 
> like many here, enjoying following this thread.
> 
> anyone using ib for their pairtrading? I'm using mqprime's cfds currently but am keen to move across for a number of reasons, not the least being significantly lower commisisions.
> 
> if you are using ib, do you use stocks or cfds (i assume these are the asx exchange traded ones..) ?
> 
> thanks,
> 
> drew.




I use IB for all the long legs of my pairs trading. Low commission and lower interest. As IB is a margin account, interest is paid on the borrowed funds rather than the full position size.

I only trade stocks with IB. ASX CFDs are too illiquid. However, if you are capital constrained you may have no choice.

Bochman, there are many threads that specifically discuss IB. Go read those. The general consensus is that it is good and suitable for more experienced, frequent traders.


----------



## dr3wfish

thanks skc, thats what i was after.  I had heard there isn't much liquidity with asx cfds.

two more for you:
 - if you use ib for the long leg, what do you use for the short leg?
 - does ib only offer 50% on overnight positions? (i have looked on the ib site for margin rates on aus stocks but can't say i came away with a definitive answer..)

hadn't really thought about mixing platforms ie mqprime cfds for shorts, ib for longs.


----------



## skc

dr3wfish said:


> thanks skc, thats what i was after.  I had heard there isn't much liquidity with asx cfds.
> 
> two more for you:
> - if you use ib for the long leg, what do you use for the short leg?
> - does ib only offer 50% on overnight positions? (i have looked on the ib site for margin rates on aus stocks but can't say i came away with a definitive answer..)
> 
> hadn't really thought about mixing platforms ie mqprime cfds for shorts, ib for longs.




I use IG DMA for short leg.

As with IB margins - I am actually a bit vague on that also. I never really had to worry about it as I rarely borrow anything close to 10% of my account.


----------



## dr3wfish

skc said:


> I use IG DMA for short leg.
> 
> As with IB margins - I am actually a bit vague on that also. I never really had to worry about it as I rarely borrow anything close to 10% of my account.




am i reading this right - IG commissions 0.1% with $8 minimum for DMA? not bad for the small time trader.

thanks again for your assistance.


----------



## TraderDownUnder

dr3wfish said:


> am i reading this right - IG commissions 0.1% with $8 minimum for DMA? not bad for the small time trader.
> 
> thanks again for your assistance.




Yes, you are right. IG commissions are 0.1% with a minimum of $8 of up to $10,000. I use IG for both long and short legs.


----------



## Pairs Trader

Exited trade

Sold WDC @ 12.08 (7.18% profit)
Covered JBH @ 17.05 (3.02% loss)

passed on long SGP/WDC since SGP is reporting full year results next Wednesday.


----------



## Sugar Dunkaton

Jared,

I have version 2.50727, but i dont have that triggers page.. which i think has been a great addition to the product - which version contains this feature.

Thanks


----------



## gemtrawler

PT I've also emailed Jared the same questions..

1. Do you have a list of say  top 50  proven (over time) reliably
correlated ASX pairs ?

Also there's a lot of critical decision making and it's hard to make a
call on some trades..

for instance ..

I'm getting strong negative deviation signals for BEN (a small bank)
whose share price is strengthening  relative to QBE (an insurance
company which has had a recent announcement that it's buying a stake
and rescuing a heavily indebted company Elders - i see this as a
positive but the market doesn't agree)

My thought process is .. it's a smaller bank vs a leading insurance
company ,, both in the finacial sector but nevertheless very different
areas.
there's also the recent announcement with QBE which should have
possibly been received positively by the market, but wasn't?

These stocks could now be diverging for the longer term rather  than
deviating from their previously correlated mean - and so becoming
unpredictable ?

So ..
2. How do you pick the best pair trades .. and distinguish between a
good/reliably predictable trade and a new longer term divergence  which could throw all the past correlation data and a prior predictable correlation out the window ?

Also we're approaching/entering right now the current Full Year
reporting season with a lot of surprises in store .. so what happens
to past correlation data -  is that going to be relevant going forward
post reporting ?

3. Is it safe to pair trade right now  during the reporting season? ..
and if not when is the best time ?


----------



## cooper1308

gemtrawler said:


> PT I've also emailed Jared the same questions..
> 
> 1. Do you have a list of say  top 50  proven (over time) reliably
> correlated ASX pairs ?
> 
> Also there's a lot of critical decision making and it's hard to make a
> call on some trades..
> 
> for instance ..
> 
> I'm getting strong negative deviation signals for BEN (a small bank)
> whose share price is strengthening  relative to QBE (an insurance
> company which has had a recent announcement that it's buying a stake
> and rescuing a heavily indebted company Elders - i see this as a
> positive but the market doesn't agree)
> 
> My thought process is .. it's a smaller bank vs a leading insurance
> company ,, both in the finacial sector but nevertheless very different
> areas.
> there's also the recent announcement with QBE which should have
> possibly been received positively by the market, but wasn't?
> 
> These stocks could now be diverging for the longer term rather  than
> deviating from their previously correlated mean - and so becoming
> unpredictable ?
> 
> So ..
> 2. How do you pick the best pair trades .. and distinguish between a
> good/reliably predictable trade and a new longer term divergence  which could throw all the past correlation data and a prior predictable correlation out the window ?
> 
> Also we're approaching/entering right now the current Full Year
> reporting season with a lot of surprises in store .. so what happens
> to past correlation data -  is that going to be relevant going forward
> post reporting ?
> 
> 3. Is it safe to pair trade right now  during the reporting season? ..
> and if not when is the best time ?




Just my two cents, take it or leave it...

PTF seeks stat arb trading opportunities. Put simply it seeks price deviations between two correlated stocks ideally with no recent sensitive news.

Punters get confused between pair trading and the good ole' long/short.  Recent news events will often be the catalyst for a long/short whereby stat arb (or pair trading) will try as hard as possible to avoid fundamentally event driven trades.

So as you can see, on the surface they look very similar, but in actual fact both strategies are  completely different.

In your BEN/QBE example, you've tried to justify the trade using the principals of long/short investing, when the entry was triggered by a stat arb program. We are looking to avoid news, not seek it.

Im not saying the trade isn't legit...Could well be a cracker!!!..it's just a hard/confusing game to play when crossing borders. The way the human mind is conditioned is if the trade moves against you'll simply have more reasons to justify staying in it. Trying to keep the process as simple as possible I have found is the key.

Me? I say "F$%K the news" :cowboy:


----------



## gemtrawler

cooper1308 we are in the reporting season so my point is there will be a lot of pair trade arbs coming up as a result of FY announcements or imminent FY announcements and or market expectations.
It's unavoidable.

Is now therefore a bad time to pair trade ? - as news(fresh or imminent) would inevitably now be a catalyst for arbs.

i.e. Can you still find reliable pair trades right now ? .. if not when should pair trading resume.

and how relevant is past correlation data going forward as pairs that have shown a strong past correlation may now  set new trends based on their FY results?


----------



## cooper1308

You've missed the point...



gemtrawler said:


> cooper1308 we are in the reporting season so my point is there will be a lot of pair trade arbs coming up




There will be alot of _*long/short*_ opportunities.... Again, classic stat arb will *avoid news *. I am not implying one is better than the other, merely stat arb will generally avoid earnings season / news in general.. 



gemtrawler said:


> ..........as news(fresh or imminent) would inevitably now be a catalyst for arbs.



Again, it will be the catalyst for long/short, not arbs



gemtrawler said:


> i.e. Can you still find reliable pair trades right now ? .. if not when should pair trading resume.




This is for you to decide... If you are long/short then I would imagine earnings is when the majority of your trades are being generated. I'd also assume this the time to be scanning over reports/events and seeking fundamentally strong(weak) stocks to pair against weak(strong) stocks. 

Because I trade stat arb, i'll generally use this time to test/review procedures. Statistics carry less weight through earnings therefore, you guessed it, I will avoid trading using statistics. I pass the time by adding/deleting pairs, extensivley backtesting exit strategies, improving price excecution systems ect ect ect... 

There are 100000000000000000000000 ways to pair trade and often punters (such as the author of this thread) will use both stat arb and long/short.... However I think it is important to understand the difference between the two


----------



## Pairs Trader

yeah spot on cooper, I trade per normal through earnings, I just tip toe around the release dates, often you can find good opportunities around earnings time, also look out for the post earnings price drift which statistically happens more often after earnings then random time frames, especially after surprise earnings a stock price can begin a new strong trend.

I encourage the more experienced traders or guys who have read this journal from the beginning to answer questions aswell just like cooper has, I appreciate the time it saves me from repeating myself and allows me more time to further develop the software we all use.


----------



## gemtrawler

thanks cooper 

I understand the difference between the 2 trades - but this forum is about  stat arbs - and that's what I'm concentrating on here.

I guess  I'm essentially questioning the relevance of the correlation data as it's looking back over an extended period  - in view of the fact that the latest earnings report and even a single price sensitive recent announcement can throw an instant spanner in the works.

So there may be pairs that are  given a strong 80 or  90% correlation by the software program that may essentially be no longer  correlated... and should no longer even be considered a pair.

How do we determine which pairs indeed remain correlated and to what extent?

And even if you are not trading during  this reporting season as you say, how do you determine the 
best correlated pairs  and the relevance of the data when you do start to trade again - as you would still be largely looking at past  correlation data - that's inescapable.


----------



## lips1977

> thanks cooper
> 
> I understand the difference between the 2 trades - but this forum is about stat arbs - and that's what I'm concentrating on here.
> 
> I guess I'm essentially questioning the relevance of the correlation data as it's looking back over an extended period - in view of the fact that the latest earnings report and even a single price sensitive recent announcement can throw an instant spanner in the works.
> 
> So there may be pairs that are given a strong 80 or 90% correlation by the software program that may essentially be no longer correlated... and should no longer even be considered a pair.
> 
> How do we determine which pairs indeed remain correlated and to what extent?
> 
> And even if you are not trading during this reporting season as you say, how do you determine the
> best correlated pairs and the relevance of the data when you do start to trade again - as you would still be largely looking at past correlation data - that's inescapable.




Hey mate,
I have been trying to learn a lot about stat arb since the commencement of this thread (what can I say - I'm an engineer), so I'll have a stab at answering this.

The only way that correlation data can be generated is by looking back through historical data. Only by analysing the way that prices have moved in relation to each other over an extended period of time can an accurate assessment be made of whether or not there is a statistical relationship between the two equities.

Indeed, it has been previously mentioned that the backtesting ability of the software will be enhanced to greater than 12 months - which will then allow for correlation to factor in previous reporting periods.

You are indeed quite right that price sensitive announcements may have a significant impact on short term price movements - but by this logic you could argue that all technical analysis is inherently questionable. After all, whether you use trends, breakouts, support and resistance, whatever - always you are relying on analysis of prior price movements and "hoping" that any identified patterns are repeated.

As PT has mentioned a number of times - this is a numbers game. By determining a high previous correlation, the numbers suggest that the probabilities are high that prices will move together in the future. However, nothing is guaranteed - and all this method does is provide an mathematic edge - as with any other analytical method - which can then be exploited through appropriate application of money management techniques.

You are right - it is inescapable that you are looking at past data - but as with any mathematical technique all you are trying to do is put the odds in your favour by identfying as strong relationship and betting / speculating / gambling that that relationship will continue into the future.


----------



## cooper1308

gemtrawler said:


> thanks cooper
> I understand the difference between the 2 trades - but this forum is about  stat arbs - and that's what I'm concentrating on here.




Ok i'm a little confused. You want to focus on stat arb yet write 4 paragraphs on the fundamental similarities between QBE/BEN? If your focusing on stat arb I will again answer your question in relation to earnings. IGNORE and AVOID (sorta like herpes:run.





gemtrawler said:


> in view of the fact that the latest earnings report and even a single price sensitive recent announcement can throw an instant spanner in the works.




What difference is this to being long or short a stock in the first place? Earnings will always throw a spanner in the works (unless ofcourse you have a proven edge in trading into earnings, which is a different kettle of fish). If anything risk is significantly lower trading pairs into earnings when compared to outright long or short.



gemtrawler said:


> So there may be pairs that are  given a strong 80 or  90% correlation by the software program that may essentially be no longer  correlated... and should no longer even be considered a pair.
> 
> How do we determine which pairs indeed remain correlated and to what extent?
> 
> And even if you are not trading during  this reporting season as you say, how do you determine the
> best correlated pairs  and the relevance of the data when you do start to trade again - as you would still be largely looking at past  correlation data - that's inescapable.




I think you are putting to much emphasis on correlation. It is only one piece of the pie. Sexy ratio charts and extreme % from means I feel are just as, if not more important. When all these (+other factors you will notice after solid screen time) come together you'll soon develop a feel for good trades. It comes a little more intuitive.


----------



## auric

agree cooper here is a chart of the qbe/ben which i would use to make a decision on the trade, pf is a very good tool which i find saves a lot of time data mining  ,
wish i was a bit more sql savvy to link the chart program to the database might be a good upgrade for pf developers.
great thread


----------



## Pairs Trader

closed trades

Sold ABB @ 8.90 (1.57% loss)
Covered CSR @ 1.815 (3.12% loss)

Sold FXJ @ 1.47 (5.00% profit)
Covered APN @ 1.81 (1.40% loss)


----------



## dr3wfish

Is anybody else having serious problems with the data not being current?

None of my ASX stocks will update past 5/08 which is driving me insane.

I also get consistent unhandled exceptions complaining about 'Object reference not set to an instance of an object'.  I suppose i should raise these issues in the pair trader forums (and i will) however they don't seem to be frequented to often..


----------



## marlon

PT, ultra-newbie here... 

Been following a couple of your recent trades. Would the ABC/GNS pair be a prime example of when you might average down? Given no change in the fundamentals or pending announcements, and with the price movement of ABC, it would appear a compelling case (and a low-risk strategy?) to average down at least with that half of the pair.

Of course this is all with the benefit of hindsight now that they are back to a fairly neutral price position.


----------



## Sugar Dunkaton

AS far as i can tell, they are not really in a "neutral price position" since the trade was entered - I think they have both moved unfavourably.


----------



## marlon

Sugar Dunkaton said:


> AS far as i can tell, they are not really in a "neutral price position" since the trade was entered - I think they have both moved unfavourably.




Well, GNS has pretty much remained around a cent or two of entry price but the morning of my post ABC was back at 2.36 after hitting 2.47 the previous day (and then up to 2.52 yesterday).
My question of PT was that as they had diverged even more from the initial trigger point, was this not a typical example of when he might average down, with ABC in this case, and indeed then pick up some small profits along the way before final exit?


----------



## cooper1308

marlon said:


> Well, GNS has pretty much remained around a cent or two of entry price but the morning of my post ABC was back at 2.36 after hitting 2.47 the previous day (and then up to 2.52 yesterday).
> My question of PT was that as they had diverged even more from the initial trigger point, was this not a typical example of when he might average down, with ABC in this case, and indeed then pick up some small profits along the way before final exit?




It's been mentioned in order to keep things simple, "layering" will not take place in this journal...

However, you would layer this particular trade assuming it moved past your pre-determined parameters. A trade that moves against you quite significantly might not always constitute another  "layer" as the mean ratio it is benchmarked against is not static.

So to answer your question...Generally if the move was big enough and pushed the SD past layer 2, with no news...then yes I guess you would add another layer....if not then no. But we don't know what PT parameters are


----------



## saico

dr3wfish said:


> thanks skc, thats what i was after.  I had heard there isn't much liquidity with asx cfds.
> 
> two more for you:
> - if you use ib for the long leg, what do you use for the short leg?
> - does ib only offer 50% on overnight positions? (i have looked on the ib site for margin rates on aus stocks but can't say i came away with a definitive answer..)
> 
> hadn't really thought about mixing platforms ie mqprime cfds for shorts, ib for longs.




IB as data provider for PTF would be great. I'm also trading with IB. No complaints at all.


----------



## samgribbles

PT - no new trades for 2 weeks?


----------



## n5032245

fellow pair traders and pair trade finder,

i have a suggestion for an upgrade to the software and wanted to guage the forum's/PTF's response. 

One of the major pitfalls (in my eyes) of the platform is the delay between the actual share price (live) and what is updated either though yahoo finance or IQ data feed. how many times have we seen an exit/entry signal go off, but the share price has already retreated. 

a way to naviagate this problem could be a small addittion to the program. specifically, a small box on the 'analyse pair' tab that allows you to enter one share price (eg CBA $35) and for the program to calculate what the other share price (eg ANZ) would have to be for the +/- to equel zero (ie. an exit signal).

i for one watch all my trades and when they look like getting close i make an educated guess as to what this would be. an exact calculation would not only be a simple addittion (for PTF), but would be overly helpful. 


all comments welcome. 

Regards, 

Charles


----------



## manuelg

Since I work full-time, i cannot use the pairtrade software during the day and have been experimenting with using EOD data to find suitable pairs and then attempting to get a similiar or better price the next morning.  Sometimes this results in missed trades, sometimes it also helps avoid extreme price changes.  An example of a trade that presented itself at close yesterday was "short FLT@11.80, long TEN@1.30".  While TEN has remained steady, FLT has rocketed to 13.56! In the opinion of those who have been doing this longer than I, does this now make it an even more appealing trade, or is this 15% movement an indication that they should no longer be used as a pair? (looking at the graphs from yesterday correltation is very high, with reasonable looking % from mean and spread charts - spread trending, % from mean oscillating).


----------



## Sugar Dunkaton

I would suggest that yesterdays movement on FLT was purely news related and this system is based on non-news related deviations.


----------



## manuelg

That was my thought also.  However, many share price movements could by considered news related.  Is the best policy to only trade pairs if there has been no news recently and no expectation of news in the near future?


----------



## cooper1308

manuelg said:


> Since I work full-time, i cannot use the pairtrade software during the day and have been experimenting with using EOD data to find suitable pairs and then attempting to get a similiar or better price the next morning.  Sometimes this results in missed trades, sometimes it also helps avoid extreme price changes.  An example of a trade that presented itself at close yesterday was "short FLT@11.80, long TEN@1.30".  While TEN has remained steady, FLT has rocketed to 13.56! In the opinion of those who have been doing this longer than I, does this now make it an even more appealing trade, or is this 15% movement an indication that they should no longer be used as a pair? (looking at the graphs from yesterday correltation is very high, with reasonable looking % from mean and spread charts - spread trending, % from mean oscillating).




The key here is position sizing

Personally I put 5% of equity long, 5% short...

The above black swan would result in me losing .75% of capital....

Get 5 of them in a row and your down 3.75%...Woopeee Dooo

Can't go bust if you try.

The catch here is you need to run many positions at the same time to offset the low exposure...

Having a bunch of cash in the market at one time isn't a worry when trading pairs, as you completely neutral (As opposed to having a bunch long or short the market).


----------



## Pairs Trader

Yes pair trading has been a bit soft lately, not many trades, PnL comes and goes in waves as with all trading systems, you just gotta have the guts to hold on and stay patient, as Ive constantly said treat your trading like a business, try to be profitable every quarter, not every day. 

I strongly encourage all new readers of this journal, especially those who are going to post questions to take the time and invest in your education by reading this entire journal, read 2 or 3 times if it helps, those several hours of reading will be sure to pay dividends. 

FLT released better than expected earnings and guidance yesterday, I saw it at over 3 stdev above the market too, however I will repeat this for the 68th time, don't trade stocks affected by news, this includes up to a week after the news release.

To check for new releases please use the ASX website -> announcements, you can also use this link http://www.investorsnetwork.com.au/research_channel/calendar_book/index.php to ensure your not putting on a position within 2 weeks of a earnings release.


----------



## Charlie Whiskey

PT, on the topic of news, how do you manage news that come out after you have entered a trade? It seems to be a rare event in this thread and I'm sure you're doing your best to avoid this situation, but I would like to get some insight on how to formulate a plan of action when it happens. Thanks.


----------



## skc

manuelg said:


> Since I work full-time, i cannot use the pairtrade software during the day and have been experimenting with using EOD data to find suitable pairs and then attempting to get a similiar or better price the next morning.  Sometimes this results in missed trades, sometimes it also helps avoid extreme price changes.  An example of a trade that presented itself at close yesterday was "short FLT@11.80, long TEN@1.30".  While TEN has remained steady, FLT has rocketed to 13.56! In the opinion of those who have been doing this longer than I, does this now make it an even more appealing trade, or is this 15% movement an indication that they should no longer be used as a pair? (looking at the graphs from yesterday correltation is very high, with reasonable looking % from mean and spread charts - spread trending, % from mean oscillating).




Personally I only trade pairs in the same industry. To me news can be classified into company-specific vs industry news. FLT's news show that the worst in the travel industry appear over. Have a look at other industry related stocks like Webjet, Wotif - they have both risen strongly as well either side of the FLT news. So in case you are shorting FLT you have also gained quite a bit on the long side. This strategy doesn't protect you from company-specific news, but good neutrality for industry news. 

On the ASX I find quite a number of industries offering great pairing...
Media
Building materials
Coal miners
Wealth managers
Engineering companies
Healthcare
Retailers
Gold miners
Utilities
Oil and gas
etc

and I found there to be more than enough opportunities without having to ever consider pairs like FLT / TEN. Pairing FLT and TEN is a lot less correlated than the statistics may suggest.


----------



## Pairs Trader

We complied this interesting chart showing similarities between 1929 and now, both charts start at their peaks http://tinyurl.com/m2a9xz Note the current divergence in both charts, if the dow jones was at 14,000 back in 1929, it would have gone down to below 2,000 by 1932. 

The dow could reach 10,300 by the end of this bull run or should we say short squeeze, which is a 50% retracement from it's 2007 high, at the very least there will be profit taking at that level and the downtrend may resume in what we think will be the 2nd half of the ''W'' shaped bottom.

The market bounced hard of its march lows by the leak of memo that citigroup would be announcing a profitable quarter for the first time in awhile, shorts immediately starting covering and the market has since sucked in new gullible buyers on the premise of a ''economic recovery'' just the same mentality in 1930. Look for a big bank announcing bad news in tandem with a 2%+ down day on big volume for a trend reversal.


----------



## bochman

looking at the chart, the correlation doesn't seem to be that strong?


----------



## auric

yes still not out of the woods yet correlation is not bad remember that they did not have that creative accounting back in the 30's that we have now in that you can put a value on your bad investments of what you think they are worth not what the market thinks..


----------



## Pairs Trader

technical correlation may not be that strong, however the direction is plus whenever the 2 lines diverge then tend to converge again.

yes we have creative accounting now, but that won't save them, the market figures out and prices in the truth eventually, it ain't stupid.


----------



## manuelg

Thanks everyone for their input.  I have been trading shares using the PairTrader software (and my own discretion) for 2 months and have made a small profit. I have also read this journal from the beginning, but was just curious how others deal with the issue of news affecting price.  I guess being watchful is the best way of avoiding a quick run against you.  

Interestingly FLT has come done sharply from its high yesterday and TEN has increased...anyone trading as a pair would have made a healthy profit...


----------



## MRC & Co

Pairs Trader said:


> The market bounced hard of its march lows by the leak of memo that citigroup would be announcing a profitable quarter for the first time in awhile, shorts immediately starting covering and the market has since sucked in new gullible buyers on the premise of a ''economic recovery'' just the same mentality in 1930. Look for a big bank announcing bad news in tandem with a 2%+ down day on big volume for a trend reversal.




lol, I think this rally has a bit more to it than a leaked Citi memo and some short covering.  

Data all over the world has been steadily improving for many weeks now.  I believe France and Germany just ended their recessions today.......

The US jobs market has been steadily improving, the housing market has stabilized, manufacturing has picked up, stimulus is flowing, credit is not as tight, inflation is still of no concern (allowing further scope for stimulation).  

Not that all this information is not already priced in as of now, but it's a big difference to gullible buyers.


----------



## Pairs Trader

lol? do you watch the market 16hrs a day?

It was exactly the rumour of citi/banking sector returning to profitability and stabilizing in March that induced the short covering, plus a myriad of indicators support this theory that this run up has more to do with short covering than fresh buying, the nominal increase in the stock market value hasn't matched the outflow from money/bond/paper funds, nowhere near it. Also with unemployment set to rise for the next 2 years at least, plus savings rate going from -9% to +7% where do you think new corporate earnings are going to come from? the whole world is still de-leveraging and since consumption is correlated to profits the risk is on the downside. The market has priced in a recovery and anything less is going to disappoint. I could go on and on all day about this with supporting data, but this is a pair trading journal, not a economic debating journal, if you don't see clouds on the horizon I guess your looking through a different lens than me which is fine, that's what makes a market, buyers and sellers.

''Whenever you find yourself on the side of the majority, it's time to pause and reflect.'' Mark Twain.


----------



## MRC & Co

Pairs Trader said:


> lol? do you watch the market 16hrs a day?
> 
> It was exactly the rumour of citi/banking sector returning to profitability and stabilizing in March that induced the short covering, plus a myriad of indicators support this theory that this run up has more to do with short covering than fresh buying, the nominal increase in the stock market value hasn't matched the outflow from money/bond/paper funds, nowhere near it. Also with unemployment set to rise for the next 2 years at least, plus savings rate going from -9% to +7% where do you think new corporate earnings are going to come from? the whole world is still de-leveraging and since consumption is correlated to profits the risk is on the downside. The market has priced in a recovery and anything less is going to disappoint. I could go on and on all day about this with supporting data, but this is a pair trading journal, not a economic debating journal, if you don't see clouds on the horizon I guess your looking through a different lens than me which is fine, that's what makes a market, buyers and sellers.
> 
> ''Whenever you find yourself on the side of the majority, it's time to pause and reflect.'' Mark Twain.




Yes, I watch the market 16 hours a day.   

I don't dispute the rally was caused by short-covering, but to say it has continued because of 'gullible buyers' is not the truth.  If you watch the data 16 hours a day and the markets reaction, you cannot dispute there has been a genuine pick-up from where we were at near the bottom, stimulus enhanced or not, it is there for all to see.  

I don't dispute the factors you talk of going forward, as I stated in my last post, I also don't dispute the good news may already be factored in (I am positioning for it myself), but we are talking about gullible buyers who came in because of short-covering, which is far too simplistic considering what we have seen over the past few months data wise.


----------



## el caballo

MRC & Co said:


> Yes, I watch the market 16 hours a day.
> 
> I don't dispute the rally was caused by short-covering, but to say it has continued because of 'gullible buyers' is not the truth.  If you watch the data 16 hours a day and the markets reaction, you cannot dispute there has been a genuine pick-up from where we were at near the bottom, stimulus enhanced or not, it is there for all to see.
> 
> I don't dispute the factors you talk of going forward, as I stated in my last post, I also don't dispute the good news may already be factored in (I am positioning for it myself), but we are talking about gullible buyers who came in because of short-covering, which is far too simplistic considering what we have seen over the past few months data wise.




Concur with MRC.  Pairs, your software is probably quite sharp, but your broader analysis underpinning this rally is highly questionable.  In any case, sorry to continue off-topic within this thread.


----------



## Pairs Trader

I won't offer my economic analysis here again as I don't want to get into a debate which could distract me from my trading and/or thinking.

Pair trading only.

p.s. el caballo, that's a pointless post, don't call my analysis questionable unless you can offer your own contradicting analysis backed up by facts.


----------



## Realism

Must agree with Pairs Trader here, this thread is clearly denoted "Pairs Trade Journal" for a reason.

Messrs MRC and el caballo, there are countless other threads/sites devoted to economic analyses that will be happy to accept & respond to your rationale .....

Pairs Trader: your efforts within this thread are appreciated by the majority, keep up the good work.


----------



## MRC & Co

Realism said:


> Messrs MRC and el caballo, there are countless other threads/sites devoted to economic analyses that will be happy to accept & respond to your rationale .....




Pairs offered a reason for the rally, I disagreed.  

I was always behind this thread, only offering a comment for those who may be reading his analysis on reasons for this rally.  I think the data speaks for itself (if you don't believe it, look it up) and it was very well pre-empted by the market.

Realism, perhaps you can contribute to the forum yourself if you have anything constructive to add.

Back to the thread.


----------



## el caballo

Yes, back to the thread - apologies for temporarily de-focusing it.


----------



## Realism

Fair enough folks - I just wanted to give PT some moral support, I was worried he was being outnumbered.

Personally speaking I have differing views on the short-term future of the market, I think there are a few more shocks to come. But who really knows? And isn't that the beauty of the market, everyone's got a different opinion 

I'm only 2 months into pair-trading, but have a few favourites already (WOR/WES, OSH/STO, ANN/AMC). Index trading has been good to me too: Wall St vs ASX 200, Wall St vs Hang Seng. But I've been caught out on a few trades: CBA/ASX is a prime example. ASX has missed out on the recent stampede in banking stocks, thus making me question the validity of trading pairs in different market sectors.

I also struggle with my exit strategy: unfortunately I'm unable to watch my trades 24 hours a day, and it seems next to impossible to place effective stops on trade pairs?

Would also like to start investigate overseas exchanges for potential pairs: anyone had any luck trading outside the Oz market?


----------



## skc

Realism said:


> I also struggle with my exit strategy: unfortunately I'm unable to watch my trades 24 hours a day, and it seems next to impossible to place effective stops on trade pairs?
> 
> Would also like to start investigate overseas exchanges for potential pairs: anyone had any luck trading outside the Oz market?




I also find that pairs trading is difficult (but not impossible) if you can't be infront to the screen during market hours. That is why I don't trade the US market (need that beauty sleep).

The only way to do that is to only enter / exit on the open / close - this could work for or against you from trade to trade I'd imagine.


----------



## samgribbles

I concur.  Very difficult to catch entries and exits close to the optimal entries/exits.  Some occur at open/close when trade execution is difficult to achieve.  

CFD provider can be an issue.  While GFT has the best platform I've seen, it is mighty ordinary for time to execute 'at market orders', even in highly liquid securities. 

Realism - I uploaded the top 6 UK LSE financials.  Placed one trade, good signal, very good charts etc, got absolutely spanked.  Got to know the stocks I think.

Also I struggle to understand WOR/WES.  Surely that pair is more cointegration rather than correlation?  WES is mostly Coles, Bunnings and a bit of export coal??

I keep having MND/DOW pop up as an entry.  Can anyone comment on that pair if they've traded it a few times?


----------



## skc

samgribbles said:


> I concur.  Very difficult to catch entries and exits close to the optimal entries/exits.  Some occur at open/close when trade execution is difficult to achieve.
> 
> CFD provider can be an issue.  While GFT has the best platform I've seen, it is mighty ordinary for time to execute 'at market orders', even in highly liquid securities.
> 
> Realism - I uploaded the top 6 UK LSE financials.  Placed one trade, good signal, very good charts etc, got absolutely spanked.  Got to know the stocks I think.
> 
> Also I struggle to understand WOR/WES.  Surely that pair is more cointegration rather than correlation?  WES is mostly Coles, Bunnings and a bit of export coal??
> 
> I keep having MND/DOW pop up as an entry.  Can anyone comment on that pair if they've traded it a few times?




MND/DOW/UGL/TSE are good group to trade. DOW/MND is not showing up as a signal on my program, unless it was activated intraday.


----------



## korrupt_1

Pairs Trader said:


> Look for a big bank announcing bad news in tandem with a 2%+ down day on big volume for a trend reversal.




looks like the dj is down nearly -200pts (2%) tonight... could this be the indicator to watch for?????

but isn't this the beauty of pair trading? does it really matter what the indexes are doing?


----------



## Charlie Whiskey

I haven't had a chance to trial Pair Trade Finder yet, mainly because I'm busy looking for a house.

I thought about the problems above, and I thought I heard someone mentioned that there is a email alert facility in the software? How about using an iPhone to receive alerts and excute trades?


----------



## Realism

samgribbles said:


> Realism - I uploaded the top 6 UK LSE financials.  Placed one trade, good signal, very good charts etc, got absolutely spanked.  Got to know the stocks I think.
> 
> Also I struggle to understand WOR/WES.  Surely that pair is more cointegration rather than correlation?  WES is mostly Coles, Bunnings and a bit of export coal??




Yeah good point samgribbles, as tempting as it is to jump in and trade every pair of stocks that presents a good signal, it seems to be prudent to concentrate on a basket of stocks that you know well.

And yes, having learnt from my CBA/ASX disaster, I will discard WOR/WES as it is a cross-sector pair (even though it has been a fairly reliable trade to date).

Frustrating day on the market today – I’d identified QBE/AXA and/or QBE/IAG as potential trades, but was a bit slow jumping on them  Oh well there’s always next time ……


----------



## Realism

korrupt_1 said:


> looks like the dj is down nearly -200pts (2%) tonight... could this be the indicator to watch for?????
> 
> but isn't this the beauty of pair trading? does it really matter what the indexes are doing?




Wall St is moving a bit south isn’t it ….. we were fairly resilient here today (relatively speaking), it’ll be interesting to see if we can maintain that form tomorrow.

Absolutely agree with you korrupt_1, that’s why pair-trading is so appealing to me, there’ll be trading opportunities regardless of the market direction, and I no longer break into a cold sweat when I turn on the PC every morning to check what happened on Wall St overnight!


----------



## n5032245

Pair trader, 

I don't think i have seen your close out of the ABC/GNS trade posted on this thread. GNS has a cracking day yesterday.


----------



## Pairs Trader

oops, appears I forgot to post my ABC/GNS exit.

Sold ABC @ 0.97 (1.04% profit)
Covered GNS @ 2.35 (breakeven)

Attached a screenshot showing the exit signal on the 7th of this month.


----------



## bochman

I wonder how many people lose (or made) money on this one without the exit


----------



## Pairs Trader

I don't promote, condone or agree with people piggy backing my trades, everyone trades at their own risk and should have their own trading plan, because I could get hit by a bus tomorrow then what would they do?


----------



## skc

Pairs Trader said:


> I don't promote, condone or agree with people piggy backing my trades, everyone trades at their own risk and should have their own trading plan, because I could get hit by a bus tomorrow then what would they do?




I hope you don't get hit by a bus... who's going to keep updating my software licence?

Now check out this interesting plot of PT's 44 trades in this journal.

Pretty clear relationship between holding duration and return.


----------



## n5032245

SKT, that is a very helpful thread. that graph really shows that the trades that are held over 10 days are not profitable. 

would this suggest that a 10 day stop loss should be put in place? maybe not as it would (i assume) force those trades to be closed out for a larger loss then would have it one had waited for it to revert back to the mean. 

SKT, if you have the data on you and are willing to data mine, a test of how those trades held over 10 days would have performed had they been closed out at day 10 would provide helpful insights into potential stops. 

Pairs trader, do you have some sort of analysis along these lines?


----------



## skc

n5032245 said:


> _(SKT)_ *SKC*, that is a very helpful _(thread)_ *post*. that graph really shows that the trades that are held over 10 days are not profitable.
> 
> would this suggest that a 10 day stop loss should be put in place? maybe not as it would (i assume) force those trades to be closed out for a larger loss then would have it one had waited for it to revert back to the mean.
> 
> _(SKT)_ *SKC*, if you have the data on you and are willing to data mine, a test of how those trades held over 10 days would have performed had they been closed out at day 10 would provide helpful insights into potential stops.
> 
> Pairs trader, do you have some sort of analysis along these lines?




Glad it's helpful to you. Your analysis is correct, that pairs > 10 days may actually turned better on 15th day. I wouldn't data-mine this as there are really only a handfull of sample points. I can share with you the pairs and dates if you wish to do so yourself.

PT may have more insights.


----------



## bochman

PT, I was just joking in a sense.

And please don't get hit by a bus!


----------



## cooper1308

Would it be possible to run PTF backtester over the 12 month period, with 5 min data?

I guess EOD data is sufficient if you are only trading EOD. However, I believe the more data over the same time period, the better the edge. I watch the markets all day and managed to open/close several trades at favorable levels that are showing as an open loss in PTF.. 

I'll exaggerate to make a point..... Imagine every trading day the long leg in your pair opened +5% and short opened -5%, but they always closed EOD at 0% & 0%... As I am watching the markets I would have closed the trades 99% of the time at the +5 -5 levels and not held on... Yet the backtesting data would always convey something different. 

You may get lucky every now and again because using EOD you keep a trade open that otherwise would have been closed.....and then the next day both move considerably further in your favour.

But overall your system I believe is at a significant disadvantage.

EOD = 1 price level per day
5 min = 360 odd price levels per day

Agree/Disagree/thoughts?


----------



## skc

cooper1308 said:


> Would it be possible to run PTF backtester over the 12 month period, with 5 min data?
> 
> I guess EOD data is sufficient if you are only trading EOD. However, I believe the more data over the same time period, the better the edge. I watch the markets all day and managed to open/close several trades at favorable levels that are showing as an open loss in PTF..
> 
> I'll exaggerate to make a point..... Imagine every trading day the long leg in your pair opened +5% and short opened -5%, but they always closed EOD at 0% & 0%... As I am watching the markets I would have closed the trades 99% of the time at the +5 -5 levels and not held on... Yet the backtesting data would always convey something different.
> 
> You may get lucky every now and again because using EOD you keep a trade open that otherwise would have been closed.....and then the next day both move considerably further in your favour.
> 
> But overall your system I believe is at a significant disadvantage.
> 
> EOD = 1 price level per day
> 5 min = 360 odd price levels per day
> 
> Agree/Disagree/thoughts?




360 price level x 250 trading days per year = 90000 data points.

100 pairs = 9m data points.

Will crash your computer in no time.

The truth is if it works EOD then it works if you are monitoring intra day as well. Esp since triggers are already generated intraday.


----------



## cooper1308

skc said:


> 360 price level x 250 trading days per year = 90000 data points.
> 
> 100 pairs = 9m data points.
> 
> Will crash your computer in no time.
> 
> The truth is if it works EOD then it works if you are monitoring intra day as well.




Agree



skc said:


> Esp since triggers are already generated intraday.




Triggers are generated intraday yes, assuming your PC is on throughout the session.....otherwise it will revert EOD.

I'm looking more toward back-testing though. While I believe optimizing systems through backtesting isn't hugely important, I think we could get some interesting difference in performance.


----------



## oby_2

I think the time based stop is an interesting one. I have just implemented a 10 day stop after some testing and was stopped out yesterday on my first trade. Today that stock jumped in my favour significantly and what was closed for a small loss yesterday could've been closed for a nice win today. 

Lesson learnt - As PT says, it is not one trade but the results of many trades that counts. I continue with the strategy....

Another lesson learned with IIF on which I was short. The evening i had openned the trade I found one reference (speculation) to it being a potential takeover target. In the coming 10 days it gained from 32c to 48c. I closed out yesterday when it came back under 40c, but at this time have still seen no solid news or information to support the sudden price change. Given other news during the time was a property value downgrade and the sale of stock by the CEO, the increase in price is still a little strange.

Lesson learnt - when one hears the phrase takeover against your short position, close out and get on with other more profitable trades. Better a black swan avoided than a small profit gained.

Cheers,
oby


----------



## Pairs Trader

Guys, no trades open for me at the moment as I'm traveling, thanks for keeping the thread alive and interesting, pleasure to read, will comment more on discussed topics when I have time.


----------



## TradePro

Hope you are all having a fun and successful Pair Trading!

I have been Pair Trading ASX 200 stocks and have been wondering what sort of risks may be associated with shorting ASX 200 stocks. From risk of shorting, I mean the fact that one takes unlimited upside risk when shorting.

Would ASX 200 stocks be considered fairly safe for shorting, ie, what would one need to be prepared for in an event of a strong increase in the short leg of the trade, practically speaking? Like say a 100% increase overnight in the value of a ASX 200 stock, or is this scenario impossible?


----------



## skc

TradePro said:


> Hope you are all having a fun and successful Pair Trading!
> 
> I have been Pair Trading ASX 200 stocks and have been wondering what sort of risks may be associated with shorting ASX 200 stocks. From risk of shorting, I mean the fact that one takes unlimited upside risk when shorting.
> 
> Would ASX 200 stocks be considered fairly safe for shorting, ie, what would one need to be prepared for in an event of a strong increase in the short leg of the trade, practically speaking? Like say a 100% increase overnight in the value of a ASX 200 stock, or is this scenario impossible?




Nothing is impoosible. The tail end of ASX200 stock can be very small companies with small market cap and high volatility. You will also find many fallen former blue chips there that are quite volatile. So it is certainly possible for a ASX200 stock to move up 100% over a matter of weeks. See EHL for a recent example: 32c low on 8 Jul, 90c high on 12 Aug.

To control (not eliminate) this risk , I adopt several rules which may be of interest to you.

1. Never short potential takeover targets
2. Cut the short leg if price move confirmed with news and strength continues
3. Implement a hard stop if pair goes against me to 10% of account size (luckily this hasn't occured yet)
4. Not trading stocks 1 week either side of reporting 
5. Depending on chart pattern, I also delay shorting shares in a "potential breakout" mode as a matter of caution

So basically I filter the signals with a dose of fundamental knowledge and basic charting skills. Sometimes that means I miss out of good trades, other times I avoid potential disasters.


----------



## TradePro

Thanks SKC. Advice much appreciated ...

If I only pair stocks in ASX200 with market capitalization greater than say, 1 Billion, would this substantially reduce the shorting risk? 

Also, there are some companies that are large market cap but price below a dollar, for eg. Goodman Group, GMG with market cap 1.5 Billion but with current price only $ 0.545. Does shorting risk increases if price is very low, or would this be irrelevant...

Since shorting is a part of pair trading, I want to ensure that I am not taking some unknown high risk (risk of losing more than say, 100% on a trade in the worse case scenario).


----------



## bochman

I also have a general question regarding pairs trading.

would you pair trade a stock when it is about to go ex-div?

If you long, your share will drop, if you short, you have to pay the dividend; either way, it doesn't look good?


----------



## skc

bochman said:


> I also have a general question regarding pairs trading.
> 
> would you pair trade a stock when it is about to go ex-div?
> 
> If you long, your share will drop, if you short, you have to pay the dividend; either way, it doesn't look good?




It doesn't make any difference as you "should" be neutral when it comes to ex-dividends. i.e. Lose 10c per share but gain 10c per share in div.

The only thing you need to watch is that the signal isn't generated because of one leg or another going ex-div.


----------



## skc

TradePro said:


> Thanks SKC. Advice much appreciated ...
> 
> If I only pair stocks in ASX200 with market capitalization greater than say, 1 Billion, would this substantially reduce the shorting risk?
> 
> Also, there are some companies that are large market cap but price below a dollar, for eg. Goodman Group, GMG with market cap 1.5 Billion but with current price only $ 0.545. Does shorting risk increases if price is very low, or would this be irrelevant...
> 
> Since shorting is a part of pair trading, I want to ensure that I am not taking some unknown high risk (risk of losing more than say, 100% on a trade in the worse case scenario).




Personally I don't trade any of the fallen REITs. They are just too volatile.

May be trade stocks with comparable volatility... e.g. GMG with GPT, but not GMG with WDC. Use ATR% as a guide. The Pair Trades Finder has a volatility chart you can plot... but I never quite make sense of it.

You can never fully eliminate the risk... in either the long side or the short side. I manage that by getting to know the companies I trade reasonably well. With higher volatility pairs (e.g. pair of coal stock) I would also reduce position size to say 1/2 or 3/4 of normal.

P.S. GPT is a potential target of LLC btw.


----------



## bochman

skc said:


> It doesn't make any difference as you "should" be neutral when it comes to ex-dividends. i.e. Lose 10c per share but gain 10c per share in div.
> 
> The only thing you need to watch is that the signal isn't generated because of one leg or another going ex-div.




But how can you guaranteed being neutral with 2 different stocks.
They may not have the same level of dividend, or may be 1 doesn't pay dividend?


----------



## skc

bochman said:


> But how can you guaranteed being neutral with 2 different stocks.
> They may not have the same level of dividend, or may be 1 doesn't pay dividend?




I am a bit lost as to what you are trying to ask... 

The ex-div effect is neutral within a single leg. But stocks going ex will affect the program's signal so you will have to take that into consideration on the pairs you trade.


----------



## awg

Some observations.

The best trades I have had, on an annualised return basis, occurred on 1-2 day turnaround, mostly on a signal triggered the day before an unexpected announcement, then closed on the announcement...lol

took profits of 3-4 % and often closed before the program indicated.

other good trades on highly correlated stocks, with 100% success shown in backtest.

Go better if I am familiar with the stock

have had good trades on volatile stocks, MCW has been a successful half

lots of dummy account trades, found the long duration ones often eventually come back to smaller losses, but then you have to factor in the differential finance carry cost on the short leg.

more number crunching/testing to be done.

I also tend to think that this method of trading will underperform in a trending market, but outperform in volatile.

sideways, I think it may outperform, but as we havent had one, cant tell yet.

can place a stop-loss or even GSL on the short leg, if you are concerned about takeover target

comments welcome


----------



## cooper1308

TradePro said:


> Thanks SKC. Advice much appreciated ...
> 
> If I only pair stocks in ASX200 with market capitalization greater than say, 1 Billion, would this substantially reduce the shorting risk?




Depending on your circumstances, US can be a far better IMO.

ASX has just over 100 stocks $1b+

NYSE over 1100+ stocks 1b+...........not even including NASDAQ

Factor in cheaper trading fees and lower financing costs and things are looking good.

Yes you'll probably know alot less about the companies initally, but it's all part of the journey...

Hours also get a little challenging. But still good


----------



## SilverRanger

Anyone mind to share their faverite aussie trading pairs? 

Mine would be the nickel mining stocks (MRE, MCR & MBN) and the big 4 banks


----------



## Freddy

"technical correlation may not be that strong, however the direction is plus whenever the 2 lines diverge then tend to converge again."

PT you talk a lot about "the two lines".  What is that exactly?

I am new to this game and am confused with references to two lines diverging/converging but I only see one line on a correlation chart.  Can I have a very simple explanation about diverge/converge and on what charts are we referring to?

Also, with Back Testing, how do you get data from the left hand box of pairs into the right hand section?  I have tried left click right click and drag without success.


----------



## skc

Freddy said:


> "technical correlation may not be that strong, however the direction is plus whenever the 2 lines diverge then tend to converge again."
> 
> PT you talk a lot about "the two lines".  What is that exactly?
> 
> I am new to this game and am confused with references to two lines diverging/converging but I only see one line on a correlation chart.  Can I have a very simple explanation about diverge/converge and on what charts are we referring to?




Let me try to answer this... although I can't guarantee this to be correct.

The 2 lines referred to are the ratio line and the Moving average of the ratio. Entry signal is generated when the ratio line moves far enough away (diverge) from the moving average of the ratio, while exit signal is generated when the ratio line crosses back (converage) with the MA of ratio.


----------



## Freddy

Thank you skc, that makes things clearer.  I have watched charting using an  11 day exponential moving average so this is similar - my PTF is set to 150 days and 14 day lookback, is that normal?


----------



## TradePro

I have been looking into pairing some of the Real Estate Investment stocks such as SGP, GPT, MGR, WDC etc. These stocks have historically shown high average correlation, around the 80% level for the last year.

This is what I am finding a bit strange that the current correlation between SGP and the rest (GPT,MGR,WDC) have gone down drastically. For example, current correlation between SGP and MGR is 36%, between SGP and GPT is 37% and between SGP and WDC is 30%

Does anyone know why this is? 
And also does this mean the above pairs should not be traded given such low correlations?


----------



## Sugar Dunkaton

I am going to say without looking at anything that SGP, the common factor in all those low correlations, has probably had some significant news or a drastic change in sentiment towards it to warrant its fall out of sync with the others.

According to the rules I trade by, we would not trade stocks with a falling correlation given that it is that low. We normally try and stick to stocks >70%


----------



## TradePro

Do any of you use 'Percent From Mean' value for deciding which pair trades to take? For instance take a trade only if 'Percent From Mean' is greater than a set percentage, etc. 

Does 'Percent From Mean' gives an idea of what might be the expected returns if a pair trade was taken?


----------



## skc

TradePro said:


> Do any of you use 'Percent From Mean' value for deciding which pair trades to take? For instance take a trade only if 'Percent From Mean' is greater than a set percentage, etc.
> 
> Does 'Percent From Mean' gives an idea of what might be the expected returns if a pair trade was taken?




The maths in PTF is actually quite simple. Percent from mean is the difference between current ratio of the two stocks (R_now) and the moving average of the ratio (R_MA).

It gives an indication of what the returns would be if the ratio is returned to the MA on the same day. For example:

Stock_short = 2.1 
Stock_long = 0.95
R_now = 2.21
Say the R_MA is 2
The percent from mean is 2.21/2 -1 = ~10.5%

If the ratio was to return to the mean on this same day, you would have made 10.5% x size of one leg. E.g.

Cover stock_short at $2 (+5%)
Close stock_long at $1 (+5%)

In terms of taking the number into account. I usually take a look at the Percent from Mean chart and see if the current value is significant compared to the past. E.g. if a pair regularly goes to +/- 15%, but the current value is only 2%, then may be there is more divergence to come before the pair converges.

Note however that the R_MA changes every day so the a percent from mean can change quite quickly even if the stock prices are not changing in your favour.


----------



## skc

Freddy said:


> Thank you skc, that makes things clearer.  I have watched charting using an  11 day exponential moving average so this is similar - my PTF is set to 150 days and 14 day lookback, is that normal?




My numbers are similar but can't tell you what is normal. Best ask guys at the website.


----------



## TradePro

Stocks affected by news are avoided when pair trading. When I check the news for many of the stocks in ASX100 that I want to pair, there seems to be quite a few ASX announcements. Are there any particular kind of news that needs to be avoided or any news at all for the stocks that are to be paired?

Also, how long would you wait for the effect of news to subside?


----------



## n5032245

Trade Pro,

you need to take the news on a case by case basis, apart from when results are release IMHO. i do not trade one week before results or one week after. full stop. happy to let trades go through that occur in this time frame. 

as for other news, you need to determine for your self if there has been a material price movement in the stock resulting from the news (or built up to the news). some news will be clasified as price sensative, but won't materially move the market. so disregard. 

remember that we are looking to make a profit from an statistical arbitrage situation where two similar stocks have diverged for no underlying reason and are predicted to revert back to the mean. 

hope this helps.


----------



## Trade to win

Pairs Trader said:


> Guys, no trades open for me at the moment as I'm traveling, thanks for keeping the thread alive and interesting, pleasure to read, will comment more on discussed topics when I have time.




Hi
Intresting software, but the problem is that I trade forex and Futurs, have you ever thought of upgrading your software to include these ?

As you may know there are many opportunities in forex and futurs in pairs trading and the amount of forex and futurs are much more worldwide, which they can use your software, because mostly people who trade US shares are living inside the US but the forex and future's market is global.

Thanks.


----------



## samgribbles

long NAB at 29.47, short ANZ at 23.33.  SD 1.63, % 1.87

not > 2xSDs from SMA but % from mean is high.  I will take this one on the open if it is as above or better and will add to it if the SDs from SMA gets above 2


----------



## n5032245

is pair trader going to start his live journal back up again?


----------



## bochman

re NAB & AMZ pairs
interesting, seem to hit 2 StdDev on a shorter time frame (45 & 60 days), and confirmed with 1 year chart.
May be a play.


----------



## awg

n5032245 said:


> is pair trader going to start his live journal back up again?




There are posts from Tech/A and Nick Radge recently

the upshot is that unless you hold an AFSL then you cant post regular trading live on forums such as ASF..due to ASIC requirements.

This apparently included Tech and Rozella

A complete load of BS in my opinion, but the speculation was PT would also fall under this issue.

Comment PT?..mods?..Joe?


----------



## Sugar Dunkaton

thats a definite niggle, it was a very interesting journal to watch.


----------



## Barndat

Yes it was an interesting journal to read and I followed it up by downloading the trial prg. Now however it would seem that interest has moved on to the next bright trading idea whatever that is. I'm disappointed as I thought the prg had great potential. The PT dedicated forum is also completley dead...

My trial will expire today and I will be none the wiser....


----------



## samgribbles

closed NAB/ANZ trade that was opened 22 Sep
went against me straight away so doubled up

15 Sep opened / 17 Sep close
long	NAB	 28.420 / 29.54 = +3.9%
short	ANZ	 22.190 / 22.85 = +3.0%
=> profit = 0.9%

2nd trade:
long	NAB	 27.980 / 29.54 = +5.6%
short	ANZ	 22.030 / 22.845 = +3.7%
=> profit = 1.9%

1st trade w/leverage, return net of fees = 5.8% ROC
2nd trade = 14.7% ROC

(apols for late post, forgot my password)

I see PT has disappeared, I'll try and post my trades as I enter


----------



## samgribbles

FYI for those interested in the strategy.  It does work.

On live trades, my IRR since commencement of pairs trading strategy (1 Jul 09) is 120%pa from 24 trades (19 winners, 2 x breakeven (ROC<1%), 3 x losers).

Using real $ but only small bikkies still.  If I can keep the IRR above 100% after 50 trades I'll significantly increase my capital at risk.


----------



## Sugar Dunkaton

I know it is irrelevant to the thread, but I am fairly sure that IRR is not the term you are looking for. IRR is usually used for budgeting and planning for capital projects and their feasibility. What you are referring to is your "rate of return [ROR]". Excuse the pettiness. 

But yes, I have followed the system too, and I have found that it can make a solid return.


----------



## samgribbles

Sugar - I'm always eager to improve approach.  You'll have to explain the difference to me though; I'm pretty sure IRR is approriate for average return over time with capital going in and out over time


----------



## bochman

yes, it does work.
However, please bare in mind that it is all depending on the pair you are choosing, you have to be really careful about news, etc as well.

As in anything, you do need time to practice before going crazy.


----------



## samgribbles

29 Sep.
long NAB at 31.21, short CBA at 52.10


----------



## bochman

Samg:

I failed to see the logic/reason for your new pair, they are not even at stddev 1?


----------



## samgribbles

yeah I know.  I've just run some data through a spreadsheet at work.  I think the PT program must have used 2 days old data.  It was my intention to enter at -1.6 SD which is what my spreadsheet shows from 25 Sep data.

I'll have to be more diligent when looking for entries from the PT program at 11 at night after a beer or two!

Will monitor this one.  May exit at the close for BE just to get out of a position I shouldnt be in


----------



## tigger36

Hi,
I've recently downloaded the Pair trade finder trial, and having some fun trying all sorts of filters to find good pairs, some successful, some not... I don't seem to be anywhere near as good as some of the posters on this forum with 75% plus winning trades. Is anyone willing to giveup any winning pair selection filtering...? (Please!)
Thanks


----------



## samgribbles

in addition to the advice from PairsTrader on this forum I would say:
- read PT's posts from the start
- print off the screen plots and study them
- understand the (very simple) stat functions behind the software
- go for low volatility pairs
- stick to stocks with higher prices (+$1) and liquid stocks


bochman - you should post your trades


----------



## tigger36

samgribbles said:


> in addition to the advice from PairsTrader on this forum I would say:
> - read PT's posts from the start
> - print off the screen plots and study them
> - understand the (very simple) stat functions behind the software
> - go for low volatility pairs
> - stick to stocks with higher prices (+$1) and liquid stocks
> 
> 
> bochman - you should post your trades




Hi, thanks for the info.
When you say "stat functions", are you refering to all the different columns for %Win, AverageWin, Win/Loss ratio, etc..? or it maybe something I haven't discovered yet?
Thanks


----------



## bochman

Samg: 

I will, if I manage to get in, none so far, I only have like 5 pairs on watch, still need more.


----------



## samgribbles

NAB/CBA - out at 31.26 for NAB, 52.02 for CBA.  Both moved in the right direction but with the fees I made a loss of 0.9% on ROC => BE trade

Tigger:
no I meant the SMA, standard deviations, % from mean concepts.

And be wary of the backtester.  It does not take into account drawdown and trade closeouts that would actually happen in reality.  eg, in a trade you would not accept a 150% loss on capital to hang on and after mean reversion make a 10% profit - you would cut it earlier for a loss.  The screener backtester hangs onto trades until the price ratio moves back to the SMA.

Eg. If the price ratio moves outside the 2xSD limit and does not come back to the SMA per the desired theory/outcome (volatility about the SMA), and it continues to trend away from the SMA then the backtester hangs onto the trade until the ratio revets or the SMA catches up with the new ratio range.

If this doesnt make sense then you need to spend a couple of hours investigating what the screener actually does.  Don't think its too hard - it is VERY EASY theory.

Just research Bollinger Bands theory.

Even better.  Set up a spreadhsheet for say NAB/CBA and calculate and plot the SMA and the Bollingers for the price ratio => you will then see the PT Finder signals in action over time - it will all come together


----------



## tigger36

samgribbles said:


> NAB/CBA - out at 31.26 for NAB, 52.02 for CBA.  Both moved in the right direction but with the fees I made a loss of 0.9% on ROC => BE trade
> 
> Tigger:
> no I meant the SMA, standard deviations, % from mean concepts.
> 
> And be wary of the backtester.  It does not take into account drawdown and trade closeouts that would actually happen in reality.  eg, in a trade you would not accept a 150% loss on capital to hang on and after mean reversion make a 10% profit - you would cut it earlier for a loss.  The screener backtester hangs onto trades until the price ratio moves back to the SMA.
> 
> Eg. If the price ratio moves outside the 2xSD limit and does not come back to the SMA per the desired theory/outcome (volatility about the SMA), and it continues to trend away from the SMA then the backtester hangs onto the trade until the ratio revets or the SMA catches up with the new ratio range.
> 
> If this doesnt make sense then you need to spend a couple of hours investigating what the screener actually does.  Don't think its too hard - it is VERY EASY theory.
> 
> Just research Bollinger Bands theory.
> 
> Even better.  Set up a spreadhsheet for say NAB/CBA and calculate and plot the SMA and the Bollingers for the price ratio => you will then see the PT Finder signals in action over time - it will all come together




Thanks for the pointers... it does all make sense.


----------



## skc

bochman said:


> Samg:
> 
> I will, if I manage to get in, none so far, I only have like 5 pairs on watch, still need more.




Only 5 pairs on watch?!

Pair up the big 4 against each other and you have 6 pairs. Here are a few others to get your data base populated.

Building materials - ABC, BLD, JHX
Engineering services - UGL, DOW, MND, TSE
Media companies - APN, FXJ, TEN, WAN
Retailers - HVN, DJS (and Myer to come)

Do your own backtest and research


----------



## samgribbles

can you post your trades SKC?


----------



## skc

samgribbles said:


> can you post your trades SKC?




I will post a summary of my trades tomorrow, but I won't post individual trades.


----------



## samgribbles

skc - PT and rozella may have disappeared due to ASIC RG 162 but they were seeking to make money from their posts, and I suspect they did not have an AFSL.

We are not.  We are individual posters sharing ideas.  When I post my trades I am making a statement of fact.  I went long X and short Y.  I don't recommend others mimic my trade, nor do I seek income from my posts.  I seek critique.  It idea sharing.

I dont think its an issue for us to post trades.


----------



## skc

Here is my pair trading result summary. Started around April this year but really got into it from June onwards. The stats are:

Total trades: 97
Wins: 77 (79%)
Losses: 20 (21%)
Avg win / avg loss: 0.62
Avg days held: 5.52

Total net return from starting capital: 26.6%
Commission paid / total net return: 42.8%

Some general comments about my trading so far:
- Commission is a big part of the strategy unfortunately. Even though I believe I already use the cheapest broker out there.

- I started with average leg size around 20-25% of total equity, but has now increased it ~30-35% depending on the trade and liquidity. Using smaller leg size allows more positions to be opened at the same time.

- I use CFD for short leg, but direct share holding for the long leg. Had I used CFD for the long leg as well I would have paid additional interest equating to ~10% of the total net return.

- I use market depth a lot to see which leg I will enter first and where to use limit orders or hit the market.

- I always read company news etc before entering, and I never short potential takeover targets, no matter how unreliable such rumours may be. 

- I only pair up stocks in the same sector.

- I sometimes read the individual share charts before entering, so I will happily long a share that looks like ending a downward correction, or avoid shorting a share that is positioning for a potential breakout.

- I sometimes exit before the exit signals. Looking back at all the trades, I found that I underperformed the system by ~10% if I had followed all the signals. I think that is acceptable given the lag in prices of the software and the spreads.

- I use 10 day stop. As you can see the trades held >10 days have dramatically reduced win%.

- On a few occasions I have closed one leg and let another leg run with very tight stops. Given the market rally, allowing the long leg to run on occasions have been profitable.

I am not posting individual trades not because I am concerned about regulations. It's just too time consuming and potentially cause me to get worse fills!


----------



## tigger36

skc said:


> Here is my pair trading result summary. Started around April this year but really got into it from June onwards. The stats are:
> 
> Total trades: 97
> Wins: 77 (79%)
> Losses: 20 (21%)
> Avg win / avg loss: 0.62
> Avg days held: 5.52
> 
> Total net return from starting capital: 26.6%
> Commission paid / total net return: 42.8%
> ...




Excellent feedback, thank you for this. I too have found from my backtesting that the big losers pull the net return right down...but I suspect that's all part of the strategy (just not a nice one!).

I would be interested on people's views on what fundamentals you look at/compare when choosing pairs. Eg.P/E ratios, Price/Book, Beta, MCap, etc..
Reading the PairTradeFinder top 12 tips they suggest finding pairs with similar P/E, MCap and other fundamentals, and also ensuring trades are in the right direction for compared Price/Book ratios for each. I've started looking at the later, but I am not entirely sure it is really useful for short time frames..? The thing is with trying to find pairs that meet all these requitements you end up with only a few trades a year...! So obviously some compromise is required.
Any views anyone?
Thanks


----------



## bochman

I am not sure whether I got it right, but here it goes

Long FXJ 1.59
Short APN 2.08

in the red at the moment.

Yearly chart suggest it is back to normal, but 45-60 days chart suggest stddev of over 2.

FXJ is a bit of a worry, due to the board fight (but it can be good once they fixed it).

comments welcome.

btw, I am not using PT's software, hence only 5 pairs on watch.


----------



## samgribbles

long WBC at 25.01
short CBA at 50.38


----------



## bochman

good pick, samg, does look good, 1 year is still not near stddev2, but 60days look ok.


----------



## skc

tigger36 said:


> Excellent feedback, thank you for this. I too have found from my backtesting that the big losers pull the net return right down...but I suspect that's all part of the strategy (just not a nice one!).
> 
> I would be interested on people's views on what fundamentals you look at/compare when choosing pairs. Eg.P/E ratios, Price/Book, Beta, MCap, etc..
> Reading the PairTradeFinder top 12 tips they suggest finding pairs with similar P/E, MCap and other fundamentals, and also ensuring trades are in the right direction for compared Price/Book ratios for each. I've started looking at the later, but I am not entirely sure it is really useful for short time frames..? The thing is with trying to find pairs that meet all these requitements you end up with only a few trades a year...! So obviously some compromise is required.
> Any views anyone?
> Thanks




I don't really compare fundamentals. Market cap yes to some extent just to make sure I don't trade a $3B company with a $100M one, but these pairs should not make it to your watchlist anyway. Beta is probably useful, but I haven't spend enough time or don't have enough brains to consider its bearing. 

The other valuation metrics are probably not useful in such short time frames as you said. They may be useful for much longer term holds and if you compare each with their historical average PE. 

Having said that, I do find going long on a quality stock makes me feel more certain about a trade, and likely to be more patience waiting for the convergence to happen.


----------



## skc

samgribbles said:


> long WBC at 25.01
> short CBA at 50.38




Personally I've found Big4 don't offer a very high potential reward. They do correlate very well but, because of that, the P/L after fees tend to be quite small. 

So good hit rate but low reward. Usually if you can clear $100 out of every $10K you are doing well on a Big 4 pair trade. However, not best use of capital if you have other trades on offer.


----------



## samgribbles

Agree.  I havent found as much time as I would like to generate a good pairs list.  I'm mindful that idle capital in my CFD a/c is making zero return so use the banks trades which seem to occur frequently just to tick over the return.  I try and close my banks trades out within 3 days and target an annualised ROC (I know you dont like ROC!) of +300% for the trade, which in nominal terms is usually less than 10% on the trade.


----------



## skc

samgribbles said:


> Agree.  I havent found as much time as I would like to generate a good pairs list.  I'm mindful that idle capital in my CFD a/c is making zero return so use the banks trades which seem to occur frequently just to tick over the return.  I try and close my banks trades out within 3 days and target an annualised ROC (I know you dont like ROC!) of +300% for the trade, which in nominal terms is usually less than 10% on the trade.




Yes. ROC figures are somewhat meaningless if not completely misleading. It is really only useful if you are very capital constrained. You are down to the last $500 for margin and have 2 different pairs you can enter, and the 2 potential trades have all parameters equal except for the CFD provider's margin requirement. 

In that case, you can use projected ROC as your selection criteria. Other than that, ROC (and annualised ROC) is not a meaningful performance measure.

If you ever find yourself in that situation, however, then you probably shouldn't be pairs trading with CFD. You don't want to blow your account on a bad trade if you are so capital constrained.

Also, with CFD's I would not long on stocks that might undertake a capital raising. You will take the full hit of the dilution with none of the upside from rights issue or SPP etc.


----------



## samgribbles

bochman, I note your analysis periods of 1 yr and 60 days.  FYI I use 2-3 weeks for the SMA and SD calcs.

Are you looking to trade frequently or looking for longer term mean reversion investing with options or similar?


----------



## samgribbles

SKC.  Noted.  But in the absence of any better way to measure the profitability of an individual trade I use ROC, and the annualised ROC while crude and meaningless just helps introduce the time value.  Do you have an alternative suggestion?  I'm happy to change my ways.

I use IRR for the account growth over time which I believe is appropriate as it used balances net of fees etc and funds deposited/withdrawn.


----------



## bochman

samgribbles said:


> bochman, I note your analysis periods of 1 yr and 60 days.  FYI I use 2-3 weeks for the SMA and SD calcs.
> 
> Are you looking to trade frequently or looking for longer term mean reversion investing with options or similar?




I think PT mentioned that he uses 45 days or 60 days, hence I am using 60 days as a guide. 1 year is looking at the long term trend, in general, I found that if both 1 year and 60 days both indicates stddev of ~2, they have a higher chance of success. 
Obviously with this strategy, a cut loss of within 10-15 days is appropriate, hence I am basing it more toward 60 days trend, with 1 year as a guide.

I generally think 2-3 weeks trend is a bit too short, it doesn't really give you the overall picture, I can be wrong here.


----------



## samgribbles

Bochman - no, no right or wrong, just different style.  

CLOSED WBC / CBA
long WBC at 25.01 / 25.25 = +0.96%
short CBA at 50.38 / 50.16 = -0.44%
=> net move = +1.4% profit
=> with CFDs, after fees ROC = 9.9% in 2 days (opened yesterday)


----------



## samgribbles

long NAB at 29.37
short CBA at 50.16


----------



## samgribbles

long QAN at 2.82
short VBA at 0.455

not too sure about this one, first time this pair

SKC - any thoughts?


----------



## bochman

Samg:

is your ROC including commission? I found commission took a bit part out of profit normally.


----------



## skc

samgribbles said:


> SKC.  Noted.  But in the absence of any better way to measure the profitability of an individual trade I use ROC, and the annualised ROC while crude and meaningless just helps introduce the time value.  Do you have an alternative suggestion?  I'm happy to change my ways.
> 
> I use IRR for the account growth over time which I believe is appropriate as it used balances net of fees etc and funds deposited/withdrawn.




As your position sizing is based on some sort of "notional capital", your ROC should be based on that "notional capital" amount. E.g If each leg is 30% of your captial ($50K x 30% = $15K) and you made $1000, you have returned 2% on your capital. How much CFD margin you have to put up really has no bearing what so ever.

Whilst what you are doing is not wrong, it could potentially lead you down the wrong path (e.g. chasing quick closes, going with lower margin requirements when another better trade is on offer).

Not sure how you use IRR. That's not my understanding of how IRR is used. Just look back at the end of year and keep it simple. If I started with $50K and now has $60K, I've made 20% so far...



bochman said:


> I think PT mentioned that he uses 45 days or 60 days, hence I am using 60 days as a guide. 1 year is looking at the long term trend, in general, *I found that if both 1 year and 60 days both indicates stddev of ~2, they have a higher chance of success.
> *




This is interesting. Do share more as you do more research / trade.



samgribbles said:


> Bochman - no, no right or wrong, just different style.
> 
> CLOSED WBC / CBA
> long WBC at 25.01 / 25.25 = +0.96%
> short CBA at 50.38 / 50.16 = -0.44%
> => net move = +1.4% profit
> => with CFDs, after fees ROC = 9.9% in 2 days (opened yesterday)






samgribbles said:


> long NAB at 29.37
> short CBA at 50.16




Why didn't you just keep the CBA short? Saves you some brokerage.



samgribbles said:


> long QAN at 2.82
> short VBA at 0.455
> 
> not too sure about this one, first time this pair
> 
> SKC - any thoughts?




I wouldn't do this pair because VBA is a lot more beaten down and can therefore potentially bounce violently. At their peak, QAN/VBA was ~2-2.5, now they are like 6 or 7. Also I have a decent long position in VBA. Try QAN/MAP pair which has a solid performance history - I just missed an entry this morning on the pair.


----------



## bochman

closed FXJ & APN

1.58 & 2.03

probably a tag too early.


----------



## bochman

oh, btw, looking at the 1 year, 60 and 45 days chart for VBA & QAN, I think it may work, all confirm stddev of >= 2 now.


----------



## samgribbles

bochman - yes, my ROC figures include brokerage of 0.011%.  PM me your email address and I will send you the spreadsheet I use if you want.

skc 
- re QAN/VBA.  Good points, thanks.
- re CBA. Yes, should have.  I closed my open trade, then checked old signals and found the NAB/CBA was on so re-entered CBA.


----------



## samgribbles

CLOSED NAB / CBA
long NAB at 29.37 / 31.27 = +6.5%
short CBA at 50.16 / 52.68 = +5.0%
=> net move = +1.5% profit
=> with CFDs, after fees ROC = 10.2% in 3 days

NAB up 4.3% today after a 0.3% rise in Wall St.  Tempting to short it for a little pullback before the close


----------



## bochman

told u I closed out FXJ & APN pairs too early....
ah........

I seriously think VBA & QAN will work now, but it will be volatile.


----------



## skc

bochman said:


> told u I closed out FXJ & APN pairs too early....
> ah........
> 
> I seriously think VBA & QAN will work now, but it will be volatile.




May be, may be not. I've never topped up when a trade's gone against me.

If I was doing 30% a leg, it becomes hard to manage "single name risk" if I was to increase it to 50%. Just gets a bit scary for me.

QAN / MAP pair has been going off in the past few days.

5/10/09 Long MAP 2.59, Short QAN 2.81
6/10/09 Sell MAP 2.81, Cover QAN 2.84

7/10/09 Short MAP 2.95, Buy QAN 2.83
8/10/09 Cover MAP 2.87, Sell QAN 2.90

8/10/09 Buy MAP 2.80, Short QAN 2.99

And I managed to miss ALL of them 

Completely off topic... did anyone see beauty and the geek australia? That air hostress was hot - I bet you she works for VBA.


----------



## samgribbles

very very good QAN/MAP trades!  love the head bangin icon, if only I could insert that into some work emails!


----------



## skc

A very good trade setup at the moment is long PPT against AMP/AXA/PTM. 

All of these wealth management companies have spiked up and made new highs, except for PPT still in consolidation mode.

I have attached PPT and PTM charts for information. Don't have a screen shot from the software at the moment, but divergence is well above 2.5 std dev. 

Just an example how reading individual share charts can help me judge the potential merits of a trade.The pair trade will rely on the breakout of PTM be retested (or close the gap) while PPT moves into new high (market condition pending).

Some catuion required as the sector is under takeover rumours at the moment. Banks awash with capital are said to be eyeing the likes of AMP, while AXA is always prone to prey by it's French parents. But if someone was to move on one of them, the whole sector will follow suit no doubt.


----------



## tigger36

mmm, i'm not doing very well at this pairs trading lark... i've only just started so hopefully just a bad luck start, but out of 5 trades, i've 2 wins and 3 losses. Oddly the 2 worst losses are the ones I thought were good setups. I suspect I need to look at the charts in more detail, as it seems when a pair goes out of sync but caused by one of them breakingout, it can mean that stock keeps going out of sync as other traders are possibly buying into it as a breakout, it doesn't mean the paired stock is going to follow suit...
For instance i'm currently holding onto a trade in MGGT.L/RR.L, 96% correlation, and rising, but it really got out of sync with a breakout of MGGT.L on 6 Oct, and has carried on marching upwards, with RR.L going downwards! Maybe it will snap back together (I hope!), or can you see any fundamental reason why the rating of MGGT.L to RR.L has changed?
Thanks


----------



## skc

tigger36 said:


> mmm, i'm not doing very well at this pairs trading lark... i've only just started so hopefully just a bad luck start, but out of 5 trades, i've 2 wins and 3 losses. Oddly the 2 worst losses are the ones I thought were good setups. I suspect I need to look at the charts in more detail, as it seems when a pair goes out of sync but caused by one of them breakingout, it can mean that stock keeps going out of sync as other traders are possibly buying into it as a breakout, it doesn't mean the paired stock is going to follow suit...
> For instance i'm currently holding onto a trade in MGGT.L/RR.L, 96% correlation, and rising, but it really got out of sync with a breakout of MGGT.L on 6 Oct, and has carried on marching upwards, with RR.L going downwards! Maybe it will snap back together (I hope!), or can you see any fundamental reason why the rating of MGGT.L to RR.L has changed?
> Thanks




I have no idea about these stocks as I don't trade outside the Australian market. I assume you've checked that there were no news when you opened the trade?

How long have you had the trade open?

Frankly 2 wins 3 losses in the first 5 means very very little.


----------



## tigger36

skc said:


> I have no idea about these stocks as I don't trade outside the Australian market. I assume you've checked that there were no news when you opened the trade?
> 
> How long have you had the trade open?
> 
> Frankly 2 wins 3 losses in the first 5 means very very little.




Yes, I know you're right.

4 days in trade now, but I think putting that post on here had the right affect, the trade is starting to move in my favour now...

I think my key question really was people's view on "breakout" deviations?, which can go a long way from the mean before reverting?

Thanks


----------



## shayneb

At least you can put a trade on tigger.

In Aus. everytime I go to place a trade either I am too late and the std deviation has gone from 2.2 to 1.5 ( I am not in front of my computer all day every day), I dont get filled or one of the main indicators is not what it should be so I pass on the trade.  

Looking to the U.S. because we are knee deep in the reporting season I am also reluctant to trade for another 2-3 weeks at least over there.  

I am still struggling to believe I have finally found a trading system that can actually make consistent profits at least on paper - I seem unable to pull the trigger .....


----------



## n5032245

i am interested to hear the opinions of other people who do not sit in front of a screen all day and do rely on email alerts. do you still find that you are getting on the majority of trades?


----------



## tigger36

n5032245 said:


> i am interested to hear the opinions of other people who do not sit in front of a screen all day and do rely on email alerts. do you still find that you are getting on the majority of trades?




Hi, yes this is an interesting issue, I do rely on email alerts (although not sure whether your above post was meant to say "do rely"/"dont rely" on email alerts?). From my experience there are two obvious main issues: 1) Finding the pair and placing the trade, 2) Being alerted when it returns to the mean so you can close.
1) I am lucky enough to be a Software engineer by profession, and have written my own stock scanner to find pairs using live data from Yahoo (delayed by 15mins) according to my own criteria.  I simply run my program just before EOD to see if I have any pairs that I can trade (I have also incorporated an earnings date lookup in my program so it won't choose pairs within +/- 1 week of earnings), I then check news and place the trade. Takes 5 mins in total.
2) I then have a program running that monitors the Yahoo prices of my trades and sends me an email alert when they return to mean. I then logon and close. Takes 1 min.

This also helps take emotions out of trading, which in my past experience has made things worse for me. This method is early days for me as I am new to pairs trading as well, but the method helps keep my required time on the computer to minimum.

I think pair trade finder could do with some of these sorts of enhancements, maybe they are on the way, eg.finer pair selection criteria, email alerts, etc.. for those who cant watch a PC all day. 

I can say however, if you're willing to learn Java programming (loads of tutorials on the web), writing such a program according to your own requirements using Yahoo data feeds is relatively easy.


----------



## tigger36

shayneb said:


> I am still struggling to believe I have finally found a trading system that can actually make consistent profits at least on paper - I seem unable to pull the trigger .....




Me too... i'm trying to think positive pairs trading will work for me, my first few trades haven't gone very well, but my current trades are turning around nicely at the moment.

fyi, I have written my own backtesting software and backtested many different trading systems. I don't profess to be very knowledgable about trading systems, but of the ones I have tried (MAcrossovers, breakout trading, uni-lateral pairs) pairs trading back tested over 3 years has been the best profit per trade by far. Over 1% profit more per trade than any system I have tested, however of course commission is double, so it's give and take. But I am remaining confident... I'll let you know in 2 months time when i've traded this consistently, and I come back crying if it doesn't work !!
I am trying this out for real Spread Betting (in UK), hence I can trade very small amounts.


----------



## Freddy

I set my first trade on 18 Aug 2009 and as of today my account is $2390 profit on a $5000 bank. 

I have trawled through this thread four times and gleaned the following details mainly from PTF himself.  I use it to select my pairs and trade.

* Pair stocks in the ASX 200 but do it within sectors.
* When a trigger occurs, check that the +/- column is <= 2.5 or <= -2.5
* Correlation must be over 70% and not gone below 60% in past 100 days.
* No News.
* Back Test.
* Set Trade.

I only setup pairs with CURRENT stock price between 1.00 and 10.00 based on a snapshot from a download of the ASX 200 list.

Hope this assists.


----------



## tigger36

Freddy said:


> I set my first trade on 18 Aug 2009 and as of today my account is $2390 profit on a $5000 bank.
> 
> I have trawled through this thread four times and gleaned the following details mainly from PTF himself.  I use it to select my pairs and trade.
> 
> * Pair stocks in the ASX 200 but do it within sectors.
> * When a trigger occurs, check that the +/- column is <= 2.5 or <= -2.5
> * Correlation must be over 70% and not gone below 60% in past 100 days.
> * No News.
> * Back Test.
> * Set Trade.
> 
> I only setup pairs with CURRENT stock price between 1.00 and 10.00 based on a snapshot from a download of the ASX 200 list.
> 
> Hope this assists.




wow! you've done well, congrats!
I must say i've done similar, read PTFs posts several times etc.. but i've only just started so can't really judge how I am doing, other than the fact that my current 3 trades are all currently losing with a drawdown of 10% !!, here's hoping to a turn around...

Is there anyone else out there who would like to share their pairs trading performance? so we can get a feeling of the variation in performance? perhaps people who have not done quite as well...?


----------



## tigger36

Freddy said:


> I set my first trade on 18 Aug 2009 and as of today my account is $2390 profit on a $5000 bank.
> 
> I have trawled through this thread four times and gleaned the following details mainly from PTF himself.  I use it to select my pairs and trade.
> 
> * Pair stocks in the ASX 200 but do it within sectors.
> * When a trigger occurs, check that the +/- column is <= 2.5 or <= -2.5
> * Correlation must be over 70% and not gone below 60% in past 100 days.
> * No News.
> * Back Test.
> * Set Trade.
> 
> I only setup pairs with CURRENT stock price between 1.00 and 10.00 based on a snapshot from a download of the ASX 200 list.
> 
> Hope this assists.




A matter of interest, how many pair trades did you make in this period? I'm trying to judge trading frequency etc..
Thanks


----------



## shayneb

My very small contribution at this stage - I have managed only 4 pairs trades in 3 weeks.  3 of the 4 were profitable after all costs.  The 4th trade was breakeven.  Total profit $591 with $5,000 position on each leg (ASX 100 only).  I have to say I was lucky on the 4th and final trade as I was short HVN in a BBG/HVN pair on Friday and HVN had that negative report come out so I exited out at a nice little profit for 2 days work.  I did not even know there was a sales update expected on Friday.  

I read something interesting over the weekend.  The "wait one day rule" whereby the influence of the bid-ask bounce of closing stock prices may unintentionally push the standard deviation of the pair above 2 only for it to be reversed @ the next days open.....


----------



## Charlie Whiskey

I'm also doing paper trading right now (ASX200 only). Started in early Sept and the record is 6 wins 6 losses with an overall loss in $ term. Need to figure out what went wrong. 

I've a full time job unfortunately (or fortunately) so I'm totally relying on the email alerts (which ends up as an SMS on my mobile), I then open a remote desktop connection to the server to check the charts (when the boss is not looking!).

I'm not sure if it's my setup but there are very very few good signals from the ASX200 it seems. The best one (or so I thought) so far made me a 10% loss. Glad that's only on paper!


----------



## Freddy

I have now had 22 trades for the result I posted.  I rarely wait for an exit and just take a profit as I see fit.  One side of a trade went for over 6 weeks but I ended up in front very nicely.


----------



## Charlie Whiskey

Would the more successful of you like to elaborate on what criteria you set when you pick your pairs?

I'm most interested in whether you go through the products and services of every company in the ASX200 list or just match the stocks in each S&P sub-index?


----------



## skc

Charlie Whiskey said:


> Would the more successful of you like to elaborate on what criteria you set when you pick your pairs?
> 
> I'm most interested in whether you go through the products and services of every company in the ASX200 list or just match the stocks in each S&P sub-index?




There are 2 schools of thoughts.

1. Pair trade can be done with anything 2 stocks has a statistical correlation.

2. Only pair trade stocks in the same sector as they are exposured to the same underlying drivers.

If you are school 1, then just pair everything together and see what sticks. 

If you are school 2, a general understanding of what each company does is probably helpful. The sub-index provides most of the answer you need, but for materials I only pair up stocks related to the same material (so no pairing a zinc miner with a nickel stock). 

In pulling together the database, I err on the side of having more pairs than really warranted. That way I get plenty of signals and many of which I choose not to execute. But I also get to use the program as a bit of a market monitor... knowing when some stock suddenly fell / rose against its sector peers.


----------



## Pairs Trader

Hi Everyone! Hope we are all still doing well and crushing the market averages.

I don't have time to go through all the questions/topics discussed as Ive been very busy with a growing business and developing new products. My trading is moving more and more automated these days and we are working on a distributable automated product which I'm sure will excite many. I will let you all know when its available.

Meantime keep beating the market, dollar neutral style.


----------



## tigger36

I'm pair trading the FTSE350, as I am UK based. I am finding fewer pairs right now, persumably as volatility is decreasing. I was wondering what you guys do to alter your pair finding criteria (if at all) when pair finding starts to dwindle? (reduce potential pair profit/volatility criteria etc...?) 

I've done some back testing over different periods in the last 5 years with my own software and the last 2 years have been great, however testing back in the 2005-2006 time period shows "very" few pairs according to my search criteria. This was a time of steady, low volatility growth by the Markets, is that a time to try different strategies, or can you make your pair finding work in that type of market condition?

Thanks


----------



## bochman

S CBA 56.09
L NAB 30.89

S APN 2.46
L FXJ 1.75

See how it goes.

QAN & VBA pair is struggling, not that I am in it. Signal suggests it should work, but it doesn't seem to. May be VBA is just too small.


----------



## Edward deVeres

tigger36 said:


> Me too... i'm trying to think positive pairs trading will work for me, my first few trades haven't gone very well, but my current trades are turning around nicely at the moment.
> 
> fyi, I have written my own backtesting software and backtested many different trading systems. I don't profess to be very knowledgable about trading systems, but of the ones I have tried (MAcrossovers, breakout trading, uni-lateral pairs) pairs trading back tested over 3 years has been the best profit per trade by far. Over 1% profit more per trade than any system I have tested, however of course commission is double, so it's give and take. But I am remaining confident... I'll let you know in 2 months time when i've traded this consistently, and I come back crying if it doesn't work !!
> I am trying this out for real Spread Betting (in UK), hence I can trade very small amounts.




TRIGGER 36:

I am very intrigued by your being able to find out the Earnings Dates with Yahoo, something I've tried to do and failed.  Can you tell me how you have arranged this in your software?   I use XLQ to download prices, and DTN to obtain other information; can this be done from either program?

This help would be much appreciated.  This is something Pair Trade Finder should include in their software, as it's urgent to trading Pairs.

Yours, Edward deVeres


----------



## bochman

didn't really follow my take % profit target, decided to cut early.

CBA 55.68
NAB 30.92

APN 2.37
FXJ 1.705


----------



## Freddy

Bochman

Your APN/FXJ, I have my Stretch in Universal Layer settings at 2.5 so did not get this trade.  What is your stretch set at?

Freddy


----------



## bochman

Freddy said:


> Bochman
> 
> Your APN/FXJ, I have my Stretch in Universal Layer settings at 2.5 so did not get this trade.  What is your stretch set at?
> 
> Freddy




First of all, to clarify, I am not using PT software.
It is a bit manual at the moment, with me checking charts randomly.
I set stddev to be 2, as waiting for 2.5 is good, but will have less opportunity, with the way I set it up.


----------



## tigger36

Edward deVeres said:


> TRIGGER 36:
> 
> I am very intrigued by your being able to find out the Earnings Dates with Yahoo, something I've tried to do and failed.  Can you tell me how you have arranged this in your software?   I use XLQ to download prices, and DTN to obtain other information; can this be done from either program?
> 
> This help would be much appreciated.  This is something Pair Trade Finder should include in their software, as it's urgent to trading Pairs.
> 
> Yours, Edward deVeres




Hi, yes it is useful to be able to auto check earnings dates. I don't use Yahoo, as it doesn't provide dates for non-US companies. I instead simply Web scrape earnings.com. This is a little tricky as the ticker IDs used by earnings.com are not always standard RIC type codes, they are usually the ID the company was first registered with, which could be many years old.. So what I did was for the 30% or so of company codes in the FTSE350 that are non-standard I manually looked up their codes on earnings.com and put them in a lookup-table that my software uses, so it can correctly find the results in earnings.com. I was a one-off task that took me a few hours...but it made life easier...


----------



## Charlie Whiskey

bochman said:


> QAN & VBA pair is struggling, not that I am in it. Signal suggests it should work, but it doesn't seem to. May be VBA is just too small.




VBA has been quite volatile lately. By the way this trade lost me $2400 on a $20000 pair (simulated money - thankfully!) two or three weeks ago.

Just wondering how everyone else is doing with pair trading in the past 2 months? I have been making a straight row of losses on my paper trading.


----------



## skc

Charlie Whiskey said:


> VBA has been quite volatile lately. By the way this trade lost me $2400 on a $20000 pair (simulated money - thankfully!) two or three weeks ago.
> 
> Just wondering how everyone else is doing with pair trading in the past 2 months? I have been making a straight row of losses on my paper trading.




Charlie, not sure why it isn't working for you. Feel free to post your trades and I can may be comment whether it's the stock you paired up or the actual signals.

With a pair like QAN / VBA, you need to know something about the nature of the share. VBA has a higher beta than QAN - it means it is more volatile than QNA. So if I get a signal to short QAN and long VBA, then I will take it only if I believe the overall market is likely to rise. Shorting VBA seems unwise to me in the middle of a sharp rally (which it was a few weeks ago). 

It has been the most profitable month pair trading for me, growing my capital by 20% over 50 trades... All stats remain pretty much the same as my last update. The only difference is trade frequency (yes I went a bit gun-ho).

1 pair I am particularly fond of is APN/FXJ. I have opened and closed it 3 times within the 1 signal.

20/10/9 Long FXJ @ $1.74, Short APN @ $2.48
21/10/9 Sell FXJ @ $1.785, Cover APN @ $2.38
Net gain (before commission) = 6.8% (on leg size)

26/10/9 Long FXJ @ $1.745, Short APN @ $2.47
27/10/9 Sell FXJ @ $1.705, Cover APN @ $2.34
Net gain = 3.3%

28/10/9 Long FXJ @ $1.675, Short APN @ $2.40
29/10/09 Sell FXJ @ $1.615, Cover APN @ $2.25
Net gain = 3.1%

The return is diminishing as you can see as the pair is returning to the mean, but I've milked them enough. Sorry if it sounds like hindsight trading - feel free to ignore it.


----------



## bochman

skc said:


> Charlie, not sure why it isn't working for you. Feel free to post your trades and I can may be comment whether it's the stock you paired up or the actual signals.
> 
> With a pair like QAN / VBA, you need to know something about the nature of the share. VBA has a higher beta than QAN - it means it is more volatile than QNA. So if I get a signal to short QAN and long VBA, then I will take it only if I believe the overall market is likely to rise. Shorting VBA seems unwise to me in the middle of a sharp rally (which it was a few weeks ago).
> 
> It has been the most profitable month pair trading for me, growing my capital by 20% over 50 trades... All stats remain pretty much the same as my last update. The only difference is trade frequency (yes I went a bit gun-ho).
> 
> 1 pair I am particularly fond of is APN/FXJ. I have opened and closed it 3 times within the 1 signal.
> 
> 20/10/9 Long FXJ @ $1.74, Short APN @ $2.48
> 21/10/9 Sell FXJ @ $1.785, Cover APN @ $2.38
> Net gain (before commission) = 6.8% (on leg size)
> 
> 26/10/9 Long FXJ @ $1.745, Short APN @ $2.47
> 27/10/9 Sell FXJ @ $1.705, Cover APN @ $2.34
> Net gain = 3.3%
> 
> 28/10/9 Long FXJ @ $1.675, Short APN @ $2.40
> 29/10/09 Sell FXJ @ $1.615, Cover APN @ $2.25
> Net gain = 3.1%
> 
> The return is diminishing as you can see as the pair is returning to the mean, but I've milked them enough. Sorry if it sounds like hindsight trading - feel free to ignore it.




No, I agree with you. I have paired those twice, made money (I posted 1 of the trade here a few days ago). However, I didn't make as much as I tend to close out a tad too early.


----------



## Charlie Whiskey

SKC, it's good to know it's my set up not the market at fault. That means it's something I can fix.   

I'm flat out this weekend doing something else, I'll post my trade procedure and past trade history some time next week. Hope you can pick up some mistakes I didn't know about. Thanks mate.


----------



## tigger36

Charlie Whiskey said:


> SKC, it's good to know it's my set up not the market at fault. That means it's something I can fix.
> 
> I'm flat out this weekend doing something else, I'll post my trade procedure and past trade history some time next week. Hope you can pick up some mistakes I didn't know about. Thanks mate.




Hi, fyi, my first month of pair trading (on FTSE350) has been somewhat mediocre. Only 6 trades, 3 wins/3 losses, in profit slightly overall. I have been doing alot of trawling of pair trading journals and web sites, both here and on the Elite Trader forums, and am coming to a few conclusions on pair trading from the many posts I have read:
  - Experience in pair trading makes a big difference, maybe obvious!, but it can make a real diffence if you can avoid the big losers.
  - Some pair traders have made huge profits over the last year, > 100% annualized, I even read one post suggesting >1000% (not sure if I believed that!)
  - However...I read some posts from some newbie pair traders that lost big amounts. The typical scenarios I read were in the first month they closed off a number of good winners, but had left open some bigger losers that more than offset the winners. Some of these posters I didn't see a response from again...?
  - I am getting a feeling that the rewards from pair trading can be over exagerated, and more reasonable returns should prepared for, as the method is high win rate, but prone to "big losers".
  - Some traders can be lucky and do well, others not so due to big losers. A good article I read that suggests this is here: http://www.harcourt.ch/manual/swisshedge/2003/q3/investors_view.pdf

I myself think it is a good method for myself, but I am setting my goals at a realistic smaller return, if I achieve more than this then that serves as a buffer for that inevitable big bad trade.

Apologies for the ramble... just a few thoughts from my readings...

Cheers


----------



## skc

tigger36 said:


> Hi, fyi, my first month of pair trading (on FTSE350) has been somewhat mediocre. Only 6 trades, 3 wins/3 losses, in profit slightly overall. I have been doing alot of trawling of pair trading journals and web sites, both here and on the Elite Trader forums, and am coming to a few conclusions on pair trading from the many posts I have read:
> - Experience in pair trading makes a big difference, maybe obvious!, but it can make a real diffence if you can avoid the big losers.
> - Some pair traders have made huge profits over the last year, > 100% annualized, I even read one post suggesting >1000% (not sure if I believed that!)
> - However...I read some posts from some newbie pair traders that lost big amounts. The typical scenarios I read were in the first month they closed off a number of good winners, but had left open some bigger losers that more than offset the winners. Some of these posters I didn't see a response from again...?
> - I am getting a feeling that the rewards from pair trading can be over exagerated, and more reasonable returns should prepared for, as the method is high win rate, but prone to "big losers".
> - Some traders can be lucky and do well, others not so due to big losers. A good article I read that suggests this is here: http://www.harcourt.ch/manual/swisshedge/2003/q3/investors_view.pdf
> 
> I myself think it is a good method for myself, but I am setting my goals at a realistic smaller return, if I achieve more than this then that serves as a buffer for that inevitable big bad trade.
> 
> Apologies for the ramble... just a few thoughts from my readings...
> 
> Cheers




Tigger, 

My strategy has always been to avoid big losers. To do that it means don't trade around pending announcements, keeping position sizes in check, get to know the companies well / better, and implementing a time based stop. FWIW my biggest lost over 150 trades was 2.7% of account, worst losing stretch was 4 losses in 5 trades that resulted in a 4.8% drawdown.

1000% return is possible if you use leveraged instruments like CFD. A 10-15x leverage means you only need to return 60-100% on the actual trades. This however carries a lot more risk as some bad luck early on can easily blow up the account. Risk-controlled trading is what I prefer and the way to long term profitability imo.

To start take smaller positions, but more of them. Say go 8% leg size and run 5 or 8 pairs at any one time across multiple sectors. That way you gain some diversification straight way. You also get to learn the behaviour of individual stocks... what moves fast, what is volatile, how good is the liquidity etc... the more intimate you know a stock the better your entry and exit will be. Pair trading is a thin margin game so a few ticks each way can add up. Aim to get 50 trades under the belt with a focus on risk management and accepting losses. Then step up leg size as comfort level increases.


----------



## tigger36

skc said:


> Tigger,
> 
> My strategy has always been to avoid big losers. To do that it means don't trade around pending announcements, keeping position sizes in check, get to know the companies well / better, and implementing a time based stop. FWIW my biggest lost over 150 trades was 2.7% of account, worst losing stretch was 4 losses in 5 trades that resulted in a 4.8% drawdown.
> 
> 1000% return is possible if you use leveraged instruments like CFD. A 10-15x leverage means you only need to return 60-100% on the actual trades. This however carries a lot more risk as some bad luck early on can easily blow up the account. Risk-controlled trading is what I prefer and the way to long term profitability imo.
> 
> To start take smaller positions, but more of them. Say go 8% leg size and run 5 or 8 pairs at any one time across multiple sectors. That way you gain some diversification straight way. You also get to learn the behaviour of individual stocks... what moves fast, what is volatile, how good is the liquidity etc... the more intimate you know a stock the better your entry and exit will be. Pair trading is a thin margin game so a few ticks each way can add up. Aim to get 50 trades under the belt with a focus on risk management and accepting losses. Then step up leg size as comfort level increases.




Yes, I think we agree. I'm just reporting what I've observed from my reading. You say you avoid big losers, I think what you're saying is my first point above about using experience to try and avoid them. You cannot guarantee to avoid big losers. You have done very well for 150 trades I would say, shows you have built up good experience and knowledge.
My backtesting has shown some big losers for which there were no news or anything obvious, just obviously some fundamental change...i'm just trying to aleave the worries of the few people who have posted on this forum that are not doing that well... like Charlie Whiskey, so they get the right expectation.

If you make 1000% using leveraged products, then when that big loser does eventually creep up, that person would making a wopping big loss too!


----------



## tigger36

skc said:


> Tigger,
> To start take smaller positions, but more of them. Say go 8% leg size and run 5 or 8 pairs at any one time across multiple sectors. That way you gain some diversification straight way. You also get to learn the behaviour of individual stocks... what moves fast, what is volatile, how good is the liquidity etc... the more intimate you know a stock the better your entry and exit will be. Pair trading is a thin margin game so a few ticks each way can add up. Aim to get 50 trades under the belt with a focus on risk management and accepting losses. Then step up leg size as comfort level increases.




skc,
I think you may have hit one nail on the head with this.. I think my entry criteria has been too selective, I have only managed 6 trades in one month, whereas you say you've achieved 50, you obviously have less selective entry than I do. As you say this would give me more diversification and spread across sectors, I just need to adjust my trade size down and manage effectively. This is my current pair entry criteria for FTSE350 stocks:
  1. pair 100 day correlation > 0.80. (pair is correlated)
  2. pair 50 day correlation > 0.65. (pair is still correlated over the shorter term)
  3. 100 day correlation is increasing
  4. stocks are in the same Sector and have MCap > 200m and average volume > 150k/day. (stocks are liquid)
  5. Ratio chart shows nice range, no big trends.
  6. No news on either Stock, earnings etc..
  7. Pair has shown good cointegration in backtesting. > 75% wins, profit factor > 1.75
  8. Pair ratio is currently > 2.0 std deviations from mean
  9. Stock price charts show no obvious "range breakout" occuring.
10. Stock prices are both the same side of their 20day SMA. (ie.not in different trends)

Currently this produces about 10 signals per month.

If i'm thinking of relaxing this, what would you recommend changing?
I am thinking maybe remove criteria's 2 and 10 to start with, and maybe relaxing 7 a bit?

Thanks


----------



## tigger36

skc said:


> Tigger,
> To start take smaller positions, but more of them. Say go 8% leg size and run 5 or 8 pairs at any one time across multiple sectors. That way you gain some diversification straight way. You also get to learn the behaviour of individual stocks... what moves fast, what is volatile, how good is the liquidity etc... the more intimate you know a stock the better your entry and exit will be. Pair trading is a thin margin game so a few ticks each way can add up. Aim to get 50 trades under the belt with a focus on risk management and accepting losses. Then step up leg size as comfort level increases.




Also, do you trade Sector pairs, or sub-sector Industry pairs? Changing to the later, does reduce the number of pairs, but makes for better quality pairs. This is certainly the case for the FTSE350 Sectors, where Sectors like "Retail" or "Mining" can be very wide ranging...
Cheers


----------



## retroaugogo

Hope nobody was short Axa today.Up 30% on news in a day.

Underlines the shortcomings of the system and the problems insider trading causes pushing it  into overbought territory in the first instance.


----------



## skc

retroaugogo said:


> Hope nobody was short Axa today.Up 30% on news in a day.
> 
> Underlines the shortcomings of the system and the problems insider trading causes pushing it  into overbought territory in the first instance.




As I said... know your stock as intimately as possible is the best measure against situation like AXA.



skc said:


> Some catuion required as the sector is under takeover rumours at the moment. Banks awash with capital are said to be eyeing the likes of AMP, while *AXA is always prone to prey by it's French parents. *But if someone was to move on one of them, the whole sector will follow suit no doubt.


----------



## tigger36

retroaugogo said:


> Hope nobody was short Axa today.Up 30% on news in a day.
> 
> Underlines the shortcomings of the system and the problems insider trading causes pushing it  into overbought territory in the first instance.




Exactly my point above, you never know when this sort of event could occur causing a big drawdown in your pair trading system... although I also fully agree with "skc", in that knowing your stocks will definitely help you avoid them...
If you have a large selection of pairs, like i've heard of some people with 500+ pairs on their watchlist, then I would say that's always going to be more dangerous as you'll find it hard to keep an eye on the news of that many pairs...just spend alot of time researching upon an entry signal is the answer I guess, don't just jump in...


----------



## skc

tigger36 said:


> Exactly my point above, you never know when this sort of event could occur causing a big drawdown in your pair trading system... although I also fully agree with "skc", in that knowing your stocks will definitely help you avoid them...
> If you have a large selection of pairs, like i've heard of some people with 500+ pairs on their watchlist, then I would say that's always going to be more dangerous as you'll find it hard to keep an eye on the news of that many pairs...just spend alot of time researching upon an entry signal is the answer I guess, don't just jump in...




Position size is also the key.

Say you had 20% account size on the short leg, and it jumps 30%. That's 6% against your capital. Bad, but not devastating.


----------



## tigger36

skc said:


> Position size is also the key.
> 
> Say you had 20% account size on the short leg, and it jumps 30%. That's 6% against your capital. Bad, but not devastating.




Yes.. unless it's leveraged like those 1000%+ winners we were talking about previously... like 20x CFDs they would then be 120% down, ie.blown out and in debt!!


----------



## Charlie Whiskey

I didn't short AXA, but I did short AMP the day before it made the announcement, and it's going up quite strongly since.    :-(

Luckily again that was only paper trading. I think I'll hold on a few more days to see how it goes.


----------



## skc

Charlie Whiskey said:


> I didn't short AXA, but I did short AMP the day before it made the announcement, and it's going up quite strongly since.    :-(
> 
> Luckily again that was only paper trading. I think I'll hold on a few more days to see how it goes.




If I held AXA or AMP for real I would have exited straight away. The idea is trade in the absence of news and looking for mean reversion. To hold onto AMP is to take a view on the individual stock based on the recent development. AMP is now squarely in the spotlight and rumours have it that it will become a target itself. 

The risk adverse approach would be to cut your loss and move on. Sure they may raise the AXA offer and fall 10% tomorrow. But I would first remove myself in the way of possible harm first.

You may decide to leave the long leg to run, but that would be a positional trade rather than pairs trade.


----------



## Charlie Whiskey

skc said:


> If I held AXA or AMP for real I would have exited straight away. The idea is trade in the absence of news and looking for mean reversion. To hold onto AMP is to take a view on the individual stock based on the recent development. AMP is now squarely in the spotlight and rumours have it that it will become a target itself.




Good reminder. Thanks.


----------



## Freddy

I am having problems with PT.  For instance, I just looked back on APN/FXJ pair and found that there is a great big hole from 20 May to 5 Nov 2009 in the analysis list.  I only rebuilt the database a week ago.

Another problem I find is that an Enter Trade occurs, I do my research, set the trade and next day PT indicates 'Watching'.  Has anyone else found this?

Also the software has quite a few bugs such as 'Refresh Prices', when the are you sure message appears you can only get it to action by movng the cursor outside the form.  This is the case when entering new pairs.


----------



## skc

Freddy said:


> I am having problems with PT.  For instance, I just looked back on APN/FXJ pair and found that there is a great big hole from 20 May to 5 Nov 2009 in the analysis list.  I only rebuilt the database a week ago.
> 
> Another problem I find is that an Enter Trade occurs, I do my research, set the trade and next day PT indicates 'Watching'.  Has anyone else found this?
> 
> Also the software has quite a few bugs such as 'Refresh Prices', when the are you sure message appears you can only get it to action by movng the cursor outside the form.  This is the case when entering new pairs.




Yes all true. It's buggy as...

Email the programmer and abuse them, gently


----------



## skc

tigger36 said:


> skc,
> I think you may have hit one nail on the head with this.. I think my entry criteria has been too selective, I have only managed 6 trades in one month, whereas you say you've achieved 50, you obviously have less selective entry than I do. As you say this would give me more diversification and spread across sectors, I just need to adjust my trade size down and manage effectively. This is my current pair entry criteria for FTSE350 stocks:
> 1. pair 100 day correlation > 0.80. (pair is correlated)
> 2. pair 50 day correlation > 0.65. (pair is still correlated over the shorter term)
> 3. 100 day correlation is increasing
> 4. stocks are in the same Sector and have MCap > 200m and average volume > 150k/day. (stocks are liquid)
> 5. Ratio chart shows nice range, no big trends.
> 6. No news on either Stock, earnings etc..
> 7. Pair has shown good cointegration in backtesting. > 75% wins, profit factor > 1.75
> 8. Pair ratio is currently > 2.0 std deviations from mean
> 9. Stock price charts show no obvious "range breakout" occuring.
> 10. Stock prices are both the same side of their 20day SMA. (ie.not in different trends)
> 
> Currently this produces about 10 signals per month.
> 
> If i'm thinking of relaxing this, what would you recommend changing?
> I am thinking maybe remove criteria's 2 and 10 to start with, and maybe relaxing 7 a bit?
> 
> Thanks




Sorry I didn't see these until today. How many pairs do you have to get only 10 signals a month? Most of my pairs will produce anything like 10-15 signals a year, so with ~300 pairs in the data base I get 10+ signals per day.

My criteria are similar, except I am not that strict with correlations. To me the correlation has to go apart in order to have any divergence, so I am not that worried if correlation was 50-60% 2 months ago. Increasing correlation also means nothing to me. It's really not a share price chart and no reason to believe trends are likely to continue. The 20day SMA also feels unimportant... if 20day SMA is that useful as an indicator then you might as well do directional trades with that. Lastly I scrutinise the historical profit, and take out anything that's out of whack due to announcements, capital raising etc. Basically anything that's over 10% PnL are probably trades that shouldn't have been taken anyway.

The other trick is to close out the pairs and take profits quickly. Before I enter a pair I work out what's the potential profit if the pair goes back towards the mean straight away. And I will take profit if I can get 70-80% of that full potential amount. Reason being that the MA will move everyday and they generally move in the opposite direction of the ratio. So why wait for the exit signal for another 2 days when that signal will produce a profit similar to what you have today?



tigger36 said:


> Also, do you trade Sector pairs, or sub-sector Industry pairs? Changing to the later, does reduce the number of pairs, but makes for better quality pairs. This is certainly the case for the FTSE350 Sectors, where Sectors like "Retail" or "Mining" can be very wide ranging...
> Cheers




I know nothing about FTSE350 sectors so can't comment. But when I say I try to know my stocks intimately I mean really intimately. Two stocks might be both retailers but one has more sales in the US and is hurt by the higher $AUD. So unless I believe $AUD is due for a fall I am not going to long that stock straight away... wait a day or two before entering can often improve your entry, even when the std dev is no longer at 2.0.

And with mining companies they should mine the same stuff at a minimum...


----------



## tigger36

skc said:


> Sorry I didn't see these until today. How many pairs do you have to get only 10 signals a month? Most of my pairs will produce anything like 10-15 signals a year, so with ~300 pairs in the data base I get 10+ signals per day.
> 
> My criteria are similar, except I am not that strict with correlations. To me the correlation has to go apart in order to have any divergence, so I am not that worried if correlation was 50-60% 2 months ago. Increasing correlation also means nothing to me. It's really not a share price chart and no reason to believe trends are likely to continue. The 20day SMA also feels unimportant... if 20day SMA is that useful as an indicator then you might as well do directional trades with that. Lastly I scrutinise the historical profit, and take out anything that's out of whack due to announcements, capital raising etc. Basically anything that's over 10% PnL are probably trades that shouldn't have been taken anyway.
> 
> The other trick is to close out the pairs and take profits quickly. Before I enter a pair I work out what's the potential profit if the pair goes back towards the mean straight away. And I will take profit if I can get 70-80% of that full potential amount. Reason being that the MA will move everyday and they generally move in the opposite direction of the ratio. So why wait for the exit signal for another 2 days when that signal will produce a profit similar to what you have today?
> 
> 
> 
> I know nothing about FTSE350 sectors so can't comment. But when I say I try to know my stocks intimately I mean really intimately. Two stocks might be both retailers but one has more sales in the US and is hurt by the higher $AUD. So unless I believe $AUD is due for a fall I am not going to long that stock straight away... wait a day or two before entering can often improve your entry, even when the std dev is no longer at 2.0.
> 
> And with mining companies they should mine the same stuff at a minimum...




skc,
your advice is much appreciated. I have spent some time re-evaluating my selection criteria and I estimate I should now get about 2-3 signals per day. I think the FTSE350 industries might be a bit more diverse than ASX as we have 36 sectors and when I split those down sorting out different miners etc.. as per your advice I have about 50 industries from which I take my pairs. So I suspect I will get fewer signals than your setup, but I am satisfied with 2-3 per day.

I also like your suggestion of taking profits quickly, I have added an algorithm like you say to my automated exit signaling, and initial backtesting shows it should achieve improvements.

I will let you know how my next month's trading goes...

Many thanks for your help


----------



## tigger36

Pair Trading not going to well at the moment, hopefully just one of those temporary drawdowns, had 2 big losers in a row...

One thing i've noticed is pairs where one of the pair is in a narrow trading range is generally not a good pair. The reasoning being, i've noticed if the market suddenly moves up, that narrow range can turn into a huge breakout, which the pair stock might not move in pace with. Also conversely, it can also mean if the market moves, that this stock stays in its narrow range, and the other stock follows the market... both ways lead to a loss!
Anyone else observed this?


----------



## skc

tigger36 said:


> Pair Trading not going to well at the moment, hopefully just one of those temporary drawdowns, had 2 big losers in a row...
> 
> One thing i've noticed is pairs where one of the pair is in a narrow trading range is generally not a good pair. The reasoning being, i've noticed if the market suddenly moves up, that narrow range can turn into a huge breakout, which the pair stock might not move in pace with. Also conversely, it can also mean if the market moves, that this stock stays in its narrow range, and the other stock follows the market... both ways lead to a loss!
> Anyone else observed this?




Actually narrow trading range is a great pair trading opportunity in my experience. Usually one leg of the pair have made a breakout, while the other is still in its narrow range. You short the breakout and long the consolidation.

If market keeps rising, the consolidation will end in a breakout while the breakout consolidates - a perfect trade.

If the market tanks, the consolidation won't breakout and may hold there abouts, while the breakout turn out to be a false break, other breakout traders got their stops hit and the share falls by 8% over 2 sessions - another perfect trade.

If the market doesn't do anything - then your pair may not do anything either.

A recent example comes to mind is short APN long WAN on ASX. APN went for a run Wed morning made a new high at 2.61 against WAN that's been flat around $8-$8.1 mark. The pair stretched to well above 2.5 std dev. Their prices today are $2.32 and $7.9. Anywhere between 6-10% gain depending on where you got in.

Of course you need to be sure that the breakout was not news related...


----------



## tigger36

skc said:


> Actually narrow trading range is a great pair trading opportunity in my experience. Usually one leg of the pair have made a breakout, while the other is still in its narrow range. You short the breakout and long the consolidation.
> 
> If market keeps rising, the consolidation will end in a breakout while the breakout consolidates - a perfect trade.
> 
> If the market tanks, the consolidation won't breakout and may hold there abouts, while the breakout turn out to be a false break, other breakout traders got their stops hit and the share falls by 8% over 2 sessions - another perfect trade.
> 
> If the market doesn't do anything - then your pair may not do anything either.
> 
> A recent example comes to mind is short APN long WAN on ASX. APN went for a run Wed morning made a new high at 2.61 against WAN that's been flat around $8-$8.1 mark. The pair stretched to well above 2.5 std dev. Their prices today are $2.32 and $7.9. Anywhere between 6-10% gain depending on where you got in.
> 
> Of course you need to be sure that the breakout was not news related...




Sorry I didn't explain very weel. What I meant to say is an entry signal has been generated (ie.2 stdev from mean etc..), but NEITHER has broken out of a range. One stock is in a range, the other stock has meandered downwards say to cause the signal. Hence we Short the stock in range, and Long the stock that has meandered downwards. Then the Market has a big surge upwards, the in range stock then decides to breakout upwards in your trade... big loss...!

I think having just re-read your post from "2nd Oct", you do agree, as you said exactly this: Quote:
"- I sometimes read the individual share charts before entering, so I will happily long a share that looks like ending a downward correction, or *avoid shorting a share that is positioning for a potential breakout*."

So thanks, your previous post i've just re-discovered is very useful!


----------



## tigger36

skc said:


> Actually narrow trading range is a great pair trading opportunity in my experience. Usually one leg of the pair have made a breakout, while the other is still in its narrow range. You short the breakout and long the consolidation.
> 
> If market keeps rising, the consolidation will end in a breakout while the breakout consolidates - a perfect trade.
> 
> If the market tanks, the consolidation won't breakout and may hold there abouts, while the breakout turn out to be a false break, other breakout traders got their stops hit and the share falls by 8% over 2 sessions - another perfect trade.
> 
> If the market doesn't do anything - then your pair may not do anything either.
> 
> A recent example comes to mind is short APN long WAN on ASX. APN went for a run Wed morning made a new high at 2.61 against WAN that's been flat around $8-$8.1 mark. The pair stretched to well above 2.5 std dev. Their prices today are $2.32 and $7.9. Anywhere between 6-10% gain depending on where you got in.
> 
> Of course you need to be sure that the breakout was not news related...




re. trading a breakout, yes i think these can be good trades, although i've discovered that timing the entry needs care, as yes the breakout was not news related, but driven by those investors chasing breakouts on volume..hence if you enter too soon the breakout may still have a long way to go, especially in a bullish market. I've discovered this to my loss on one occasion, I entered and that breakout stock just kept on going upwards....


----------



## skc

tigger36 said:


> Sorry I didn't explain very weel. What I meant to say is an entry signal has been generated (ie.2 stdev from mean etc..), but NEITHER has broken out of a range. One stock is in a range, the other stock has meandered downwards say to cause the signal. Hence we Short the stock in range, and Long the stock that has meandered downwards. Then the Market has a big surge upwards, the in range stock then decides to breakout upwards in your trade... big loss...!
> 
> I think having just re-read your post from "2nd Oct", you do agree, as you said exactly this: Quote:
> "- I sometimes read the individual share charts before entering, so I will happily long a share that looks like ending a downward correction, or *avoid shorting a share that is positioning for a potential breakout*."
> 
> So thanks, your previous post i've just re-discovered is very useful!






tigger36 said:


> re. trading a breakout, yes i think these can be good trades, although i've discovered that timing the entry needs care, as yes the breakout was not news related, but driven by those investors chasing breakouts on volume..hence if you enter too soon the breakout may still have a long way to go, especially in a bullish market. I've discovered this to my loss on one occasion, I entered and that breakout stock just kept on going upwards....




All very true. I re-discover my own posts all the time! 

Timing the breakouts are very difficult indeed. The APN example was a breakout that lasted only 2 hours, while others I can recall going for 2-3 days. I have entered the short leg way early on many occasions. Those trades are rarely profitable as a result. 

In the end, however, breakout consideration is something that you can't get right all the time - otherwise you might as well just be a directional breakout trader 

In situations like these some layering might help, although that's not a real part of my strategy yet.


----------



## bochman

would anyone consider long FXJ & short APN as a pair?
45 days seem to be reaching stddev 2. 60 days and 1 year suggest otherwise.


----------



## skc

bochman said:


> would anyone consider long FXJ & short APN as a pair?
> 45 days seem to be reaching stddev 2. 60 days and 1 year suggest otherwise.




The short term signal to short APN / long FXJ is definitely on. Depending on your holding time horizon the 1 year data may or may not be relevant.

APN/FXJ has been a good consistent pair for me. I rarely hold more than a week and don't usually care about 1 year as a result.


----------



## bochman

what time span do you use normally? 45 days? 50? 60? thanks!


----------



## skc

bochman said:


> what time span do you use normally? 45 days? 50? 60? thanks!




Std dev of last 20 days

MA of ratio of last 14 days


----------



## n5032245

skc,

the pair trade software comes installed with a lookback of 14 days for the std dev. what made you change to 20 days?


----------



## skc

n5032245 said:


> skc,
> 
> the pair trade software comes installed with a lookback of 14 days for the std dev. what made you change to 20 days?




With longer std dev look back you filter out some signals that may occur due to correlation being too good for the pair over the short term. The std dev becomes so small that 2 std dev away from the mean may only be a deviation of 1-2% and may not be a profitable trade.

In earlier version of the software it wasn't as easy to calculate the potential profit from each signal, so I increased the std dev look back to reduce those "false positives". It is probably less of an issue now, but I left it as 20 days has worked well for me. It wasn't a number that I came up with through back test or anything like that.


----------



## FXanyone

Im curious to know if people are using commerical software for pairs trading or building their own speadsheets?

Thanks for your help


----------



## dr3wfish

FXanyone said:


> Im curious to know if people are using commerical software for pairs trading or building their own speadsheets?
> 
> Thanks for your help




i'm using pairtrade finder however this is only a temporary measure while i finish off building my own software.

pairtrade finder pros:
 - provides a good starting point for backtesting pairs
 - once you have a basket of pairs, the console provides a nice simple overview of how each pair is tracking

pairtrade finder cons:
 - horribly buggy (like incredibly bad)
 - default yahoo data feed is inaccurate. can only be replaced with iq data feed and i don't believe they do australian equities
 - does no data cleaning whatsoever ie you will find lots of stocks with missing price snapshots for a given day; this affects backtesting etc.
 - to hard to edit stock lists, sectors, different exchanges, pairs.
 - slow

i have found it useful getting my pair trading started but i've definitely outgrown it.  in fact, grew so tired of the data problems that i wrote my own tool to replace the data it imports and now i pretty much use it just for the pretty graphs.

i need software that:
 - uses reliable data feeds
 - cleans the data
 - allows manual import of data ie eod
 - provides more options for backtesting ie instead of just exiting a position when the pairs revert to mean, add clause to exit when reverted to mean or 10 days have expired or maximum drawdown is 2% etc..
 - provides a proper, usable UI.
 - advanced alerting ie incorporate checking for news events when alerting 

suggest you download the trial and test it out because it will help you on your journey, but i can't recommend buying it (thats just my personal take, others may disagree).  build a spreadsheet or if you can code build, some software.

oh, before i forget, i looked at lots of so called "pairs trading" software out there and its mostly (it not all) rubbish.  don't bother with it.


----------



## skc

dr3wfish said:


> i'm using pairtrade finder however this is only a temporary measure while i finish off building my own software.
> 
> pairtrade finder pros:
> - provides a good starting point for backtesting pairs
> - once you have a basket of pairs, the console provides a nice simple overview of how each pair is tracking
> 
> pairtrade finder cons:
> - horribly buggy (like incredibly bad)
> - default yahoo data feed is inaccurate. can only be replaced with iq data feed and i don't believe they do australian equities
> - does no data cleaning whatsoever ie you will find lots of stocks with missing price snapshots for a given day; this affects backtesting etc.
> - to hard to edit stock lists, sectors, different exchanges, pairs.
> - slow
> 
> i have found it useful getting my pair trading started but i've definitely outgrown it.  in fact, grew so tired of the data problems that i wrote my own tool to replace the data it imports and now i pretty much use it just for the pretty graphs.




I use the pair trade finder myself and agree with most if not all of the comments above. However, I still use it as my main tool because I don't have much coding skill to do a better job. But more importantly I think the smarts of the system lies with the trader and not in the software. I am not those fully mechanism / system / quants type traders so I am not really concerned with optimising the last parameter.

Having said that, if the software would crash less and allow for better data than it would be a huge positive.


----------



## tigger36

skc said:


> I use the pair trade finder myself and agree with most if not all of the comments above. However, I still use it as my main tool because I don't have much coding skill to do a better job. But more importantly I think the smarts of the system lies with the trader and not in the software. I am not those fully mechanism / system / quants type traders so I am not really concerned with optimising the last parameter.
> 
> Having said that, if the software would crash less and allow for better data than it would be a huge positive.




I agree also.. I trialed pair trade finder, just to see what it was like, then I wrote my own software that has alot of the extras pointed out above, earnings checking, advanced exit criteria (profit taking exit, exit slope off towards 10 days, etc..), and advanced back testing.

I also agree with skc's last comment, on the real difference comes with the trader. I'm learning alot from skc's comments, and am improving my pair selection and exit criteria, the software just gives me a cut down set to choose from to start with...


----------



## keroppi

I have been having a lot of problems with the pair trade finder software. (just sent you a message tigger36)

I find it extremely buggy and slow.  The list of pairs does not even load up for me anymore.

I tried developing something basic on Excel but it takes too long to retrieve the data for one pair, let alone 50 pairs.  If someone can send me a copy of their software _that actually works_ I would really appreciate it.  My email is bzltop@gmail.com


----------



## tigger36

keroppi said:


> I have been having a lot of problems with the pair trade finder software. (just sent you a message tigger36)
> 
> I find it extremely buggy and slow.  The list of pairs does not even load up for me anymore.
> 
> I tried developing something basic on Excel but it takes too long to retrieve the data for one pair, let alone 50 pairs.  If someone can send me a copy of their software _that actually works_ I would really appreciate it.  My email is bzltop@gmail.com




Hi, I have the advantage of being a Software Engineer by profession, and I know how early releases of software can be buggy, especially if not put through rigorous System Test. I would hope the next release of PTF which I think is due soon, if I read their web site correctly, should provide some improvement if they've put it through some more testing...
  My program I have written in my spare time is fairly crude and has bugs in it too! (I know it does as I keep fixing them!), it is very specific to my requirements and my environment.

If you're logically minded and willing to put some time and effort in try taking a look at Sun's java tutorial, that will get you going in the world of Java programming. (http://java.sun.com/docs/books/tutorial/)

and lastly, I can "Program", I just wish I could "Trade" !! things not going too well on that front at the moment for me...


----------



## Freddy

Well, I'm now up 80% since August 2009 with a captial of $5000.  Took a hit last week with WTF and I am still up.  But HVN is giving me the problem now where I shorted it at 4.01.

Yes, the software is buggy and you get Enters such as IFL/PTM the other day and the next day it disappera off the screen.

Does anyone have a better price feed than Yahoo - it is terrible?


----------



## skc

Freddy said:


> Well, I'm now up 80% since August 2009 with a captial of $5000.  Took a hit last week with WTF and I am still up.  But HVN is giving me the problem now where I shorted it at 4.01.
> 
> Yes, the software is buggy and you get Enters such as IFL/PTM the other day and the next day it disappera off the screen.
> 
> Does anyone have a better price feed than Yahoo - it is terrible?




Great trading Freddy. 

HVN last traded at $4.01 about a month ago. Consider using a time stop. 

BTW, I would never short WTF. They will release updates on irregular basis and the results could swing the price a fair bit, with a bias to the upside because it's a market darling that actually has good fundamentals.


----------



## FXanyone

Thank you all for the feedback


----------



## tigger36

Freddy said:


> Well, I'm now up 80% since August 2009 with a captial of $5000.  Took a hit last week with WTF and I am still up.  But HVN is giving me the problem now where I shorted it at 4.01.
> 
> Yes, the software is buggy and you get Enters such as IFL/PTM the other day and the next day it disappera off the screen.
> 
> Does anyone have a better price feed than Yahoo - it is terrible?




wow!, 80% that's incredible! well done. In 2 months, I am DOWN 4%, and out of 16 trades, 9 of them were losers! Not sure what i'm doing wrong...
but I am just keeping on going hoping for my luck to turn...


----------



## Freddy

SKC

Thanks for the warning on WTF.


----------



## keroppi

Guys, I can't get email alerts working at all.

I can get a test email sent to me, but when no alerts ever arrive in my inbox.

Can anyone help?


----------



## tigger36

I'm obviously doing something very wrong in my pair selection, I have decided to halt my current trading as I am now down 18%, having had 7 of my last 8 trades lose!! I seem to be very good at picking trades where a fundamental price ratio change has happened and no revertion. As a result I am also not getting enough trades as these bad trades are using my margin up for 7 days or so until I close them.
I think my key problem is I don't know my stocks well enough, like SKC who I notice is very knowledgeable based on his posts. I'm just not in a position to get to know every Stock in the FTSE350 that well...maybe time will help...

Anyway, i'm going to have a rethink of my strategy and paper trade for a bit.

Thanks everyone for your help, especially SKC. Good luck everyone with your trading...


----------



## Sugar Dunkaton

my performance of late has been lacking. This last week has been awful.


----------



## tigger36

Sugar Dunkaton said:


> my performance of late has been lacking. This last week has been awful.




glad i'm not alone... my last two trades alone totaled an 11% loss !


----------



## skc

tigger36 said:


> I'm obviously doing something very wrong in my pair selection, I have decided to halt my current trading as I am now down 18%, having had 7 of my last 8 trades lose!! I seem to be very good at picking trades where a fundamental price ratio change has happened and no revertion. As a result I am also not getting enough trades as these bad trades are using my margin up for 7 days or so until I close them.
> I think my key problem is I don't know my stocks well enough, like SKC who I notice is very knowledgeable based on his posts. I'm just not in a position to get to know every Stock in the FTSE350 that well...maybe time will help...
> 
> Anyway, i'm going to have a rethink of my strategy and paper trade for a bit.
> 
> Thanks everyone for your help, especially SKC. Good luck everyone with your trading...




Just take your time. It's not that time consuming to get to know the companies. 15-20 mins on each should give you a very good overview of what they do. 

Use industry grouping as a start, then back test to find a good correlated pair, and invest 45mins to learn about the companies, and look at the individual price charts to gauge how well they trend and volatility etc. You should be able to build a very good pairs database in a couple of month, and build yourself a lot of intellectual assets at the same time (provided that you have a good memory).

I had a few bad trades in a row as well...looking at a drawdown of ~5%, which is the highest yet. I found that they were the ones put on during a relatively flat period of the market. I think someone once mentioned that, putting on a spread (which is what we are doing in pairs trading) is somewhat similar to selling volatility in options... I think that is quite a valid point. Or more simply put, opening a pair when both are ranging is leaving a lot to luck...

I am targeting a small milestone by end of year before I take some time off. Hopefully I will be able to achieve that and share it here.


----------



## keroppi

Can anyone help me with my question?

skc, just pm'ed you.


----------



## davidg29

keroppi said:


> Can anyone help me with my question?
> 
> skc, just pm'ed you.




Just send Jarad an email at PTF he will give you an answer.


----------



## bochman

so this thread died a painful death.

which is a shame, 'cos it is such a good discussion thread.


----------



## tigger36

bochman said:


> so this thread died a painful death.
> 
> which is a shame, 'cos it is such a good discussion thread.




yep fraid so... I gave up pair trading in favour of more traditional short/medium term trading and I am doing alot better. The pair trading experience was a very useful learning experience though...


----------



## skc

bochman said:


> so this thread died a painful death.
> 
> which is a shame, 'cos it is such a good discussion thread.




For this to be a good discussion thread people need to share... don't be shy 

I am still chucking away with this. Dec was a bad month for me and I made a loss of ~0.5%, after being up ~4.5%. Quite a few large losses in the second half of the month where the ratios just moved out and stayed out without mean reversion. But also quite a few of them moved back together a few days after my time-based exits.

I blamed it on the slower pace of stock movements during the xmas / new year and will probably shut pairs trading down around that time.

So far this month has been going OK with performance stats back to historical averages. Account up ~3%.


----------



## bochman

I am still on it, but nothing to trade so far. I don't have enough pairs.


----------



## mitchoby

Late 09 was horrendous for my trading account!!!

However I am perservering ... its all about patience ... Has anyone else noted an improvement in the number of pairs and profitable trades in the last few weeks???


----------



## skc

Today is one of those days when a pairs trader should vastly outperform the market. 

In fact, if you had quick fingers and good data feed, the chaos in the first 30 minutes this morning would provide tons of opportunities. 

Thanks to today's action my monthly return is now 7.5%... with ~ -2% in open positions.

Bring on the volatility!


----------



## bochman

but u are not supposed to sort of day trade for pairs???


----------



## SilverRanger

Today I got burned by my GPT/WDC pair trade, and my main share portfolio actually went up 

skc wonder what pairs you are alluding to


----------



## skc

bochman said:


> but u are not supposed to sort of day trade for pairs???






SilverRanger said:


> Today I got burned by my GPT/WDC pair trade, and my main share portfolio actually went up
> 
> skc wonder what pairs you are alluding to




There was a signal today for long MCR and short MRE / IGO / WSA or any other nickel stock. Most fell 3-5% while MCR was at $1.51 at 10:10, down 16%. By end of day, MCR closed at $1.68, while the others pretty much all bounced around in a 1-2% range. If you had quick fingers - nothing wrong with closing a trade intraday when you've got 10% in the bag (which I didn't ).

For the record I entered the reverse of the trade, Long MRE at .715 and short MCR at 1.70. Slightly dangerous given MCR will release their quarterly soon but seeing how MRE got punished for a positive report, I am expecting similar things for MCR. This position is about half the usual size for me.

Two pairs that did remarkably well today were long JHX short HST, and long OSH short WPL. Both opened only on Thursday and had great mean reversion offering good exit today. 

I was surprised that WDC didn't move at all today - in fact the REIT sector was quite mixed. GPT has been falling quite a bit recently, and I opened today a long GPT short MCW trade. GPT has a slight bonus in being a possible (but long shot) takeover target for SGP or LLC... let's see how it goes.

Usually with a pair like long GPT short WDC, you will find that it works when the market is going up. I'd suspect there's some flight to quality when market suffers a large fall like today, and WDC will benefit relatively as a result. If you had opened the trade today you'll probably be in good shape early next week when the market bounces back a bit.


----------



## SilverRanger

I too saw the selling frenzy of MCR, but didn't pick up the signal as I was using a longer SMA, and if I had picked it up I think I would have hestitated seeing MCR with reports coming next week

Added another layer on GPT/WDC yesterday, but with another 2% sell off in the US, it doesn't look too promising 

I am also long MGR/Short SGP, and yesterday it moved slightly in my favour

I am guessing no M&A activities at least til post-earning reports, although I am well positioned for this to come


----------



## skc

SilverRanger said:


> I am also long MGR/Short SGP, and yesterday it moved slightly in my favour




I have the same thing on. Long MGR 1.49, short SGP 3.88. Opened on Thursday last week near close.


----------



## mitchoby

*Re: Reporting Season*

Hey All,

Ive noted some more experienced guys stating they dont trade pairs for a week either side of reporting season due to news etc etc.

Do you guys generally trade a week either side of individual stock announcements or the entire reporting season? Last reporting season my pairs seemed to go a bit screwy over the entire period? Interested in your thoughts?

Cheers,

m


----------



## skc

*Re: Reporting Season*



mitchoby said:


> Hey All,
> 
> Ive noted some more experienced guys stating they dont trade pairs for a week either side of reporting season due to news etc etc.
> 
> Do you guys generally trade a week either side of individual stock announcements or the entire reporting season? Last reporting season my pairs seemed to go a bit screwy over the entire period? Interested in your thoughts?
> 
> Cheers,
> 
> m




Haven't you just answered your own questions? Reporting season is perfect time for you to rejig the pairs and get to know your pairs...


----------



## mitchoby

Never hurts to get a second opinion ... 

Might have a play round with some UK/US stocks over Feb then.


----------



## skc

mitchoby said:


> Never hurts to get a second opinion ...
> 
> Might have a play round with some UK/US stocks over Feb then.




Hence I answered 

I like my sleep so UK/US stocks are not for me. Plus I have no idea what those stocks do...

Return through Jan is now 10.5%.... Another 150 months or so compounding at this rate and I will have $1 trillion dollars...


----------



## SilverRanger

skc said:


> I like my sleep so UK/US stocks are not for me. Plus I have no idea what those stocks do...




Currently spending half an hour at the US market open (1:30 am) and another half at market close (7:30 am), so it's quite manageable. I generally spend about 10 mins researching the stocks for pair trading and basically just stick with the basic(golden?) rules: 
1. No news 
2. Large cap (liquidity + less likely for take-over)
3. High correlation
4. Good back test results and graphs

Pair trading the US market is definitely better than ASX given the lower commission, every ASX pair trades eats up 0.3%~0.4% of my gain, that compares to a few bucks in the US 



skc said:


> Return through Jan is now 10.5%.... Another 150 months or so compounding at this rate and I will have $1 trillion dollars...



Actually I'm not sure how to calculate the return for pair trading, what should the base be?


----------



## skc

SilverRanger said:


> Currently spending half an hour at the US market open (1:30 am) and another half at market close (7:30 am), so it's quite manageable. I generally spend about 10 mins researching the stocks for pair trading and basically just stick with the basic(golden?) rules:
> 1. No news
> 2. Large cap (liquidity + less likely for take-over)
> 3. High correlation
> 4. Good back test results and graphs




That's only 6 hour sleep! 

BTW, what site do you use for the news and market cap information?



SilverRanger said:


> Pair trading the US market is definitely better than ASX given the lower commission, every ASX pair trades eats up 0.3%~0.4% of my gain, that compares to a few bucks in the US




So true. My commission has been running at 20-25% of PnL. But the US commission structure of cents per share doesn't work for some lower priced stocks.. imagine the commission on like GPT (here in Ausralia) just doing like $10K legs.



SilverRanger said:


> Actually I'm not sure how to calculate the return for pair trading, what should the base be?




There are probably smarter ways, but I just take the closing balance / opening balance... so if I started with $1m and end the month with $1.1m... that's 10% for the month.


----------



## SilverRanger

skc said:


> BTW, what site do you use for the news and market cap information?



Mainly Google Finance for both news and market cap info, it's been serving me unexpectedly well, just create a portfolio and all news and upcoming earnings releases of your portfolio are listed for you, you can also track your P&L there realtime.

Other supplement sources are AOL Finance for earnings calendar, MarketWatch's "Company Profile" and Reuters RSS via IB



skc said:


> So true. My commission has been running at 20-25% of PnL. But the US commission structure of cents per share doesn't work for some lower priced stocks.. imagine the commission on like GPT (here in Ausralia) just doing like $10K legs.



I suppose you would rarely run into this situation like the ASX since most of the US mid and large caps have SP values in 2-digits, so the commission structure works out pretty well (as long as you trade US shares >= $5, the brokerage is cheaper)

GPT...glad I closed the GPT/WDC trade for modest profit on Wednesday before WDC's rebound yesterday


----------



## skc

SilverRanger said:


> Mainly Google Finance for both news and market cap info, it's been serving me unexpectedly well, just create a portfolio and all news and upcoming earnings releases of your portfolio are listed for you, you can also track your P&L there realtime.
> 
> Other supplement sources are AOL Finance for earnings calendar, MarketWatch's "Company Profile" and Reuters RSS via IB
> 
> 
> I suppose you would rarely run into this situation like the ASX since most of the US mid and large caps have SP values in 2-digits, so the commission structure works out pretty well (as long as you trade US shares >= $5, the brokerage is cheaper)
> 
> GPT...glad I closed the GPT/WDC trade for modest profit on Wednesday before WDC's rebound yesterday




Thanks.

Was gonna ask if you got out of the trade. GPT had a strong day Wednesday before WDC's turn yesterday.

GMG / GPT is also a good pair and you can probably trade that without looking at the correlation or std dev. They just seem to leapfrog each other. I also love how they both begin with "G" so they open at the same time...


----------



## SilverRanger

Picked up another pair trade today, long MYR and short DJS (after missing out on long DJS/short HVN yesterday ), a fairly new pair with not much back test history, will see how it pans out next week


----------



## skc

SilverRanger said:


> Picked up another pair trade today, long MYR and short DJS (after missing out on long DJS/short HVN yesterday ), a fairly new pair with not much back test history, will see how it pans out next week




I left that one alone... As you say not enough history. Plus the MYR IPO was probably overpriced by 25% so it should be just back in fair value compared with DJS.

Although the DJS chart is just above right for a fall. Bit hard to read the MYR chart given that it's just one way traffic since listing.

You should look at some of the nickel stocks that are doing huge ranges on a daily basis. I keep my position smaller than usual but they can still be very profitable, often intraday or overnight.


----------



## shayneb

*Re: Reporting Season*

I have been pairs trading since October and am up approx 30% on my starting capital.  Probably the same as others - more winners than losers,  small profits of approx $100 - $300 per pair etc etc.  Much better than any other strategy I have previously employed.  Trade both Aus and US markets but have moved my US trades to a 2nd cfd platform to try and get my costs down as it was costing me $15 USD for each leg of a US pairs trade.  Have currently got it down to $10 USD for each leg and Aus $8 per leg but both still hurt.  I have looked several times at IB but my eyes just cloud over with all the details and I like the  generous margins/leverage the Aus CFD providers. 

Personally I stop taking any pairs trades in reporting season rather than tip toeing around individual profit annoncements. Maybe time to refresh my pairs list to agree to my new CFD Providers tradeable list.

Again just a personal thing but I would not have GPT/WDC in my pairs list as  they are not similiar in price and that is one of my little rules for listing compatible pairs.

Hopefully we can keep this thread alive..


----------



## Pairs Trader

Hey guys, just letting you all know im still around here every now and then, very busy to keep up regular posting, though its great to see a few of you doing well and making $$$ pair trading, congratulations, its a pleasure to read. 

Jared.


----------



## Wysiwyg

SilverRanger said:


> Today I got burned by my GPT/WDC pair trade, and my main share portfolio actually went up
> 
> skc wonder what pairs you are alluding to




I have a voracious appetite for learning about the financial markets. Could you please explain what you were trading with these two stocks?


----------



## Wysiwyg

SilverRanger said:


> Picked up another pair trade today, long MYR and short DJS (after missing out on long DJS/short HVN yesterday ), a fairly new pair with not much back test history, will see how it pans out next week



And this one. Wondering what entices a short and long trade of these two stocks? Like there is a max. 7% difference in price on one day in the last 3 months.


----------



## SilverRanger

skc said:


> I left that one alone... As you say not enough history. Plus the MYR IPO was probably overpriced by 25% so it should be just back in fair value compared with DJS.
> 
> Although the DJS chart is just above right for a fall. Bit hard to read the MYR chart given that it's just one way traffic since listing.



I suppose the technical setup checks all my tick boxes - high (and increasing) correlation, high deviation from mean and overbought RSI, and it all happened with no news!! 



skc said:


> You should look at some of the nickel stocks that are doing huge ranges on a daily basis. I keep my position smaller than usual but they can still be very profitable, often intraday or overnight.




For nickel stocks I have MCR, MRE, MBN, IGO and WSA on my watchlist, but mainly trading MCR and MRE since others don't seem to be shortable (and they don't seem to correlate?)


----------



## SilverRanger

Wysiwyg said:


> I have a voracious appetite for learning about the financial markets. Could you please explain what you were trading with these two stocks?




What I am trading is some short term random deviation of the pair, hoping that they will converge in the short term (usually and hopefully less than a week)

So given everything is short term, then a short term graph is probably more helpful, but the long term ones can also help to confirm the correlation part

Some good entry points (short WDC, long GPT) are 11/12/2009, 13/01/2010, 22/01/2010


----------



## skc

SilverRanger said:


> I suppose the technical setup checks all my tick boxes - high (and increasing) correlation, high deviation from mean and overbought RSI, and it all happened with no news!!
> 
> For nickel stocks I have MCR, MRE, MBN, IGO and WSA on my watchlist, but mainly trading MCR and MRE since others don't seem to be shortable (and they don't seem to correlate?)




I was very tempted with the Djs / Myr pair esp after Friday... it will probably work out as myr does feel oversold.

I also have PAN on my nickle list, but probably only traded it once with WSA.



Wysiwyg said:


> And this one. Wondering what entices a short and long trade of these two stocks? Like there is a max. 7% difference in price on one day in the last 3 months.




Wysiwyg... what many people do here is actually Pairs Scalping... max 7% difference is already quite a large variation. If you can capture most of that it would have been a great trade.

For my trading record, the average gain is 1.5-2% of the leg size.

True pairs trading will be very different imo. You would be buying JBH and shorting HVN for example because you think JBH will outperform over time.


----------



## MRC & Co

skc said:


> True pairs trading will be very different imo. You would be buying JBH and shorting HVN for example because you think JBH will outperform over time.




I don't know about 'true pairs trading', I would say you are referring too a long-short equity hedge fund strategy.  

People take pairs trades for all kinds of reasons, many are very discretionary and rely on much more than correlation and mean reversion only.  For example the 'bank stress tests' in the states, saw many going long SPI, short S&P, the assumption: good results and both banking sectors would rally,  bad results would be seen as a huge negative to the US banking sector but would not indicate anything in relation to the Australian banking sector.

But I like this 'pairs scalping' style.


----------



## Wysiwyg

skc said:


> For my trading record, the average gain is 1.5-2% of the leg size.




Including  commission x 4?


----------



## skc

MRC & Co said:


> I don't know about 'true pairs trading', I would say you are referring too a long-short equity hedge fund strategy.
> 
> People take pairs trades for all kinds of reasons, many are very discretionary and rely on much more than correlation and mean reversion only.  For example the 'bank stress tests' in the states, saw many going long SPI, short S&P, the assumption: good results and both banking sectors would rally,  bad results would be seen as a huge negative to the US banking sector but would not indicate anything in relation to the Australian banking sector.
> 
> But I like this 'pairs scalping' style.




Yes there are many styles of pairs trading indeed. Some hold pairs intraday, some hold them for multiple years on macro trends. I actually first get exposed to this type of hedged trading from the BBC series "Million Dollar Traders" and it was a hedge strategy around news event during the GFC. 

This is the area I would like to get into a bit more... just multi-leg long short strategies around equities. 

My first trade was actually long RIO short BHP which was a combination of fundamentals and technicals. On hindsight obviously I didn't hold it long enough! And that's the main problem with my pairs scalping - I do leave a fair bit on the table at times... but overall I can't fault my equity curve.



Wysiwyg said:


> Including  commission x 4?




Clear 1.5-2% after commission x4 (or ~0.4%). Here's a winners distribution graph. Note 80% of trades return <3% (of leg size), and they collectively account for 62% of $$ won. It's small wins + high win rate that makes the equation profitable.


----------



## FXanyone

Hi

I have posted here a couple of times.

I recently started pairs trading and its been going fairly well. That said I have one major concern. 

I am experienced from other markets ( I worked for banks, mainly in derivatives). As such I was always have been extremely disciplined with stops. With pairs I have struggled to find something that works.

I am prepared to take on slightly less correlated pairs than seem to be the norm from what I read in threads and literature. That however isnt the issue.

I made 18 trades in January and increased my portfolios value around 10%. However 2 trades killed me - Long WAN Short SEV and Long HSP short RHC (was out of that prior to the big spike yesterday!!)

A $ amount ? A percentange? One trade I have on right now was hugely against me this morning but came back well during the afternoon- should they be End of Day stops?

Would greaty appreciate any thoughts?

Cheers


----------



## skc

FXanyone said:


> Hi
> 
> I have posted here a couple of times.
> 
> I recently started pairs trading and its been going fairly well. That said I have one major concern.
> 
> I am experienced from other markets ( I worked for banks, mainly in derivatives). As such I was always have been extremely disciplined with stops. With pairs I have struggled to find something that works.
> 
> I am prepared to take on slightly less correlated pairs than seem to be the norm from what I read in threads and literature. That however isnt the issue.
> 
> I made 18 trades in January and increased my portfolios value around 10%. However 2 trades killed me - Long WAN Short SEV and Long HSP short RHC (was out of that prior to the big spike yesterday!!)
> 
> A $ amount ? A percentange? One trade I have on right now was hugely against me this morning but came back well during the afternoon- should they be End of Day stops?
> 
> Would greaty appreciate any thoughts?
> 
> Cheers




I apply 3 saftguards

1. Time based stop. 12-15 days seem to work for me. Get's triggered every now and then.

2. Event based stop. If news come out and move the stock substantially against you.... I'd just take the loss and move on. Again, happens every now and then. But knowing your stock well and avoid trading around profit announcement times will help.

3. Absolute hard stop as percent of account. This will depend on your own personal risk appetite and your leg size relative to your account size. I use 5%. As my leg size is 20% of my account size, the pairs need to go out of whack by 25% for this hard stop to be hit. Fortunately this has yet to happen for me.


----------



## SilverRanger

skc said:


> I apply 3 saftguards
> 
> 1. Time based stop. 12-15 days seem to work for me. Get's triggered every now and then.
> 
> 2. Event based stop. If news come out and move the stock substantially against you.... I'd just take the loss and move on. Again, happens every now and then. But knowing your stock well and avoid trading around profit announcement times will help.
> 
> 3. Absolute hard stop as percent of account. This will depend on your own personal risk appetite and your leg size relative to your account size. I use 5%. As my leg size is 20% of my account size, the pairs need to go out of whack by 25% for this hard stop to be hit. Fortunately this has yet to happen for me.



Of course there is also the more aggressive option of adding additional layer(s) on trades going against you, but I only tend to do this when I am confident that the price movement is not news induced


----------



## skc

SilverRanger said:


> Of course there is also the more aggressive option of adding additional layer(s) on trades going against you, but I only tend to do this when I am confident that the price movement is not news induced




Layering doesn't substitute the stops. It is done before any of the stop condition is hit.

You can't blow the account by following all three stop rules (which I should clarify that all three are applied at the same time). But you can blow it by substituting them with layering.


----------



## tigger36

FXanyone said:


> Hi
> 
> I have posted here a couple of times.
> 
> I recently started pairs trading and its been going fairly well. That said I have one major concern.
> 
> I am experienced from other markets ( I worked for banks, mainly in derivatives). As such I was always have been extremely disciplined with stops. With pairs I have struggled to find something that works.
> 
> I am prepared to take on slightly less correlated pairs than seem to be the norm from what I read in threads and literature. That however isnt the issue.
> 
> I made 18 trades in January and increased my portfolios value around 10%. However 2 trades killed me - Long WAN Short SEV and Long HSP short RHC (was out of that prior to the big spike yesterday!!)
> 
> A $ amount ? A percentange? One trade I have on right now was hugely against me this morning but came back well during the afternoon- should they be End of Day stops?
> 
> Would greaty appreciate any thoughts?
> 
> Cheers




This is the issue that scared me off pairs trading back in Nov/Dec, I had a string of bad trades that killed me off... not sure there's an easy answer...
I've now moved onto more traditional medium term trading, but still use my pair trading tools to find interesting stocks, similar to SKCs other trading journal thread, and I am alot more comfortable being able to apply normal stops and trade management.

My only thought is knowing your stocks very well and their news associated with them, so you are sure that a current mean diversion is not a fundamental one.


----------



## SilverRanger

skc said:


> Layering doesn't substitute the stops. It is done before any of the stop condition is hit.
> 
> You can't blow the account by following all three stop rules (which I should clarify that all three are applied at the same time). But you can blow it by substituting them with layering.




Yes, you are right that layering shouldn't substitute your stop rules, it should work with them


----------



## Wysiwyg

SilverRanger said:


> *What I am trading is some short term random* *deviation of the pair, hoping that they will converge in the short **term (usually and hopefully less than a week)*
> 
> So given everything is short term, then a short term graph is probably more helpful, but the long term ones can also help to confirm the correlation part
> 
> Some good entry points (short WDC, long GPT) are 11/12/2009, 13/01/2010, 22/01/2010



Thanks for that overview and good luck with your pairs trading.


----------



## SilverRanger

SilverRanger said:


> Yes, you are right that layering shouldn't substitute your stop rules, it should work with them



The point I was getting at is that when trades start going against you, layering is an alternative to just taking the stop loss. 
Perhaps tigger36 you can take a look at your past trades to see whether this would have helped to recouped some of your losses (or made it worse...)


----------



## skc

SilverRanger said:


> The point I was getting at is that when trades start going against you, *layering is an alternative to just taking the stop loss. *
> Perhaps tigger36 you can take a look at your past trades to see whether this would have helped to recouped some of your losses (or made it worse...)




I am unsure whether you are not getting it, or just your wording is confusing...

Layering is NOT an alternative to take stop loss.

You can layer all you want before your stop is hit. But you don't layer instead of exiting the trade when your stop is hit. When your stop is hit, you get out, regardless of how many layers you have on, or how many more layers you could put on.

Just take a loss and move on. It's not that hard.


----------



## SilverRanger

skc said:


> I am unsure whether you are not getting it, or just your wording is confusing...
> 
> Layering is NOT an alternative to take stop loss.
> 
> You can layer all you want before your stop is hit. But you don't layer instead of exiting the trade when your stop is hit. When your stop is hit, you get out, regardless of how many layers you have on, or how many more layers you could put on.
> 
> Just take a loss and move on. It's not that hard.




Yes, it was my wording, I didn't mean stop loss, but just losses in general from a losing trade. 

It must be the lack of sleep I had recently 

Closed out MYR/DJS trade today for some modest profit


----------



## skc

SilverRanger said:


> Yes, it was my wording, I didn't mean stop loss, but just losses in general from a losing trade.
> 
> It must be the lack of sleep I had recently
> 
> Closed out MYR/DJS trade today for some modest profit




Trading US/UK markets can do that to you!


----------



## MRC & Co

Layering/averaging down, IMO, should only be used if you are working an area/managing the position.  

But to do this, you have to know what you are trying to do, i.e experienced at your method and know when to cut it without blowing away too much of your account.


----------



## skc

MRC & Co said:


> Layering/averaging down, IMO, should only be used if you are working an area/managing the position.
> 
> But to do this, you have to know what you are trying to do, i.e experienced at your method and know when to cut it without blowing away too much of your account.




Many times I feel like layering but decided against it. Because I think the maths of pairs trading quickly point to just cut the losses.

There are no big 20R trades in pairs trading (except you get really lucky), so really when you average down you are just hoping for breakeven or slightly better.  Compare that to a potential blowup... really doesn't compute in my head most of the time.

And I found carrying a large losing trade really affects my trading. I end up being gun shy, take smaller positions on proven, reliable pairs etc. When in reality I should cover a lost in the next two trades.


----------



## shayneb

I agree SKC. I have not layered within any pair and don’t think I will in the short term.  

My stop is partly time based and if I have a pair open after 10 days than I exit regardless of a profit or loss.


----------



## FXanyone

Thanks for the feedback all


----------



## skc

Boral was going a bit crazy yesterday and got a signal to enter short BLD and long CSR.

I pondered for a while and decided against it, given that CSR is undergoing some demerger and I didn't know what are the key risk factors. 

That very afternoon CSR went into a halt and the court is blocking it's demerger proposal. It looks to open ~10% down.

Definitely dodged a bullet there.


----------



## jake

*Panic Selling Hits Tatts Group Ltd Shares*

Today Tatts Group Ltd shares hit a new record low of $2.21 a share on panic selling.

Shareholders are expecting a dividend of 10 cents to be announced mid February if all goes well.





position held in the stock.


----------



## skc

*Re: Panic Selling Hits Tatts Group Ltd Shares*



jake said:


> Today Tatts Group Ltd shares hit a new record low of $2.21 a share on panic selling.
> 
> Shareholders are expecting a dividend of 10 cents to be announced mid February if all goes well.
> 
> 
> 
> position held in the stock.




Are you on the right thread? What did you pair TTS with?

There are quite a lot of uncertainties floating around the gaming stocks with regards to the Vic licenses. I don't really know the date of any such decision, the likely outcome or the implication of such outcomes.... so all related stocks are in my ignore list at the moment.


----------



## SilverRanger

Anyone picked up WPL/OSH trade today? OSH was so out-of-whack at one point with buyer/seller of 1:10. 
I didn't quite get the timing right for this one so I'm only sitting with slight profit atm.


----------



## WRONG'UN

There has been a fair bit of ASF interest in the Eagle Ford Shale, and two of its Aussie participants, ADI, AUT.
I have done some back testing using PairTrader Finder, including EKA in the group, and the results are quite encouraging - the ADI/AUT pair has a 91.67%win rate, from 12 trades, and a steadily climbing equity line. The results for the other combinations are similar.
These small caps, of course, cannot be shorted, so the pairs cannot be traded as a long/short pair in the conventional PairTrade Finder sense. However, when both legs of the pair are rising, it may still be feasible to make use of the PTF signal.
For example, there has just been a signal to short AUT, long ADI, implying that ADI will outperform AUT - so buying ADI in preference to AUT may be advantageous.
Any thoughts?


----------



## Freddy

Last Friday my system (Pair Trader) flagged two trades to enter:
Long PAN 1.81
Short SRL 1.41
and
Short OSH 5.33
Long  PDN 3.43

Today, Monday, they are registered as 'Watching'.

This happens a lot.

Has anyone found the same problem, that is, false positives?


----------



## skc

WRONG'UN said:


> There has been a fair bit of ASF interest in the Eagle Ford Shale, and two of its Aussie participants, ADI, AUT.
> I have done some back testing using PairTrader Finder, including EKA in the group, and the results are quite encouraging - the ADI/AUT pair has a 91.67%win rate, from 12 trades, and a steadily climbing equity line. The results for the other combinations are similar.
> These small caps, of course, cannot be shorted, so the pairs cannot be traded as a long/short pair in the conventional PairTrade Finder sense. However, when both legs of the pair are rising, it may still be feasible to make use of the PTF signal.
> For example, there has just been a signal to short AUT, long ADI, implying that ADI will outperform AUT - so buying ADI in preference to AUT may be advantageous.
> Any thoughts?




Cannot disagree more. ADI can outperform AUT by falling only 50% to AUT's 60%. 

Naked long is not pairs trading. You are simply trading long a stock that's experienced some weakness compared to its peers.

Not saying it's not OK to trade long ADI, but you need a different suite of risk management strategies in place (e.g. a stop loss!).


----------



## skc

Freddy said:


> Last Friday my system (Pair Trader) flagged two trades to enter:
> Long PAN 1.81
> Short SRL 1.41
> and
> Short OSH 5.33
> Long  PDN 3.43
> 
> Today, Monday, they are registered as 'Watching'.
> 
> This happens a lot.
> 
> Has anyone found the same problem, that is, false positives?




Not necessarily false positives, but sometimes intraday signals don't get saved in the data base. And prices at end of day has moved away from the trigger points.

It doesn't happen to me too often, but I have the program running at all times during market hours. 

You will have to manually monitor the positions if you are relying on the exit signals.

BTW, SRL and PAN are pretty different animals?


----------



## WRONG'UN

Thanks for your feedback, skc, but I think you may have missed my point.
I didn't say it was pair trading - I merely suggested the approach as another way of using the pair trading software, in conjunction with risk management techniques, of course.
I also included the proviso "if both legs of the pair are rising", so your example of what happens with both legs falling, although mathematically correct, is outside the scope of the method I am suggesting.


----------



## SilverRanger

WRONG'UN said:


> Thanks for your feedback, skc, but I think you may have missed my point.
> I didn't say it was pair trading - I merely suggested the approach as another way of using the pair trading software, in conjunction with risk management techniques, of course.
> I also included the proviso "if both legs of the pair are rising", so your example of what happens with both legs falling, although mathematically correct, is outside the scope of the method I am suggesting.




The idea doesn't sound too bad to me, but I think it would have been more intuitive if you pair the stock with the relevant index (if one exists) or the market to look for net long/short position, but in any case, the volatility and liquidity simply keeps me away from small caps

Anyway, I think this might be similar to your approach: after 2 days of gain I saw MCC a bit overcooked last Friday and decided to short it, I picked an entry point where it was 2.6 S.D away from MCC/WHC's moving average with a tight stop loss, the end result was today's 5% profit (although it was half the size of my normal pair trading leg)


----------



## SilverRanger

skc said:


> BTW, SRL and PAN are pretty different animals?



Not the most exotic pair I've seen


----------



## skc

WRONG'UN said:


> Thanks for your feedback, skc, but I think you may have missed my point.
> I didn't say it was pair trading - I merely suggested the approach as another way of using the pair trading software, in conjunction with risk management techniques, of course.
> I also included the proviso "if both legs of the pair are rising", so your example of what happens with both legs falling, although mathematically correct, is outside the scope of the method I am suggesting.




Fair enough. We actually agree then 

I have done the same a few times myself.


----------



## skc

I am going away for an extended holiday, swapping 3-letter stock codes with airport codes. So I won't be posting here for a while. 

I leave you with some analysis from my 320 closed pairs trade...

Equity curve - nice and smooth. Up 124% from starting capital. Max drawdown 5.4% at end of last year. It took 20 trades to get back to new equity high.




Return on equity vs holding days - pretty clear that anything >15 days is not worth pursuing.



Days held vs Close +1 day variance - ever wondered if you close your trades too early? I kept a record of the close price 1 day after I close a pair, and plotted against the days I held the trade. The real pattern is that there is no pattern. Sometimes I am better off waiting another day, sometimes worse off. The numerical average is in fact -0.2% per trade had I waited another day.



On average, I take better entries than the system signals (by ~0.88% per trade), but also take earlier and worse exits compared to the system signals (by -0.44%). I also on average hold 2.3 days less than the system. You should always take better entries than the system since the Yahoo data is delayed (and hence you can choose not to enter when prices are worse off), but I should look to improve my exits.

Don't ever think these fractions of 1% are insignificant. My average trade returns only 1.4% of the leg size. So if I can get it up to 1.6% that would make a huge difference (account would be up ~142%). 

Commission over net profit is running at 30%. 

My most traded sectors are media (39 trades), financials (39), building materials (34), engineering (32) and REITs (30). These 5 sectors account for 50% of all trades. The most profitable sector, however, is IT (10 trades) and retail (18). Gold is the worst sector for me with a net loss over 10 trades.

That's it. Good luck and see you all in a few months. Adios.


----------



## skc

SilverRanger said:


> The idea doesn't sound too bad to me, but I think it would have been more intuitive if you pair the stock with the relevant index (if one exists) or the market to look for net long/short position, but in any case, the volatility and liquidity simply keeps me away from small caps
> 
> Anyway, I think this might be similar to your approach: after 2 days of gain I saw MCC a bit overcooked last Friday and decided to short it, I picked an entry point where it was 2.6 S.D away from MCC/WHC's moving average with a tight stop loss, the end result was today's 5% profit (although it was half the size of my normal pair trading leg)




Nice work. Can't always short MCC though.


----------



## WRONG'UN

Thanks for sharing that, skc - great results!
I see ADI actually outperformed AUT yesterday, even though they both rose strongly. Only one day, but consistent with the method - pleased to see you are already doing it with other pairs. 
Have a good break.


----------



## Pairs Trader

skc said:


> Equity curve - nice and smooth. Up 124% from starting capital. Max drawdown 5.4% at end of last year. It took 20 trades to get back to new equity high.
> View attachment 35811
> 
> 
> 
> Return on equity vs holding days - pretty clear that anything >15 days is not worth pursuing.
> View attachment 35809




Sterling effort skc, love seeing my clients do well. That equity curve would make for a nice picture frame on your wall if the wife doesn't mind, well done!


----------



## brokerface

which US-shares are used or useful for pairs trading?


----------



## edman79

Hi Guys,
Has anyone experienced that with the decreased volatility of the current market  pair trading has become less effective?
SKC are you still seeing the profits you were a few months ago?


----------



## shayneb

My pairs trading has been pretty ordinary lately but this is more due to me redoing my pairs lists and adding some new company codes that I had not previouly included but unfortunately I did not quite get them into the correct groups in PTF which initially cost me money until I rectified this.

However notwithstanding my problem above I would also suggest that my overall pairs trading has been a bit flat lately.

Hoping for a turn around soon...

It would be good to hear how others pairs trading has been performing lately ?


----------



## SilverRanger

shayneb said:


> My pairs trading has been pretty ordinary lately but this is more due to me redoing my pairs lists and adding some new company codes that I had not previouly included but unfortunately I did not quite get them into the correct groups in PTF which initially cost me money until I rectified this.
> 
> However notwithstanding my problem above I would also suggest that my overall pairs trading has been a bit flat lately.
> 
> Hoping for a turn around soon...
> 
> It would be good to hear how others pairs trading has been performing lately ?



Not so good lately (well, in ASX anyway), been down 5.4% in March and down 2.5% in April so far. I guess the reason is that I have been trading many pairs with sub-optimal signals (either the correlation is too low or the deviation is low compared to the past) because I haven't been getting quality signals lately (or the signal is good but one leg isn't shortable )


----------



## FXanyone

SilverRanger said:


> Not so good lately (well, in ASX anyway), been down 5.4% in March and down 2.5% in April so far. I guess the reason is that I have been trading many pairs with sub-optimal signals (either the correlation is too low or the deviation is low compared to the past) because I haven't been getting quality signals lately (or the signal is good but one leg isn't shortable )





I have had an excellent run from December through March. April turned out very poorly. A strong start to the month but have not selected a succesful pair since. Either 1 of 2 things happened

  1. Pairs simply didnt revert
  2. Disasters - APN FXJ anyone?


----------



## skc

skc said:


> I am going away for an extended holiday, swapping 3-letter stock codes with airport codes. So I won't be posting here for a while.
> 
> Good luck and see you all in a few months. Adios.




Am back from holidays and this thread is a bit dead...

Any pair traders still out there? Surely May would be a nice month given the volatility? I have had to spend the last week or so re-familiar myself with all the stocks, charts, trading software etc but am back trading as of today. There seems to be plenty of opportunities in the system.


----------



## skc

FXanyone said:


> 2. Disasters - APN FXJ anyone?




It is surprising how the relationship has broken down and the ratio has blown out a fair bit. It's like APN didn't even know the market was going crazy in May.

Was there any negative news on FXJ or positive news on APN?

Would a time stop have save you a few bucks?


----------



## FXanyone

skc said:


> It is surprising how the relationship has broken down and the ratio has blown out a fair bit. It's like APN didn't even know the market was going crazy in May.
> 
> Was there any negative news on FXJ or positive news on APN?
> 
> Would a time stop have save you a few bucks?




No real news...seems like most print media stocks just fell out of favour while there were some games in APN. They centred around a possible restructuring of the board.

The damage was done in the space of about 4 days

May was better save being short HSP when its takeover was announced! Mind you still ended a small positive for the month.


----------



## SilverRanger

welcome back skc 
And yes, it turns out that May is a favourable month for me as well, up about 22% (based on single leg size), with 6/6 winning trades

Didn't have much to do with APN lately as its correlation looks quite poor with other media companies

Today I got kinda lucky cuz I missed the MCR/MRE trade last week, otherwise it would have ruined my winning streak


----------



## skc

SilverRanger said:


> welcome back skc
> And yes, it turns out that May is a favourable month for me as well, up about 22% (based on single leg size), with 6/6 winning trades
> 
> Didn't have much to do with APN lately as its correlation looks quite poor with other media companies
> 
> Today I got kinda lucky cuz I missed the MCR/MRE trade last week, otherwise it would have ruined my winning streak




Good to hear you are doing well. Great stuff. 

I couldn't get a fill 2 days ago on a PAN/MRE trade, so dodged a bullet there as well...Funny with MRE - there was actually a chance to get out with minimal damage right after resumption (opened at 70c I think) - but you would have to had a close eye on it.



FXanyone said:


> No real news...seems like most print media stocks just fell out of favour while there were some games in APN. They centred around a possible restructuring of the board.
> 
> The damage was done in the space of about 4 days
> 
> May was better save being short HSP when its takeover was announced! Mind you still ended a small positive for the month.




The healthcare stocks are all over the shop recently. PRY and SHL in the dumps, RHC and HSP flying high...


----------



## Pairs Trader

welcome back skc and others, looking forward to watching you rake it in again skc!

Pair Trading Update:

Volatility is back in the markets after it was at a low earlier this year, so opportunities are plenty across the board, just remember to stay current with business news so you know what stocks are in play and aren't, be careful in the resources sector with the tax story being a swing factor, look for a pop in the juniors when/if an announcement of a watered down version of the tax comes. Remember, even the peers of a stock in play can be affected, also remember to keep conservative position sizing.

Its a game of numbers, plenty of small trades with a small edge X leverage = good profits.


----------



## SilverRanger

Opened long NWSLV and short NWS today, currently sitting in the red slightly, hope this one doesn't break my winning streak


----------



## skc

SilverRanger said:


> Opened long NWSLV and short NWS today, currently sitting in the red slightly, hope this one doesn't break my winning streak




This pair has a high win rate although usually pretty thin profit. A slight hesitation in open / close on each leg might make the difference between win and loss.


----------



## SilverRanger

skc said:


> This pair has a high win rate although usually pretty thin profit. A slight hesitation in open / close on each leg might make the difference between win and loss.



This is one of my favorites, high win rate, high correlation and best of all, it's the same company 
In terms of entering/exiting this pair, I tend to pay more attention to NWSLV (less liquid), making sure that I get a fill on this leg first, and sometimes you can find some real good entries / exits of this leg at open /close auction


----------



## SilverRanger

Closed NWS/NWSLV for a good 3.2% profit, that was faster than I thought


----------



## skc

SilverRanger said:


> Closed NWS/NWSLV for a good 3.2% profit, that was faster than I thought




I applauded for you on the open. Well done


----------



## SilverRanger

skc said:


> I applauded for you on the open. Well done




Entered the reverse of Tuesday's trade today, although the signal is not as strong as Tuesday's, so let's see how this one goes


----------



## SilverRanger

A media company pair appears on my radar today, FXJ vs WAN, it took me quite a while before deciding to pull the trigger, especially with the huge % of short positions out there


----------



## FXanyone

SilverRanger said:


> A media company pair appears on my radar today, FXJ vs WAN, it took me quite a while before deciding to pull the trigger, especially with the huge % of short positions out there




The huge short will actually help as they will need to cover the convertible position at some point. I saw it and missed it!!!

FYI in June I made 20 trades - 10 winners and 10 losers. Still lost money thought principally with BXB/AMC TSE/UGL and TEL/TLS.


----------



## skc

SilverRanger said:


> A media company pair appears on my radar today, FXJ vs WAN, it took me quite a while before deciding to pull the trigger, especially with the huge % of short positions out there




Yes FXJ has been one way traffic for way too long imo. A strong close today although I got in at 1.28 and missed the low. 

I couldn't find any WAN to short so had to use TEN. 

Who did you short with?


----------



## SilverRanger

skc said:


> Yes FXJ has been one way traffic for way too long imo. A strong close today although I got in at 1.28 and missed the low.
> 
> I couldn't find any WAN to short so had to use TEN.
> 
> Who did you short with?



I did the short with IG over the phone as MM, with some additional interest charge (5% P.A), been doing that every while and then, but it's really a hit and miss


----------



## SilverRanger

FXanyone said:


> The huge short will actually help as they will need to cover the convertible position at some point. I saw it and missed it!!!
> 
> FYI in June I made 20 trades - 10 winners and 10 losers. Still lost money thought principally with BXB/AMC TSE/UGL and TEL/TLS.




Personally I would try to avoid TLS, until I see the NBN clouds are clear. 

TSE/UGL used to be on my radar, but it has disappeared for a while now, I probably won't do anything with it til its correlation picks up again

For the month of June I still kept my winning streak from May , but only did around 6 pairs or so, including twice with NWS/NWSLV


----------



## skc

SilverRanger said:


> Personally I would try to avoid TLS, until I see the NBN clouds are clear.
> 
> TSE/UGL used to be on my radar, but it has disappeared for a while now, I probably won't do anything with it til its correlation picks up again
> 
> For the month of June I still kept my winning streak from May , but only did around 6 pairs or so, including twice with NWS/NWSLV




I've paired TSE with WOR as both are weaker stocks. Whereas UGL is better teamed with MND at the moment.


----------



## skc

skc said:


> Yes FXJ has been one way traffic for way too long imo. A strong close today although I got in at 1.28 and missed the low.
> 
> I couldn't find any WAN to short so had to use TEN.
> 
> Who did you short with?




Unbelieveable... why did TEN go up so much today when all other media stocks are battered down?

I closed FXJ this morning for a not so bad $1.345, but was waiting for TEN at $1.605 when it jumped to $1.65. Not wanting to be exposed nake for too long I had to close it at that price.

So a nice 4.5% trade turned into measly 1.9%.


----------



## SilverRanger

skc said:


> Unbelieveable... why did TEN go up so much today when all other media stocks are battered down?
> 
> I closed FXJ this morning for a not so bad $1.345, but was waiting for TEN at $1.605 when it jumped to $1.65. Not wanting to be exposed nake for too long I had to close it at that price.
> 
> So a nice 4.5% trade turned into measly 1.9%.



Seems like this is the reason, didn't know people would pay that much attention to UBS tho...
http://www.businessweek.com/news/20...aland-stocks-bhp-billabong-stockland-ten.html

Greedy me, still haven't cashed out my 4.5% gain


----------



## skc

SilverRanger said:


> Seems like this is the reason, didn't know people would pay that much attention to UBS tho...
> http://www.businessweek.com/news/20...aland-stocks-bhp-billabong-stockland-ten.html
> 
> Greedy me, still haven't cashed out my 4.5% gain




Thanks. That must have been it. The buy queue was all over 6 figures so it was insto's work no doubt.

I did however re-enter long APN / TEN. Now sitting at 4.1% and wondering if I should call it the day. Ah decisions decisions...


----------



## FXanyone

SilverRanger said:


> Seems like this is the reason, didn't know people would pay that much attention to UBS tho...
> http://www.businessweek.com/news/20...aland-stocks-bhp-billabong-stockland-ten.html
> 
> Greedy me, still haven't cashed out my 4.5% gain




Have found that UBS recommendations seem to have almost immediate market impacts. Personally wary of trading against UBS for a week or so after a change. It's cost me in the past


----------



## SilverRanger

SilverRanger said:


> Seems like this is the reason, didn't know people would pay that much attention to UBS tho...
> http://www.businessweek.com/news/20...aland-stocks-bhp-billabong-stockland-ten.html
> 
> Greedy me, still haven't cashed out my 4.5% gain




Got out of FXJ/WAN in the closing auction today, hit the last minute FXJ buying frenzy, a nice 5.4% profit

Closed out another HVN/MYR with 1.6% gain, not as nice but it adds to my winning streak

Only got LEI/AIO hanging atm, which is sitting @ 3.8% loss , let's see how it goes in the next few days


----------



## FXanyone

Been quiet in here lately.

How have people been getting along? July gone well for me so far. Really tightened up on some of my trading criteria and become ruthless regarding stops. Was probably on target for my best month till QBE's little stunt today. A profit warning slipped in a month after 30 June in the guise of converting to USD accounting. 

Still there is more money in the bank than a month ago so cant be too upset...


----------



## skc

Too busy trading. July was OK... looking like a 6-7% increase depending on how I go the rest of the week.

Missed the QBE although it did drag down IAG for me yesterday (I had long AXA short IAG). Too bad IAG has a profit warning themselves today but I've already closed the trade 

Reporting season next month (and confession season now) so tread carefully...

BTW anyone has a good reporting season calendar?


----------



## FXanyone

skc said:


> Too busy trading. July was OK... looking like a 6-7% increase depending on how I go the rest of the week.
> 
> Missed the QBE although it did drag down IAG for me yesterday (I had long AXA short IAG). Too bad IAG has a profit warning themselves today but I've already closed the trade
> 
> Reporting season next month (and confession season now) so tread carefully...
> 
> BTW anyone has a good reporting season calendar?




UBS put out a good one if you can access that


----------



## SilverRanger

FXanyone said:


> UBS put out a good one if you can access that




Being a cheap non-professional trader I use Bell Direct's calender, the bad thing is that you need to do a look-up for each individual company (unlike Google Finance you get all the earning release dates for your portfolio)

July has been a bumpy ride for me as I started the month with 3 losing trades (lucky me), managed recouped some of my losses in the middle of the month and this week officially back in profit - up about 6% as of now, thanks to AAX/TSE


----------



## skc

SilverRanger said:


> Being a cheap non-professional trader I use Bell Direct's calender, the bad thing is that you need to do a look-up for each individual company (unlike Google Finance you get all the earning release dates for your portfolio)
> 
> July has been a bumpy ride for me as I started the month with 3 losing trades (lucky me), managed recouped some of my losses in the middle of the month and this week officially back in profit - up about 6% as of now, thanks to AAX/TSE




This one isn't too bad http://www.businessspectator.com.au...ALENDAR-pd20100727-7RA52?opendocument&src=rss

I have long AWB short GNC and they just announced a merger.... to merger at 1 GNC = 5.75 AWB. I entered at a ratio of 6.28

What a trade!


----------



## Pairs Trader

skc said:


> I have long AWB short GNC and they just announced a merger.... to merger at 1 GNC = 5.75 AWB. I entered at a ratio of 6.28
> 
> What a trade!




That is one bloody nice trade skc! Pair trade turned risk arbitrage, we call these one's the golden goose at the old hat factory, you just front ran a truck load of money from hedge funds putting the same trade on upon announcement  I missed this one, my next Heineken is in your honor!


----------



## skc

Pairs Trader said:


> That is one bloody nice trade skc! Pair trade turned risk arbitrage, we call these one's the golden goose at the old hat factory, you just front ran a truck load of money from hedge funds putting the same trade on upon announcement  I missed this one, my next Heineken is in your honor!




Thanks PT. After more than 400 trades I bound to hit one of them at some stage 

I closed the pair at a ratio of 5.82. The interesting aspect was that one could actually still do the merger arbitrage shorting after AWB/GNC first opened.

My position size on this trade was a bit smaller than usual unfortunately - AWB is not the most stable of stocks, and GNC not the most liquid... but a nice reward nonetheless.


----------



## sleepy

Hi skc,

Whats ratio of 5.82 mean in % return?
And are you currently trading pairs full-time and what tools are you using?

sleepy


----------



## SilverRanger

sleepy said:


> Hi skc,
> 
> Whats ratio of 5.82 mean in % return?
> And are you currently trading pairs full-time and what tools are you using?
> 
> sleepy



Assuming a dollar neutral trade I think it's about 6.28 / 5.82 - 1 = 7.9%, very exceptional given on most trades you get around 1%~2% (for me anyway). What I like the most about this one is the smell of merger arbitrage, which is different to the normal stat arbitrage that we based our trades on


----------



## skc

sleepy said:


> Hi skc,
> 
> Whats ratio of 5.82 mean in % return?
> And are you currently trading pairs full-time and what tools are you using?
> 
> sleepy




I trade full time and pairs trading is about 80% of what I do now. I use Pairs Trade finder software supplied by the poster here called Pairs Trader, and I use MFGlobal and IG as my CFD providers.



SilverRanger said:


> Assuming a dollar neutral trade I think it's about 6.28 / 5.82 - 1 = 7.9%, very exceptional given on most trades you get around 1%~2% (for me anyway). What I like the most about this one is the smell of merger arbitrage, which is different to the normal stat arbitrage that we based our trades on




Exactly. 7.9% return on position size. Probably not a great number compared to many directional trading, but it's a good gain on pairs.

There was no smell of merger arbitrage. I was surprised and the market was surprised. I was somewhat mindful that AWB is a potential takeover target (of sorts), but I had no idea that a merger would be announced between them when I open the trade 1 day before. Pure luck really...

A great trader would have picked up some GNC on the cheap on Friday (as a directional trade). They were drove down by the arbitrage gang, but they might actually emerge a better company from the merger.


----------



## FXanyone

I was short GNC against GFF.

Must admit had been concerned as GNC was v strong a few days ahead of the announcement - $ 6.10 or so high. Traded down to $ 5.60 post announcement. That had to hurt a few....I got out square and was delighted!


----------



## skc

FXanyone said:


> I was short GNC against GFF.
> 
> Must admit had been concerned as GNC was v strong a few days ahead of the announcement - $ 6.10 or so high. Traded down to $ 5.60 post announcement. That had to hurt a few....I got out square and was delighted!




I traded a long CCL short GFF the other day and closed with a modest profit.

GFF's chart looked really bad and $1.30 was looking definitely shaky, but decided to reduce the number of positions I have open with reporting season coming up.


----------



## FXanyone

skc said:


> I traded a long CCL short GFF the other day and closed with a modest profit.
> 
> GFF's chart looked really bad and $1.30 was looking definitely shaky, but decided to reduce the number of positions I have open with reporting season coming up.





I decided the best times to take a holidays each year are the back end of August and February. I blackout a period a week before and a week after results (and major announcements) so doesnt leave me a lot to trade. Conveniently the end of August fits perfectly with a couple of major sailing regattas


----------



## Pairs Trader

New trade

Long QBE @ 17.42
Short PPT @ 32.18

I like the ratio chart, and will exit before QBE earnings on the 19th.


----------



## skc

Pairs Trader said:


> New trade
> 
> Long QBE @ 17.42
> Short PPT @ 32.18
> 
> I like the ratio chart, and will exit before QBE earnings on the 19th.




So you are positing trades again? Interesting pair. A pair that I don't actually have. I only keep QBE with its insurance peers and PPT with its wealth management buddies. The ratio chart however does look friendly.

QBE has recently posted a profit downgrade, and the price action since then on its own chart looks to be a good shorting opportunity (rather than long). Having said that, PPT looks like it will at least pause at current resistance if not head back south to test the minor support at $30.

Let's see how that works out.


----------



## Pairs Trader

skc said:


> So you are positing trades again? Interesting pair. A pair that I don't actually have. I only keep QBE with its insurance peers and PPT with its wealth management buddies. The ratio chart however does look friendly.
> 
> QBE has recently posted a profit downgrade, and the price action since then on its own chart looks to be a good shorting opportunity (rather than long). Having said that, PPT looks like it will at least pause at current resistance if not head back south to test the minor support at $30.
> 
> Let's see how that works out.




Yeah il post trades when I have time, yes I usually stick to same industry pairs, however its not necessary, Ive attached a 10 yr backtest (we have upgraded our software to back test up to 10yrs of data) of the ASX20 (top 20 Aussie stocks) and you can see out of all 190 possible pair combinations, using 10k trade size made $1.08million on 3,467 trades, with a avg profit per trade of $314, a 71.8% win rate and 2.02 win/loss ratio. The top 20 stocks come from a variety of industries.

So whilst its ideal to pair stocks in the same industry, you can still make good profits by pairing non-related stocks together. Once again, its mean reversion of the individual stocks that makes most of our profits, not correlation, being correlated just reduces your sector risk.


----------



## Pairs Trader

Exited trade

Sold QBE @ 17.02 (2.3% loss)
Covered PPT @ 29.92 (7.5% gain)

not bad for 3 days holding time


----------



## SilverRanger

Haven't had any active pairs for almost a week, kinda feel bad missing out last Thursday on both NWS/NWSLV at market close, and WAN/FXJ because the greedy me couldn't get a fill 
Both could have been closed today with some modest profits...

How's everyone else doing?

Does anyone know tricks to get a list of indicative prices of stocks at market open and close auction?


----------



## edman79

Hi Pairs,
It would be great if you started posting trades again as I only started pair trading after you finished posting trades and missed out on the "real time" learning experience.

Ed.


----------



## edman79

Pairs Trader said:


> Yeah il post trades when I have time, yes I usually stick to same industry pairs, however its not necessary, Ive attached a 10 yr backtest (we have upgraded our software to back test up to 10yrs of data) of the ASX20 (top 20 Aussie stocks) and you can see out of all 190 possible pair combinations, using 10k trade size made $1.08million on 3,467 trades, with a avg profit per trade of $314, a 71.8% win rate and 2.02 win/loss ratio. The top 20 stocks come from a variety of industries.
> 
> So whilst its ideal to pair stocks in the same industry, you can still make good profits by pairing non-related stocks together. Once again, its mean reversion of the individual stocks that makes most of our profits, not correlation, being correlated just reduces your sector risk.




Hi Pairs,
What signal settings did you use to get these results?

Ed.


----------



## skc

SilverRanger said:


> Haven't had any active pairs for almost a week, kinda feel bad missing out last Thursday on both NWS/NWSLV at market close, and WAN/FXJ because the greedy me couldn't get a fill
> Both could have been closed today with some modest profits...
> 
> How's everyone else doing?
> 
> Does anyone know tricks to get a list of indicative prices of stocks at market open and close auction?




August is quiet thanks to the profit season. Really have to tip toe around it as market is not at all kind to any sort of weakness in results. 

Best trade this month so far was long FLT / short QAN. Just over 4% for holding over the weekend. 

I had a few misses with FXJ - and I found that it has become very hard to trade. It bounces around a lot with fair bit of depth either side, so you really need to wait in line, have a position open before you can work the other leg. You would have heard that FXJ is the most shorted stock because hedge funds are arbitraging against its hybrid securities. Because of this overhang / stock of short positions, possibly big movement either way when FXJ results come out in a couple of weeks.

You don't have a list for the indicative auction price? How do you trade into the open / close? Who do you use as broker / CFD provider? I use MFGlobal mostly and the webIress platform can show a column called Match Price, including the surplus bid / ask volume. Very very important to my day to day trading. IG markets also show the match price, but not in a list and you have to open each ticket separately which makes it a lot less useful.


----------



## Pairs Trader

edman79 said:


> Hi Pairs,
> What signal settings did you use to get these results?
> 
> Ed.




I used the default settings in our latest version 2.97 which is available for download at www.pairtradefinder.com/freeTrial.php

We have adjusted settings for current market conditions.


----------



## SilverRanger

skc said:


> August is quiet thanks to the profit season. Really have to tip toe around it as market is not at all kind to any sort of weakness in results.
> 
> Best trade this month so far was long FLT / short QAN. Just over 4% for holding over the weekend.
> 
> I had a few misses with FXJ - and I found that it has become very hard to trade. It bounces around a lot with fair bit of depth either side, so you really need to wait in line, have a position open before you can work the other leg. You would have heard that FXJ is the most shorted stock because hedge funds are arbitraging against its hybrid securities. Because of this overhang / stock of short positions, possibly big movement either way when FXJ results come out in a couple of weeks.
> 
> You don't have a list for the indicative auction price? How do you trade into the open / close? Who do you use as broker / CFD provider? I use MFGlobal mostly and the webIress platform can show a column called Match Price, including the surplus bid / ask volume. Very very important to my day to day trading. IG markets also show the match price, but not in a list and you have to open each ticket separately which makes it a lot less useful.




Essentially I was trying to get a fill to short FXJ for the whole day last Thursday, but it just kept on going south, and then WAN rebounded a little, so I've missed the boat   But compare that to a lot of the AREITs pairs, where you have both legs with sub $1 prices, things could have gone a lot more nasty

I've always liked to see the open/close matching prices in a list, and preferably export them to a spreadsheet, does Iress/webIress offer export feature?  
Currently I have to go through this manually, yes it is really annoying and yes it does mean misses like NWS/NWSLV last week, but I get what I paid for 

P.S I use IG (mainly this one) and GFT (if I don't mind to buy at offer or sell at ask) as my CFD provider. I've looked at MFGlobal a while ago, but find the commission system unfriendly to non-professional traders like myself


----------



## SilverRanger

Pairs Trader said:


> I used the default settings in our latest version 2.97 which is available for download at www.pairtradefinder.com/freeTrial.php
> 
> We have adjusted settings for current market conditions.




Nice to see a new upgrade Pair


----------



## SilverRanger

SilverRanger said:


> Nice to see a new upgrade Pair




Seems like there's some issue with the Save Pair button in the Backtester, it's adding all the pairs!!


----------



## skc

SilverRanger said:


> Essentially I was trying to get a fill to short FXJ for the whole day last Thursday, but it just kept on going south, and then WAN rebounded a little, so I've missed the boat   But compare that to a lot of the AREITs pairs, where you have both legs with sub $1 prices, things could have gone a lot more nasty
> 
> I've always liked to see the open/close matching prices in a list, and preferably export them to a spreadsheet, does Iress/webIress offer export feature?
> Currently I have to go through this manually, yes it is really annoying and yes it does mean misses like NWS/NWSLV last week, but I get what I paid for
> 
> P.S I use IG (mainly this one) and GFT (if I don't mind to buy at offer or sell at ask) as my CFD provider. I've looked at MFGlobal a while ago, but find the commission system unfriendly to non-professional traders like myself




MFGlobal is actually very very good with a couple of little known features for their platinum accout (>$100K).

- Data and platform are free
- They pay you interest on your Gross Liquidation Value, not just on free equity
- Commission is 0.08% and charged at end of day. What that means is if I trade same stock, same direction multiple times, I get charged on the aggregate volume rather than the minimum $8 for each trade. So say I bought 1000 shares at $5 in the morning and 2000 more at $5.1 in the afternoon, my brokerage is 0.08% * (1000 x $5 + 2000 x $5.1) = $12.16.

They do have some negatives like generally higher margin requirements and lack of short availability in some stocks (like MYR or MND from recent memory). So I keep my IG account as a supplement.


----------



## Pairs Trader

SilverRanger said:


> Seems like there's some issue with the Save Pair button in the Backtester, it's adding all the pairs!!




I'm not having a go at you, but to everyone else too, please email us regarding software issues, don't post them here, i want to keep this journal strictly for posting and discussing pair trades. Please email me and I will help you resolve this issue. thank you.


----------



## SilverRanger

Pairs Trader said:


> I'm not having a go at you, but to everyone else too, please email us regarding software issues, don't post them here, i want to keep this journal strictly for posting and discussing pair trades. Please email me and I will help you resolve this issue. thank you.




I can certainly do that given it's your thread (and I love to follow it) and you want to keep the thread "clean", no offense taken
I'm not sure where I should write the email to so please check your PM


----------



## Pairs Trader

edman79 said:


> Hi Pairs,
> It would be great if you started posting trades again as I only started pair trading after you finished posting trades and missed out on the "real time" learning experience.
> 
> Ed.




When Ive got time I'll do my best to post ASX pair trades here in real time. I mostly stick to a well defined trading system using our software with room for discretionary decisions based on market news, market chatter and gut feel. I listen to what the charts are saying and rely on back testing to give me the conviction to pull the trigger.


----------



## keroppi

skc, you wrote in February 2010 that you analysed your actual exits compared to exiting the folowing day.  You also mentioned that you were looking to improve your exits. 

Have you done any further analysis on exiting?  What is your prefered exit strategy now?


----------



## samgribbles

long BHP at 38.82, short RIO at 73.26 late last week

anyone else take this trade on the back of the BHP hammering following the Potash T/O bid?  If not would be interested as to reasons why not.


----------



## SilverRanger

samgribbles said:


> long BHP at 38.82, short RIO at 73.26 late last week
> 
> anyone else take this trade on the back of the BHP hammering following the Potash T/O bid?  If not would be interested as to reasons why not.




Well, this one is obviously news induced, so I'm out. 
Potash Corp is currently sitting at almost $150, well above the $130 offer, seems like BHP will need to do more to seal the deal


----------



## Pairs Trader

samgribbles said:


> long BHP at 38.82, short RIO at 73.26 late last week
> 
> anyone else take this trade on the back of the BHP hammering following the Potash T/O bid?  If not would be interested as to reasons why not.




Was tempting, however I agree with a lot of the market opinion that this isn't the best of deals, not really in line with their other businesses, plus its one hell of a price tag and they will probably have to increase it, many hedge funds would have sold short BHP against a long potash position.


----------



## Barndat

SilverRanger said:


> I've always liked to see the open/close matching prices in a list, and preferably export them to a spreadsheet, does Iress/webIress offer export feature?




Yes, I use MFG WebDataServices add-in for excel and have streaming live prices including match prices so I can watch multiple stocks. You can then setup alarms levels etc.


----------



## skc

samgribbles said:


> long BHP at 38.82, short RIO at 73.26 late last week
> 
> anyone else take this trade on the back of the BHP hammering following the Potash T/O bid?  If not would be interested as to reasons why not.




I took the trade at BHP 38.78 RIO 72.94. 

There are a couple of reasons that I took the trade. 

1. BHP announced the potash deal before their results (sometime today), which indicates to me that the result is likely to be ahead of expectations (i.e. they have cash burning in their pockets). 

2. Short RIO long BHP tend to work well in a falling, jittery market which we have now. 

Showing a small profit now but nothing to write home about. I love to hear RIO announce they are out bidding BHP for Potash Corp.... that would be some trade. 

Dreaming aside - will probably square them on the open tomorrow morning.


----------



## Pairs Trader

New trade

Long AMP @ 4.87
Short PPT @ 30.60

Looking for quick scalp, like the ratio chart plus all other readings at extremes. Will try to exit before PPT goes ex-div on the 1st Sep.


----------



## waltbx

Pairs Trader said:


> New trade
> 
> Long AMP @ 4.87
> Short PPT @ 30.60
> 
> Looking for quick scalp, like the ratio chart plus all other readings at extremes. Will try to exit before PPT goes ex-div on the 1st Sep.




I'm confused (not the first time!)

My charts show AMP at $42 and PPT at $6.72.  And my chart from PTFinder differs greatly from yours.  I'm feeling like I'm in a parallel universe, but not parallel at all.

And from the previous post, my BHP is $64.79, not 38.78 and RIO is "not a valid symbol."

What's happening?  Do I need a vacation?

Walt B


----------



## skc

waltbx said:


> I'm confused (not the first time!)
> 
> My charts show AMP at $42 and PPT at $6.72.  And my chart from PTFinder differs greatly from yours.  I'm feeling like I'm in a parallel universe, but not parallel at all.
> 
> And from the previous post, my BHP is $64.79, not 38.78 and RIO is "not a valid symbol."
> 
> What's happening?  Do I need a vacation?
> 
> Walt B




Walt, perhaps the name of this forum might give you a hint. I have highlighted the operative word - *AUSSIE*stock forum. 

OR may be you do need a vacation. So where the bloody hell are you? 

I believe you can set the correct exchange in the stock add window.


----------



## Pairs Trader

waltbx said:


> I'm confused (not the first time!)
> 
> My charts show AMP at $42 and PPT at $6.72.  And my chart from PTFinder differs greatly from yours.  I'm feeling like I'm in a parallel universe, but not parallel at all.
> 
> And from the previous post, my BHP is $64.79, not 38.78 and RIO is "not a valid symbol."
> 
> What's happening?  Do I need a vacation?
> 
> Walt B




Hi Walt, yes that's an honest mistake of yours, your looking at NYSE codes, in this journal I am posting my ASX(Australian stock exchange) trades, add a .AX at the end of the given codes in yahoo finance for quotes/charts on ASX stocks.

I highly recommend a vacation too, tis summer over there mate


----------



## Pairs Trader

New trade

Long NAB @ 22.84
Short ANZ @ 22.33

Ratio chart not the best but still at yearly highs, one of the biggest RSI divergences Ive seen, and back tester shows solid history.


----------



## sleepy

Hi skc/walt,

What sort of returns have you been getting recently?
And are you finding pairs trading as profitable as when you first started?

sleepy


----------



## Pairs Trader

Pairs Trader said:


> New trade
> Long AMP @ 4.87
> Short PPT @ 30.60
> .




Sold AMP @ 5.15 (5.74% gain)
Covered PPT @ 30.28 (1.05% gain)


----------



## skc

sleepy said:


> Hi skc/walt,
> 
> What sort of returns have you been getting recently?
> And are you finding pairs trading as profitable as when you first started?
> 
> sleepy




Pretty much business as usual at my end. Profitability (adjusted for positoin size) is similar to when I first started.


----------



## FXanyone

sleepy said:


> Hi skc/walt,
> 
> What sort of returns have you been getting recently?
> And are you finding pairs trading as profitable as when you first started?
> 
> sleepy




I have been doing about as well. Frankly my improvements are coming from better control of losses. I have traded for many years but have found the setting of pair stops to be tricky.


----------



## edman79

How are you controlling your losses FX?


----------



## Pairs Trader

sleepy said:


> Hi skc/walt,
> 
> What sort of returns have you been getting recently?
> And are you finding pairs trading as profitable as when you first started?
> 
> sleepy




Whilst a significant portion of your profits can be attributed to market conditions, the majority of your profits come from you, the trader, and your ability to consistently execute a trading plan day in, day out and get better at your craft.


----------



## Pairs Trader

FXanyone said:


> I have been doing about as well. Frankly my improvements are coming from better control of losses. I have traded for many years but have found the setting of pair stops to be tricky.




How are you settings stops? Ive always found $ and % stops to decrease pair trading performance like most trading systems, however a time stop can mitigate those large losses whilst not damaging performance.


----------



## FXanyone

edman79 said:


> How are you controlling your losses FX?




Finding the most effective stop is on individual legs rather than the pair. Also if not seeing start of a reversion with a week I cut.


----------



## sleepy

FXanyone said:


> Finding the most effective stop is on individual legs rather than the pair.




Has anyone done any testing on the merits of closing both trades at same time (via say revision to mean, or a time stop) vs using a trailing stop on the one(s) in profit and only exiting when taken out.

sleepy


----------



## SilverRanger

sleepy said:


> Has anyone done any testing on the merits of closing both trades at same time (via say revision to mean, or a time stop) vs using a trailing stop on the one(s) in profit and only exiting when taken out.
> 
> sleepy




It might be a pain to do this manually, given most brokers (as far as I'm aware) don't provide much support for pair trading.

With IB I used to be able to trade in pair (buy and sell as a pair, as opposed to individual legs), and I think you can put a trailing stop there. IB has now removed this function "due to increased volatility in the market". 

I suppose you may be able to do this with a broker offering DDE in Excel, where you can basically define your pair trailing stop with some fancy formulas.

Closed my first and only pair opened in August MND/MRM today with 4% profit (vs July with 7%)


----------



## skc

Closed a trade that I opened on Monday. Long FGL 6.06, closed 6.38. Short GFF 1.395, covered 1.40.

Actually I am holding half of the Fosters - the bid for the wine business is probably just the starting gun for some serious bidding on the beer business. But the trade is closed for record keeping purpose at a solid 5% over 2 days.

When I can long a stock that is on the M&A radar, I pretty much always jump to it.

Another trade I am holding is long WHC / short AQA. Someone wanted to buy WHC - hopefully in the next few days now that the election is finally over.


----------



## FXanyone

skc said:


> Closed a trade that I opened on Monday. Long FGL 6.06, closed 6.38. Short GFF 1.395, covered 1.40.
> 
> Actually I am holding half of the Fosters - the bid for the wine business is probably just the starting gun for some serious bidding on the beer business. But the trade is closed for record keeping purpose at a solid 5% over 2 days.
> 
> When I can long a stock that is on the M&A radar, I pretty much always jump to it.
> 
> Another trade I am holding is long WHC / short AQA. Someone wanted to buy WHC - hopefully in the next few days now that the election is finally over.




I'm having a reasonable start to the month. Only one  horror ( MGX/FMG) and some solid little trades. Currently have QAN/MAP STO/OSH ORI/IPL (long/short)


----------



## sleepy

hi skc,

What universe of stocks did you look at when setting up your pairs?
e.g., ASX 200 - GCIS sectors

... or did you use GCIS Industries?

And how many pairs do you currently have on your watchlist?

sleepy


----------



## skc

FXanyone said:


> I'm having a reasonable start to the month. Only one  horror ( MGX/FMG) and some solid little trades. Currently have QAN/MAP STO/OSH ORI/IPL (long/short)




I hope you got out of STO in time before the 5% plunge. I actuall had the same trade (STO/OSH) and got out pretty much breakeven. 

Funny reaction but I suppose the price was not as good as expected, or that it means STO is another step closer to the inevitable capital raising?



sleepy said:


> hi skc,
> 
> What universe of stocks did you look at when setting up your pairs?
> e.g., ASX 200 - GCIS sectors
> 
> ... or did you use GCIS Industries?
> 
> And how many pairs do you currently have on your watchlist?
> 
> sleepy




I use GCIS as a guide but I go a little bit deeper with my pairing. E.g. I don't just group all mining stocks, but only ones that mine the same material. And capital goods are not all the same etc etc.

I have ~300 pairs in the program, but many I don't trade even if the signal comes up. I use the program as a market monitor to alert me what stocks are on the move relative to its peers.


----------



## sleepy

Thanks skc,

Do you stay within ASX 200only?
Or are you more flexible?
And do you flush and rinse all your pairs say every 2-3 months?

And how many signals on average would you get a day?
And of these how many would you take vs. disregard after checking news, ratio charts etc

Just trying to get a handle on what sort numbers I should be expecting if I had 200-300 pairs on watch.

sleepy


----------



## skc

sleepy said:


> Thanks skc,
> 
> Do you stay within ASX 200only?
> Or are you more flexible?
> And do you flush and rinse all your pairs say every 2-3 months?
> 
> And how many signals on average would you get a day?
> And of these how many would you take vs. disregard after checking news, ratio charts etc
> 
> Just trying to get a handle on what sort numbers I should be expecting if I had 200-300 pairs on watch.
> 
> sleepy




I very rarely go beyond ASX200.

I tend to get 15-20 signals per day. Many of these will be repeats. E.g. STO slumped today so all the other oil and gas stocks it paired against will be triggered. I then check the ratio charts to see which pair has the most divergence, the most suitable news environment, and the most suitable looking price chart. (Note I didn't take the STO trade today, although it will probably bounce a bit tomorrow).

On average I open 2.4 trades per day, and close 2.2 trades. The max was 8 new trades in a day. I hold on average 9.2 pairs, with max of 16 pairs open at any one time - that was prob too many.


----------



## sleepy

Hi skc,

Thanks for the helpful info. I think I need to rethink the way I set my pairs as Im not getting that amount of signals with ASX200 stocks (backtested 5yrs).

At the moment the only filters Im using are:

avg profit > $300
correlation > 0.70
sd > +/- 2.70



skc said:


> E.g. *STO* slumped today so all the other oil and gas stocks it paired against will be triggered. I then check the ratio charts to see which pair has the most divergence, the most suitable news environment, and the most suitable looking price chart. (Note I didn't take the STO trade today, although it will probably bounce a bit tomorrow).




For example, I have just done 5yr backtest (after market close) on 'S&P ASX 200 SubInd Oil & Gas Exploration & Production' stocks which comprises:

AWE
BPT
CVN
ESG
KAR
LNC
OSH
ROC
STO
WPL

...and only one pair containing STO .... OSH/STO looked like it could have possiblly triggered today. It is currently: (correlation = 0.80, sd = +2.45).

sleepy


----------



## sleepy

Hi skc,

Looks like I found the problem.
Changing SD to +- 2.00 produces a bunch more signals (e.g., 4 STO pairs today).

Would you recommend using SD of +- 2.00 or sticking with the default setting of
+- 2.70?

And do you ONLY take signals that show divergence on or is this not a must have.

sleepy


----------



## FXanyone

skc said:


> I hope you got out of STO in time before the 5% plunge. I actuall had the same trade (STO/OSH) and got out pretty much breakeven.
> 
> Funny reaction but I suppose the price was not as good as expected, or that it means STO is another step closer to the inevitable capital raising?
> 
> 
> 
> I use GCIS as a guide but I go a little bit deeper with my pairing. E.g. I don't just group all mining stocks, but only ones that mine the same material. And capital goods are not all the same etc etc.
> 
> I have ~300 pairs in the program, but many I don't trade even if the signal comes up. I use the program as a market monitor to alert me what stocks are on the move relative to its peers.




Got out of STO as it went back through the previous days close. I guess if analysts value the stake at $ 1 billion + and you sell for $ 650 mill the asset is worth less and you have to have a bigger capital raising


----------



## SilverRanger

Picked up my first pair of the month at market close today. Long DJS @ 5.06, short MYR @ 3.92.


----------



## skc

sleepy said:


> Hi skc,
> 
> Looks like I found the problem.
> Changing SD to +- 2.00 produces a bunch more signals (e.g., 4 STO pairs today).
> 
> Would you recommend using SD of +- 2.00 or sticking with the default setting of
> +- 2.70?
> 
> And do you ONLY take signals that show divergence on or is this not a must have.
> 
> sleepy




Exactly. Setting the SD to 2.7 vs 2.0 makes a huge difference to the amount of signals generated.

I set my signal at 2.0, but that doesn't mean I take all trades/signals straight away. Usually checking the charts you can sort of "feel" that the stock hasn't yet finish its fall, or the recent spike (on the stock that the program is telling you to short) hasn't yet run out of momentum. I keep such pair on close watch, and wait for better entries (e.g. when the retracement is hitting recent support). At the end of the day, the entry SD doesn't matter - your P&L is purely governed by the entry price ratio.

But by doing this it also means that I miss trades that revert perfectly the next day... and I can't say I've recorded all the trades that I didn't take to see if my gut feel increaes / decrease my overall profitability.

So the short answer is there is no perfect SD...

FWIW I wouldn't long STO at the moment as the chance of cap raising is too high. I also wouldn't short LNC as further asset sale is supposed to be imminent. Sure STO may bounce or LNC may fall a few % tomorrow - but trading against those big events on the horizon is akin to picking pennies in front of a steam roller. The down side is easily 10-15%...


----------



## sleepy

Thanks skc,

So after you get SD signal and having looked at ratio charts, checked news etc in order to select which pairs you wish to trade, you then time your entry based on price chart action (e.g., suport/resistance etc). Is that correct?

And when back testing to select what pairs to add to watchlist do you use 3yr or 5yr, or 10yrs. Or does it not mattter which?

sleepy


----------



## skc

sleepy said:


> Thanks skc,
> 
> So after you get SD signal and having looked at ratio charts, checked news etc in order to select which pairs you wish to trade, you then time your entry based on price chart action (e.g., suport/resistance etc). Is that correct?
> 
> And when back testing to select what pairs to add to watchlist do you use 3yr or 5yr, or 10yrs. Or does it not mattter which?
> 
> sleepy




Pretty much. I put pairs on closer watch when SD criteria is triggered. Here's an example of how I am thinking.




Signal is to long PDN short ERA. The ratio chart looks ok, and trading in the overall larger time frame trade. The divergence (percent from mean) isn't that large (only 2%) and no where near historical extremes. Correlation has really broken down in the last 2-3 months. So on those alone I wouldn't place the trade now.

Look at the individual charts...




ERA sitting on a ledge very dangerously imo. $12.9 is holding things up but there is very little doubt that it will be retested, esp if the overall market was to retrace a bit (very likely given it's come a long way quite quickly).

If $12.9 is tested, that's a 3.5% fall from today's price... keep that in mind.




PDN is still well above last major low at start of July. What looked like renewed strength (after the bullish ABC correction in August) has probably broken down on today's bar. This suggests to me that the price may fall back down towards $3.4-$3.5. And that's a 5-8% fall from today's price.

So overall on the balance I decided not to take this trade. I've still got it on my close watchlist. The current ratio is 3.6, and I will re-assess if the ratio expands to 3.75 or so. Of course that's all speculating based on a mix of technical analysis and "gut feel" - for all I know, ERA could plunge and PDN will spike tomorrow...

With back test I only back test 1 year. The longer back test is only available in the recent software update so I've not bother going back and test again.


----------



## Pairs Trader

Pairs Trader said:


> New trade
> 
> Long NAB @ 22.84
> Short ANZ @ 22.33




Sold NAB @ 25.92 (13.48% gain)
Covered ANZ @ 24.17 (8.24% loss)


----------



## SilverRanger

SilverRanger said:


> Picked up my first pair of the month at market close today. Long DJS @ 5.06, short MYR @ 3.92.




Sold DJS @ 5.25 ( 3.75% gain)
Covered MYR @ 3.93 ( 0.26% loss)

Also noted a big divergence on NWS/NWSLV this morning, but only managed to get a half-arsed fill on NWSLV @ 14.54, closed out @ 14.8 

AND should have gone back in at market close


----------



## sleepy

Hi skc,

Thanks for the detailed reply. Very informative.



skc said:


> Signal is to long PDN short ERA. The ratio chart looks ok, and trading in the overall larger time frame trade. The divergence (percent from mean) isn't that large (only 2%) and no where near historical extremes. Correlation has really broken down in the last 2-3 months. So on those alone I wouldn't place the trade now.




Do you not pay much attention to correlation when selecting your pairs for your watchlist?

As PDN/ERA would not be on my watchlist bc of the low correlation (<70%) and low profit (avg -$99.20 ... 1yr backtest). .. and hence no trigger would appear. However, I can see your logic in assessing each chart individually.

Also do you look the RSI chart or not bother?

sleepy


----------



## skc

sleepy said:


> Hi skc,
> 
> Thanks for the detailed reply. Very informative.
> 
> 
> 
> Do you not pay much attention to correlation when selecting your pairs for your watchlist?
> 
> As PDN/ERA would not be on my watchlist bc of the low correlation (<70%) and low profit (avg -$99.20 ... 1yr backtest). .. and hence no trigger would appear. However, I can see your logic in assessing each chart individually.
> 
> Also do you look the RSI chart or not bother?
> 
> sleepy




There is much talk about correlation, but it's co-integration that you want. Do a google search and you can find more detailed explanations. Correlation is a proxy to co-integration and the program pairs thing up for you that way. 

PDN/ERA had good correlation a while back, and they are the only 2 uranium producers on the ASX. So I am happy to trade them when things look right.

RSI - talk yourself through what RSI shows and convince yourself that it means something...


----------



## SilverRanger

SilverRanger said:


> Sold DJS @ 5.25 ( 3.75% gain)
> Covered MYR @ 3.93 ( 0.26% loss)
> 
> Also noted a big divergence on NWS/NWSLV this morning, but only managed to get a half-arsed fill on NWSLV @ 14.54, closed out @ 14.8
> 
> AND should have gone back in at market close




Managed to get back in this trade this morning with a slightly better entry point, currently have my brokerage covered for it


----------



## SilverRanger

skc said:


> There is much talk about correlation, but it's co-integration that you want. Do a google search and you can find more detailed explanations. Correlation is a proxy to co-integration and the program pairs thing up for you that way.
> 
> PDN/ERA had good correlation a while back, and they are the only 2 uranium producers on the ASX. So I am happy to trade them when things look right.
> 
> RSI - talk yourself through what RSI shows and convince yourself that it means something...




RSI isn't strictly on my set of trigger criteria, but I would be happier to have it confirming with my other criteria when I pull the trigger than otherwise.

In theory RSI is just a generic momentum oscillator, and seeing the ratio (the relative value of two stocks) as "overbought" or "oversold" still makes sense to me. In a way, the RSI actually is better aligned with your profit and loss than the +/-, as sometimes you may see the +/- "reverting" while you are losing money, simply because the standard deviation (the denominator) is bigger


----------



## skc

skc said:


> Pretty much. I put pairs on closer watch when SD criteria is triggered. Here's an example of how I am thinking.
> 
> Look at the individual charts...
> 
> ERA sitting on a ledge very dangerously imo. $12.9 is holding things up but there is very little doubt that it will be retested, esp if the overall market was to retrace a bit (very likely given it's come a long way quite quickly).
> 
> If $12.9 is tested, that's a 3.5% fall from today's price... keep that in mind.
> 
> PDN is still well above last major low at start of July. What looked like renewed strength (after the bullish ABC correction in August) has probably broken down on today's bar. This suggests to me that the price may fall back down towards $3.4-$3.5. And that's a 5-8% fall from today's price.
> 
> So overall on the balance I decided not to take this trade. I've still got it on my close watchlist. The current ratio is 3.6, and I will re-assess if the ratio expands to 3.75 or so. Of course that's all speculating based on a mix of technical analysis and "gut feel" - for all I know, ERA could plunge and PDN will spike tomorrow...




So much for that... signal to close the trade




Long PDN Bought $3.7 sold $3.75 (+1.35%)
Short ERA Sold $13.31 cover $13.17 (+1.05%)

And that's how you miss a trade!


----------



## sleepy

Well I still cant/didnt get a signal for ERA/PDN so I presume its because Im using the default settings and using 100 day lookback.




However, even when I play with settings I still cant get the trigger signal.
And why 150 days on charts rather than 365 days?.

sleepy


----------



## SilverRanger

SilverRanger said:


> Managed to get back in this trade this morning with a slightly better entry point, currently have my brokerage covered for it




Covered NWS (1.98% profit) and sold NWSLV (0.95% loss), so roughly 0.6% profit after brokerage.

Not the best you can get out of this pair, but reasonable for an overnight position with double the normal leg size

This pair should be written to all pair trading textbooks


----------



## SilverRanger

Just wondering how is everyone doing for the month of September? 
For me I am sitting around 8% (vs 5.4% of ASX200) at the moment, although 5 out of my 7 pairs are still open (I was meant to close MCR/MRE today but didn't )


----------



## FXanyone

SilverRanger said:


> Just wondering how is everyone doing for the month of September?
> For me I am sitting around 8% (vs 5.4% of ASX200) at the moment, although 5 out of my 7 pairs are still open (I was meant to close MCR/MRE today but didn't )




I have had one of my better months. Took some grief from NWS vs APN, BLY vs DOW and MGX v FMG. Had a great run from QAN v MAP.


----------



## sleepy

Are you guys using the default settings ... or have you modified them based on your trading experiences?

sleepy


----------



## SilverRanger

sleepy said:


> Are you guys using the default settings ... or have you modified them based on your trading experiences?
> 
> sleepy




I'm not using the default settings, choosing the parameters in itself is an optimisation exercise, as you are trying to find an optimal balance between the no. of trades and profit per trade, this would be different for every pair

Managed to get out of MCR/MRE this morning with a slightly better exit


----------



## skc

SilverRanger said:


> Just wondering how is everyone doing for the month of September?
> For me I am sitting around 8% (vs 5.4% of ASX200) at the moment, although 5 out of my 7 pairs are still open (I was meant to close MCR/MRE today but didn't )




Awesome month for me until this week... looks like I will have to settle for 5.4% although it was as high as 8.5%. Absolute shocker this week.

I did get that MCR/MRE closed yesterday...


----------



## sleepy

When calculating % return per month ... are you including closed pairs only or also those currently open. 

sleepy


----------



## skc

sleepy said:


> When calculating % return per month ... are you including closed pairs only or also those currently open.
> 
> sleepy




I do mark-to-market. I find that it's easier to take a loss if it's already been marked off so to speak.


----------



## sleepy

skc said:


> There is much talk about correlation, but it's co-integration that you want. Do a google search and you can find more detailed explanations. Correlation is a proxy to co-integration and the program pairs thing up for you that way.




skc,
Sorry must have missed this comment earlier. 

Based on the definitions below I see what you mean about co-integration being more important. 

Co-integration
- The likelihood that, when two stocks deviate in valuation, *they will revert to the mean*

Correlation
-The measure of how two securities move in relation to one another


But I cant see how Correlation is a proxy for co-integration ... surely they 2 different things. Wouldn't it be better to have Co-integration also included in pairtrade finder and have the ability to filter by that.

sleepy


----------



## SilverRanger

sleepy said:


> skc,
> Sorry must have missed this comment earlier.
> 
> Based on the definitions below I see what you mean about co-integration being more important.
> 
> Co-integration
> - The likelihood that, when two stocks deviate in valuation, *they will revert to the mean*
> 
> Correlation
> -The measure of how two securities move in relation to one another
> 
> 
> But I cant see how Correlation is a proxy for co-integration ... surely they 2 different things. Wouldn't it be better to have Co-integration also included in pairtrade finder and have the ability to filter by that.
> 
> sleepy




My :
1. Statistically the two are two different properties of time series analysis
2. In terms of pair trading, the key difference is that mean reversion is part of the co-integration definition, while with correlation you are relying on the back test result as a proxy of the statistical test for mean reversion
3. Co-integration pair trading is a much more computation intensive process than correlation + back test
4. The Correlation + back test approach (PTF) trades dollar neutral, co-integration will depend on the co-integration coefficient, and more often than not it won't be

Some simple ideas behind co-integration pair trading:
1. Find the co-integration coefficient 
2. Find the co-integration period
3. Test for stationarity (mean reversion)
4. Once a co-integrated pair is found, make sure the stationarity holds over time

1. is rather simple (a regression exercise) and it's really 2 and 3 (and somewhat 4) that is time consuming and repetitive, and even with a decent computer it might take a good while to do for just one pair. I think that would make it difficult to throw a few hundreds of pairs at it as PTF.


----------



## skc

sleepy said:


> skc,
> Sorry must have missed this comment earlier.
> 
> Based on the definitions below I see what you mean about co-integration being more important.
> 
> Co-integration
> - The likelihood that, when two stocks deviate in valuation, *they will revert to the mean*
> 
> Correlation
> -The measure of how two securities move in relation to one another
> 
> 
> But I cant see how Correlation is a proxy for co-integration ... surely they 2 different things. Wouldn't it be better to have Co-integration also included in pairtrade finder and have the ability to filter by that.
> 
> sleepy




SilverRanger has given a much better response than I could. But my thoughts are along the same lines. 

To me using correlation and backtest as filter is a pratical way to get around the co-integration maths.


----------



## atlantis8464

Hi all,
This is my first post, been following this thread a lot,
Just thought I'd mention that because cointegration is based on probability there is no single one way to calculate it, and as said earlier the more accurate for it to be the more computing power it would need. Also it's probably not included as they don't want to 'garauntee' a win of sorts (just guessing here)

Oh and while I'm here, has anyone tried to program their own pair trade finding software? Ive noticed on the internet the equations for correlation and cointegration have been written out for some maths programs and are freely available (by that I mean legally freely available). Any thoughts?


----------



## Pairs Trader

Market changes are coming http://www.theaustralian.com.au/bus...trading-targeted/story-e6frg8zx-1225937363096 high frequency trading will dramatically increase over the next 2-3 years on the ASX from the current 20% levels of volume probably more closer to 70% like the US markets I think, because of new legislation that will open up the market to more competing exchanges and hedge funds, next year will probably see the introduction of chi-x which will create segmentation in market liquidity, and hopefully brokers can create smart routing options to collate the bids/offers together into one que for us or something like the NBBO in the US. 

It's important as a trader to be aware of these changes, because it will affect how stocks trade, how the tape looks, hopefully the ASX forces time on que rules so we don't see those fleecing bids/offers that the US market sees, some stocks over there can have 3,000 bids/offers posted and pulled in under 1 second, not something we want here but let's see how it goes.

Until then the ASX still offers potent alpha from a relatively in-efficient market.


----------



## SilverRanger

atlantis8464 said:


> Hi all,
> This is my first post, been following this thread a lot,
> Just thought I'd mention that because cointegration is based on probability there is no single one way to calculate it, and as said earlier the more accurate for it to be the more computing power it would need. Also it's probably not included as they don't want to 'garauntee' a win of sorts (just guessing here)
> 
> Oh and while I'm here, has anyone tried to program their own pair trade finding software? Ive noticed on the internet the equations for correlation and cointegration have been written out for some maths programs and are freely available (by that I mean legally freely available). Any thoughts?




Yes, I have been working on this some time ago, basically trying to trade the pairs with low or even negative correlations. The calculations I used were completely manual (hence inefficient), but I can see this could be a lot easier if you are coding in stat packages like Matlab. And FYI, I couldn't prove the stationarity of this pair (albeit getting close in p-value) and the entry and exit signals I got were similar to the ones in PTF.


----------



## skc

skc said:


> PDN/ERA had good correlation a while back, and they are the only 2 uranium producers on the ASX. So I am happy to trade them when things look right.




I actually entered this pair last week and had a pretty wild ride - up 4%, then down 3.5%. But with the ERA poor qtrly report today I end up having a reasonably profitable trade. Only got ~50% of the full profit available - got most of the ERA fall but none of the PDN gain today. I was expecting negative sentiment on ERA to drag PDN down through the day - but it turned out that money chasing uranium ended up buying PDN instead... Should have just waited to square off the position at the close.

Not sure if this is an example of co-integration or not!



Pairs Trader said:


> Market changes are coming http://www.theaustralian.com.au/bus...trading-targeted/story-e6frg8zx-1225937363096 high frequency trading will dramatically increase over the next 2-3 years on the ASX from the current 20% levels of volume probably more closer to 70% like the US markets I think, because of new legislation that will open up the market to more competing exchanges and hedge funds, next year will probably see the introduction of chi-x which will create segmentation in market liquidity, and hopefully brokers can create smart routing options to collate the bids/offers together into one que for us or something like the NBBO in the US.
> 
> It's important as a trader to be aware of these changes, because it will affect how stocks trade, how the tape looks, hopefully the ASX forces time on que rules so we don't see those fleecing bids/offers that the US market sees, some stocks over there can have 3,000 bids/offers posted and pulled in under 1 second, not something we want here but let's see how it goes.
> 
> Until then the ASX still offers potent alpha from a relatively in-efficient market.




Thanks for the update. The high frequency stuff in US is really quite crazy. I hope it's not going to come to Australia. Having said that, the ASX has some pretty poor spreads / liquidity for even some pretty large companies.

And I wouldn't hold my breath on Aussie brokers offering smart routing... the major online brokers (like Comsec) have very basic web based, non-dynamic platforms that are not designed for optimal trading. Iress platform is more respectable, but I don't expect them to spend money on development until chi-x prove itself with sufficient volume.


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## skc

And PDN keeps going up, while ERA keeps falling.

At current price ratio it is 22% above my entry ratio!!! And how much profit did I bank? 4% 

Just have to shake my head and laugh sometimes.


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## Pairs Trader

skc said:


> And PDN keeps going up, while ERA keeps falling.
> 
> At current price ratio it is 22% above my entry ratio!!! And how much profit did I bank? 4%
> 
> Just have to shake my head and laugh sometimes.




you will always kick yourself sometimes for missed opportunities, just think of all the trades you closed that went into deep loss after you exited the position, you saved $$$ on those....


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## skc

Pairs Trader said:


> you will always kick yourself sometimes for missed opportunities, just think of all the trades you closed that went into deep loss after you exited the position, you saved $$$ on those....




Indeed. I always take the ticker off my watchlist after I closed a trade. It's like not looking at price catelogues soon after you bought a new TV .

Closed a nice trade long PTM short IAG. Thanks KKR for the bid on PPT. Trailing a small PTM just to see how far it can run.

With the program, PPT/PTM shows poor correlation - but ultimately they do the same thing and when one rises when the other is under a takeover offer, you know there is some underlying correlation / co-integration happening.

Opened to day IFL/AMP. IFL has potential takeover appeal, while AMP has potential cap raising appeal... let's see how it works out.


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## SilverRanger

skc said:


> Indeed. I always take the ticker off my watchlist after I closed a trade. It's like not looking at price catelogues soon after you bought a new TV .
> 
> Closed a nice trade long PTM short IAG. Thanks KKR for the bid on PPT. Trailing a small PTM just to see how far it can run.
> 
> With the program, PPT/PTM shows poor correlation - but ultimately they do the same thing and when one rises when the other is under a takeover offer, you know there is some underlying correlation / co-integration happening.
> 
> Opened to day IFL/AMP. IFL has potential takeover appeal, while AMP has potential cap raising appeal... let's see how it works out.




I tend to keep the closed pair in watchlist for a day or two, since I do take early exits from time to time. 

Closed DXS/ABP, ABP was a pain in the ar$e when it comes to entry and exit, I could have got out 2 days earlier with similar profit. And given all the reverse splits happening lately, I will probably think twice about entering pairs with both legs sub $1.

Opened today:
BLY/AIO

On my watchlist:
AAX/TPI, this one came up late in the afternoon, didn't have time to research on the AAX sell-off today, so I gave that a miss


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## SilverRanger

SilverRanger said:


> I tend to keep the closed pair in watchlist for a day or two, since I do take early exits from time to time.
> 
> Closed DXS/ABP, ABP was a pain in the ar$e when it comes to entry and exit, I could have got out 2 days earlier with similar profit. And given all the reverse splits happening lately, I will probably think twice about entering pairs with both legs sub $1.
> 
> Opened today:
> BLY/AIO
> 
> On my watchlist:
> AAX/TPI, this one came up late in the afternoon, didn't have time to research on the AAX sell-off today, so I gave that a miss




This is how you miss the boat  6%!!


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## skc

SilverRanger said:


> I tend to keep the closed pair in watchlist for a day or two, since I do take early exits from time to time.
> 
> Closed DXS/ABP, ABP was a pain in the ar$e when it comes to entry and exit, I could have got out 2 days earlier with similar profit. And given all the reverse splits happening lately, I will probably think twice about entering pairs with both legs sub $1.
> 
> Opened today:
> BLY/AIO
> 
> On my watchlist:
> AAX/TPI, this one came up late in the afternoon, didn't have time to research on the AAX sell-off today, so I gave that a miss




That's some pretty volatile shares you have there?!

How do you do your position sizing with these more volatile pairs?

I would probably do it slightly differently... e.g say the pair can go 20% out of whack and I want that to mean no more than 2% of my account. That way each leg is max 10% of account.

Actually entered AAX yesterday and didn't get the best entry. Bit of pain yesterday afternoon and this morning but the reversal candle formed now looks very promising.

Closed out REA/WTF today - well before REA spiked up. Only got the WTF spike down... Another profitable but poor exit in the books.


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## FXanyone

skc said:


> That's some pretty volatile shares you have there?!
> 
> How do you do your position sizing with these more volatile pairs?
> 
> I would probably do it slightly differently... e.g say the pair can go 20% out of whack and I want that to mean no more than 2% of my account. That way each leg is max 10% of account.
> 
> Actually entered AAX yesterday and didn't get the best entry. Bit of pain yesterday afternoon and this morning but the reversal candle formed now looks very promising.
> 
> Closed out REA/WTF today - well before REA spiked up. Only got the WTF spike down... Another profitable but poor exit in the books.




Must admit I try and avoid anything with a price below $ 1.25. Find it too volatile otherwise. 

Not having fun this month...picked way too many losers for some reason and had some issues with stops being triggered as shares just fell into liquidity holes


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## SilverRanger

skc said:


> That's some pretty volatile shares you have there?!
> 
> How do you do your position sizing with these more volatile pairs?
> 
> I would probably do it slightly differently... e.g say the pair can go 20% out of whack and I want that to mean no more than 2% of my account. That way each leg is max 10% of account.
> 
> Actually entered AAX yesterday and didn't get the best entry. Bit of pain yesterday afternoon and this morning but the reversal candle formed now looks very promising.
> 
> Closed out REA/WTF today - well before REA spiked up. Only got the WTF spike down... Another profitable but poor exit in the books.




How do I position size volatile pairs? I don't  What I do instead is I apply more stringent criteria than normal when pulling the trigger and do more sanity checks. But that's just me willing to take more risk to get some boost in return.

I guess a more scientific way is to adjust the position size relative to the average beta of the pair, so if normally your leg is 10k for a pair with average beta 1, then simply take a 5k leg for your volatile pair with average beta 2.

Closed MGR/SGP at market close today, currently sitting on 6.7% for the month


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## FXanyone

short ASX Long IRE - OUCH!


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## skc

FXanyone said:


> short ASX Long IRE - OUCH!




Oh no!!! You had it open before the announcement?!



I feel your pain... seriously. Hopefully that pain is eased a little bit today.


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## FXanyone

skc said:


> Oh no!!! You had it open before the announcement?!
> 
> 
> 
> I feel your pain... seriously. Hopefully that pain is eased a little bit today.




Put it on about 2 hours before the announcement. The annoying thing of course was that I almost cetainly sold to someone who knew....

Sold IRE out yesterday and covered ASX ard $ 40. In the end a trade that was only about 50% more than my standard stop

Gotta have a sense of humour. In this case its the fact that ASX can't even keep its own discussions confidential


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## SilverRanger

FXanyone said:


> Put it on about 2 hours before the announcement. The annoying thing of course was that I almost cetainly sold to someone who knew....
> 
> Sold IRE out yesterday and covered ASX ard $ 40. In the end a trade that was only about 50% more than my standard stop
> 
> Gotta have a sense of humour. In this case its the fact that ASX can't even keep its own discussions confidential




It would be funny to see a speeding ticket issued to itself as well, just pure unlucky I guess


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## skc

SilverRanger said:


> It would be funny to see a speeding ticket issued to itself as well, just pure unlucky I guess




There was a speeding ticket a month ago 

http://www.asx.com.au/asxpdf/20100928/pdf/31srfg40ft78ls.pdf

In which they mentioned merger possibilities. 

I don't know whether that would have made ASX on the "avoid shorting" list or not. But regardless it really highlights the important of sensible position sizing.


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## FXanyone

skc said:


> There was a speeding ticket a month ago
> 
> http://www.asx.com.au/asxpdf/20100928/pdf/31srfg40ft78ls.pdf
> 
> In which they mentioned merger possibilities.
> 
> I don't know whether that would have made ASX on the "avoid shorting" list or not. But regardless it really highlights the important of sensible position sizing.




Agree position sizing is always key

As for the avoid shorting the problem I have had with that is there are always rumours. Always hear TSE is a takeover target for UGL but have traded in and out of that on numerous occasions. Ironically have avoided shorting IRE as ASX is supposed to buy them!

The ultimate pain of course is that doesnt seem the bid will succed - at least in this form


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## sleepy

FXanyone said:


> short ASX Long IRE - OUCH!




Bummer!

Did you use your typical position sizing for this pair?
And what was the loss in percentage terms (e.g., 5%)?

sleepy


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## sleepy

How did everyone fare in October?

sleepy


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## skc

sleepy said:


> How did everyone fare in October?
> 
> sleepy




You are posting at 4:58am. No wonder you are sleepy!!

Oct was a good month. Account was up 8%.

Not the best start for Nov - copped the 5% jump in GFF in the face


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## SilverRanger

skc said:


> You are posting at 4:58am. No wonder you are sleepy!!
> 
> Oct was a good month. Account was up 8%.
> 
> Not the best start for Nov - copped the 5% jump in GFF in the face




Not good for me in Oct, flipped from +6% to -8% thanks to HVN and AIO, both given a cautious outlook, guess I really should have cut my loss when the news first came out


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## skc

SilverRanger said:


> Not good for me in Oct, flipped from +6% to -8% thanks to HVN and AIO, both given a cautious outlook, guess I really should have cut my loss when the news first came out




You will have months like this. I always remind myself, that my best and worst trading day is always ahead of me...

I had HVN too. Closed it on ex-div but it was a big loss. Bloody Myer just wouldn't fall! Even though the shops were empty as anything when I was shpping there.

I have a short on WDC now and it's halted... fingers crossed that it won't be too dramatic.

Dodged a bullet on LEI which could have had a long open yesterday. But given today's rate decision I decided no new trade until the announcement. Sort of paid off I guess.


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## shayneb

SKC, to make you feel better you are not alone with WDC.  Mine was in the pair CFX/WDC.  In fact I increased my holding in the pair about 30 mins before the trading halt.  I have both my fingers and toes crossed.


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## skc

shayneb said:


> SKC, to make you feel better you are not alone with WDC.  Mine was in the pair CFX/WDC.  In fact I increased my holding in the pair about 30 mins before the trading halt.  I have both my fingers and toes crossed.




That's bad luck on the timing. 

I reduced my WDC position by half once the Australian reported on the rumour... so I am a bit less nervous than would be otherwise. The news came out around noon I think.

Even though WDC and CFX have decent correlation, personally I stick WDC with SGP/MGR and keep the REITs pairing with themselves. Not that I've demonstrated that to be the more profitable or anything, just that I like companies to be as fundamentally related as possible. 

For example if I will get a signal say long CFX short WDC, made the entry then have a signal to long CFX and short DXS (say). I would be annoyed that I could have done it on a "better" pair, but position sizing would prohibit me from over investing in CFX.

If WDC was to split it would most certainly be received positively. Take recent decisions by ORI, TAH, FGL and MIG for example... I just hope that the market doesn't get too excited.


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## SilverRanger

skc said:


> That's bad luck on the timing.
> 
> I reduced my WDC position by half once the Australian reported on the rumour... so I am a bit less nervous than would be otherwise. The news came out around noon I think.
> 
> Even though WDC and CFX have decent correlation, personally I stick WDC with SGP/MGR and keep the REITs pairing with themselves. Not that I've demonstrated that to be the more profitable or anything, just that I like companies to be as fundamentally related as possible.
> 
> For example if I will get a signal say long CFX short WDC, made the entry then have a signal to long CFX and short DXS (say). I would be annoyed that I could have done it on a "better" pair, but position sizing would prohibit me from over investing in CFX.
> 
> If WDC was to split it would most certainly be received positively. Take recent decisions by ORI, TAH, FGL and MIG for example... I just hope that the market doesn't get too excited.




Guess I got lucky dodging this one, was looking at WDC/SGP today and placed my order on SGP, luckily it moved north and I cancelled the order. 
In the afternoon I then saw an even better entry point, and soon after comes the trading halt, lucky me...

Closed MND/UGL today to stop the bleed, but still down 8%!!


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## shayneb

I got out of the MND/UGL pair at about .3 of a STD Dev. a couple of days ago as I had been in the trade approx 8 days and after this long it was not going to be a winner for me.

SKC, normally I also ensure I separate my pairs fundamentally as much as possible but I was attracted to the fact that historically CFX/WDC had 100% winning trades over the last 12 months in my backtesting and I sometimes become a bit more flexible with such results.  Interesting to see what happens tomorrow with WDC.


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## skc

I was in a world of hurt this morning. Had long WPL and long ABC...(not the same pair of course)

What's this hiding profit downgrade / outlook in some presentation (and released after market closed no less) business these days? 

Thanks to a few other positive positions, my account is only down less than one percent...now let's hope BHP launch a bid for WPL tomorrow.


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## FXanyone

skc said:


> I was in a world of hurt this morning. Had long WPL and long ABC...(not the same pair of course)
> 
> What's this hiding profit downgrade / outlook in some presentation (and released after market closed no less) business these days?
> 
> Thanks to a few other positive positions, my account is only down less than one percent...now let's hope BHP launch a bid for WPL tomorrow.




Personally having a horror. Couple of things had just not gone well but news has been killing me. In the last few weeks... ASX EQN WPL on the wrong side of all those announcements

and just to top it off I quit my long AXA position last Wednesday


Guess the important thing is too keep discipline and of course I look forward to the diligent prosecution of those who had the information and traded on ASX and AXA


----------



## skc

FXanyone said:


> Personally having a horror. Couple of things had just not gone well but news has been killing me. In the last few weeks... ASX EQN WPL on the wrong side of all those announcements
> 
> and just to top it off I quit my long AXA position last Wednesday
> 
> 
> Guess the important thing is too keep discipline and of course I look forward to the diligent prosecution of those who had the information and traded on ASX and AXA




I must say the AGM season is affecting me a lot more than I remembered. Oh.. and I just got hit with BXB's jump this morning in the face  It opened lower this morning so I looked a way for a bit and ended up taking a 3.5% spike... which is a bit better than the 6% it is up by now.

After my recent run of bad trades my max drawdown was 3.8% which is still way better than many trading methodolgies out there. What is your current/worse drawdown after all that? Do you still feel comfortable with that? 

The truth is the longer one trades, there would be some days when the market is out to get you (or feels that way anyway). What is improbable doesn't mean impossible...History has shown that the market has thrown up double-digit sigma events with utmost disregard to the statistical possibilities (from a book about the GFC that I am reading at the moment). This led me to think that I need to implement another overarching risk management criteria...

As we pairs trade with CFDs we are inevitably holding total exposures (longs + shorts) larger than our account equity. I wonder if there should be a sensible multiple for gross exposure / equity. To some extent the margin requirements from the CFD providers will put a cap on that, but some CFD providers out there let you trade BHP at 3% (or something silly like that). The notion of "balancing an elephant on a mice's back" came to mind.

My multiple is usually ~4 to 4.5 when I am fully committed which I think is reasonable... but I need some more time thinking what it actually means, and under what scenarios I would blow up...thoughts?


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## FXanyone

skc said:


> I must say the AGM season is affecting me a lot more than I remembered. Oh.. and I just got hit with BXB's jump this morning in the face  It opened lower this morning so I looked a way for a bit and ended up taking a 3.5% spike... which is a bit better than the 6% it is up by now.
> 
> After my recent run of bad trades my max drawdown was 3.8% which is still way better than many trading methodolgies out there. What is your current/worse drawdown after all that? Do you still feel comfortable with that?
> 
> The truth is the longer one trades, there would be some days when the market is out to get you (or feels that way anyway). What is improbable doesn't mean impossible...History has shown that the market has thrown up double-digit sigma events with utmost disregard to the statistical possibilities (from a book about the GFC that I am reading at the moment). This led me to think that I need to implement another overarching risk management criteria...
> 
> As we pairs trade with CFDs we are inevitably holding total exposures (longs + shorts) larger than our account equity. I wonder if there should be a sensible multiple for gross exposure / equity. To some extent the margin requirements from the CFD providers will put a cap on that, but some CFD providers out there let you trade BHP at 3% (or something silly like that). The notion of "balancing an elephant on a mice's back" came to mind.
> 
> My multiple is usually ~4 to 4.5 when I am fully committed which I think is reasonable... but I need some more time thinking what it actually means, and under what scenarios I would blow up...thoughts?




I run hevily geared so the Fund I trade pairs in often sees 10% movements on the month. However in itself thats not my total pool. 
I use CFD's  but have some precautions to prevent blowing up completely. Im from a IB trading background and keep close tabs with a friend who is a bank risk manager. We keep some diversification principals and have a max exposure per pair as a % of the fund. We keep testing scenarios and its hard to find a scenario where it all goes down the tubes. Of course never say never.

At times we run up to 9 or 10 times equity so its bouncy. But we designed it to be that way.

Agrree completely re sentiment...some days you think you will never make another trade. The AXA bid would have completely offset the ASX....but thats the way it goes


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## Pairs Trader

Trading is just another business, think about if you ran a courier company for example, every now and then you will need to upgrade your fleet costing you a lot, if you measured you % monthly return in your courier business then you would be taking one hell of a "drawdown" when you upgrade your fleet, does that mean you should sell your business, hell no, because you know in the long run you will collect more than you pay out, same story in pair trading, I've gone months with flat line performance, however I always have full confidence that I will hit new all time highs again eventually because of the strong logic backing it, actually I like when certain methods have drawdowns, it generally flushes out a lot of the competition or "weak hands", so it creates more alpha for the patient. Drawdowns are the barrier to entry for competition. If anything worked 100% of the time, shortly it will not work at all.


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## SilverRanger

FXanyone said:


> I run hevily geared so the Fund I trade pairs in often sees 10% movements on the month. However in itself thats not my total pool.
> I use CFD's  but have some precautions to prevent blowing up completely. Im from a IB trading background and keep close tabs with a friend who is a bank risk manager. We keep some diversification principals and have a max exposure per pair as a % of the fund. We keep testing scenarios and its hard to find a scenario where it all goes down the tubes. Of course never say never.
> 
> At times we run up to 9 or 10 times equity so its bouncy. But we designed it to be that way.
> 
> Agrree completely re sentiment...some days you think you will never make another trade. The AXA bid would have completely offset the ASX....but thats the way it goes





Seems like we are all not doing so well lately  
For me my losses were coming from the trades I took in October, (HVN/MYR, AIO/BLY, MCR/MRE) that in total is hefty -26%!!

But like PT said, I think as long as this only happens once a full moon, and for the other times you are doing good then I would just take the loss and move on 

In terms of gearing, like FX I am fairly aggressive, in fact I take the max gearing possible on my CFD account for pair trading, and set aside some cash (about 2x my account size) elsewhere earning modest interest, lol


----------



## FXanyone

SilverRanger said:


> Seems like we are all not doing so well lately
> For me my losses were coming from the trades I took in October, (HVN/MYR, AIO/BLY, MCR/MRE) that in total is hefty -26%!!
> 
> But like PT said, I think as long as this only happens once a full moon, and for the other times you are doing good then I would just take the loss and move on
> 
> In terms of gearing, like FX I am fairly aggressive, in fact I take the max gearing possible on my CFD account for pair trading, and set aside some cash (about 2x my account size) elsewhere earning modest interest, lol




Guess we all have our pairs that dont appear on the first glance. Must say Silver Ranger AIO/BLY would not be obvious pair?


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## SilverRanger

FXanyone said:


> Guess we all have our pairs that dont appear on the first glance. Must say Silver Ranger AIO/BLY would not be obvious pair?




This pair was picked up when I was pairing stocks in the ASX 200 Industrials, and I just think of them as mining services. Correlation wise this pair is bad but my back testing says I should give it a go. In hindsight I should have avoided long AIO in late October/early November because of the QRN float.

With that said I am really looking forward to the AIO/QRN pair up, just as I was keen to see MYR/DJS last year


----------



## FXanyone

Curious as to peoples thought on this....

Often when having a bad run the standard thought is to walk away, clear your head and come back after a break. 

I'm certainly having  bad few weeks. In part killed by announcements (WPL, ASX, EQN), in part bad luck (out of AXA 48 hours to early) but also the pairs I have been picking have just not reverted.

My question is as follows. Should Pairs be seen as different? I view Pairs as a numbers game and a relatively unemotional way to trade. If you have a system/plan that makes money and relies upon modest gains from a large number of rades does it make sense to take a break from a bad run or view the streak as a statistical anomoly?


----------



## SilverRanger

FXanyone said:


> Curious as to peoples thought on this....
> 
> Often when having a bad run the standard thought is to walk away, clear your head and come back after a break.
> 
> I'm certainly having  bad few weeks. In part killed by announcements (WPL, ASX, EQN), in part bad luck (out of AXA 48 hours to early) but also the pairs I have been picking have just not reverted.
> 
> My question is as follows. Should Pairs be seen as different? I view Pairs as a numbers game and a relatively unemotional way to trade. If you have a system/plan that makes money and relies upon modest gains from a large number of rades does it make sense to take a break from a bad run or view the streak as a statistical anomoly?




I don't think there's much you can do on unexpected news, but for pairs that don't work, you may be unlucky, or the underlying co-integration has been broken. So for every losing trade, I would go and do a health check on the pair and make sure I'm still comfortable trading this pair. If any pair fail twice consecutively, that goes off my watchlist straight away and I rebuild the list every quarter.


----------



## skc

FXanyone said:


> Curious as to peoples thought on this....
> 
> Often when having a bad run the standard thought is to walk away, clear your head and come back after a break.
> 
> I'm certainly having  bad few weeks. In part killed by announcements (WPL, ASX, EQN), in part bad luck (out of AXA 48 hours to early) but also the pairs I have been picking have just not reverted.
> 
> My question is as follows. Should Pairs be seen as different? I view Pairs as a numbers game and a relatively unemotional way to trade. If you have a system/plan that makes money and relies upon modest gains from a large number of rades does it make sense to take a break from a bad run or view the streak as a statistical anomoly?




I spent a lot of time in the last couple of weeks reviewing my trading, and eventually came to the conclusion that my recent drawdown was due mostly to my own actions.

The 10 worst trades in the last month together knocked about 10% from my account. About half of these trades should not have been taken - they had meaningful news released in the not so distant past and I violated my own rules by initiating a position. My trading has been pretty good up until that point and probably a bit of complacency had settle in.

There were 2 or 3 other trades which unexpected news announcements caused a lot of pain. But looking back since the start, there were unexpected news which worked for me as well, so they do even out in the long run.

Last week the account reached a maximum drawdown of 5.17% (which really isn't much) and now back to a drawdown of 3.3%. Nonetheless, it's rather annonying because I was actually on track for 100% return for the year. Now I am tracking far far behind the 100% trajectory (red dotted line on chart). 




On the bright side, if I can remain parallel to that red line it would still be a good year.


----------



## SilverRanger

skc said:


> I spent a lot of time in the last couple of weeks reviewing my trading, and eventually came to the conclusion that my recent drawdown was due mostly to my own actions.
> 
> The 10 worst trades in the last month together knocked about 10% from my account. About half of these trades should not have been taken - they had meaningful news released in the not so distant past and I violated my own rules by initiating a position. My trading has been pretty good up until that point and probably a bit of complacency had settle in.
> 
> There were 2 or 3 other trades which unexpected news announcements caused a lot of pain. But looking back since the start, there were unexpected news which worked for me as well, so they do even out in the long run.
> 
> Last week the account reached a maximum drawdown of 5.17% (which really isn't much) and now back to a drawdown of 3.3%. Nonetheless, it's rather annonying because I was actually on track for 100% return for the year. Now I am tracking far far behind the 100% trajectory (red dotted line on chart).
> 
> View attachment 39849
> 
> 
> On the bright side, if I can remain parallel to that red line it would still be a good year.




Incidentally my capital growth chart is similar to yours, currently sitting at 89% for the year to Nov. I too took a big hit in Oct and only traded 1 pair in Nov, mainly due to my stricter trigger. 
However, that did got me desperate to look into pair trading the Japanese stock market  (I didn't look at HK since the costs are too prohibitive IMO). The plan is to buy from IB and short via IG to reduce cost, is anyone else looking into pair trading Japanese shares? I would love to hear some successful stories before committing to it


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## skc

SilverRanger said:


> Incidentally my capital growth chart is similar to yours, currently sitting at 89% for the year to Nov. I too took a big hit in Oct and only traded 1 pair in Nov, mainly due to my stricter trigger.
> However, that did got me desperate to look into pair trading the Japanese stock market  (I didn't look at HK since the costs are too prohibitive IMO). The plan is to buy from IB and short via IG to reduce cost, is anyone else looking into pair trading Japanese shares? I would love to hear some successful stories before committing to it




Why is HK cost too high? With IB where you can long and short HK stocks, the commission is only 0.088% (min HKD 18, or <A$3). IB's platform can do some pretty smart things with pairs trading as well.

I was tempted at one stage to look into HK market because of the above, but that would really stretch my time too far. As I've said many times I like to know my stocks really well. Where in HK (and Japan market for that matter) do you get information like news, rumours, takeover watch, capital raising watch, dividend timetable, AGMs, option expiry etc etc... you get my drift.

It's a fully time job to watch another market imo.


----------



## SilverRanger

skc said:


> Why is HK cost too high? With IB where you can long and short HK stocks, the commission is only 0.088% (min HKD 18, or <A$3). IB's platform can do some pretty smart things with pairs trading as well.
> 
> I was tempted at one stage to look into HK market because of the above, but that would really stretch my time too far. As I've said many times I like to know my stocks really well. Where in HK (and Japan market for that matter) do you get information like news, rumours, takeover watch, capital raising watch, dividend timetable, AGMs, option expiry etc etc... you get my drift.
> 
> It's a fully time job to watch another market imo.




The 0.088% is the amount that IB charges, on top of that there are stamp duty + a bunch of other exchange related fees, that in total is about 0.2% (or a bit more) per trade 

Time-wise I don't think trading the HK or Japan market is too stretching, as you can get most of the work done during Aussie trading hour (and certainly not for someone like me out of pairs to trade in ASX)

While there is the risk that we are behind on the news part, the aim is to minimise the risk by trading big-enough companies like properties in HK or motors & electronics companies in Japan, where there are (hopefully) reasonable coverage even on Yahoo or Google finance. 

That's just a thought anyway, I will do some serious researching and back-testing in the next couple of days


----------



## skc

SilverRanger said:


> The 0.088% is the amount that IB charges, on top of that there are stamp duty + a bunch of other exchange related fees, that in total is about 0.2% (or a bit more) per trade
> 
> Time-wise I don't think trading the HK or Japan market is too stretching, as you can get most of the work done during Aussie trading hour (and certainly not for someone like me out of pairs to trade in ASX)
> 
> While there is the risk that we are behind on the news part, the aim is to minimise the risk by trading big-enough companies like properties in HK or motors & electronics companies in Japan, where there are (hopefully) reasonable coverage even on Yahoo or Google finance.
> 
> That's just a thought anyway, I will do some serious researching and back-testing in the next couple of days




Good to know about the stamp duties... thanks. Many unknowns on overseas markets - I don't even know if Jap company announcements are in English - so much research needed... Then again, nothing venture and nothing gained, so good luck and keep us posted. 

If and when you master the Jap market may be we can form an alliance trading team


----------



## JohnGP

Hi all, excuse me for jumping in on this thread but I am new to pairs trading and I have been following this thread with interest. I am based in the UK and intend to pairs trade via a couple of spread betting companies, MF Global Spreads and IG Index.

I have purchased Pair Trade Finder and loaded it up with FTSE 350 stocks that have an average volume in excess of 600k/day. I have paired stocks within specific industry groups.

I have received some good and helpful advice regarding the program set-up from Pairs Trader for which I am very grateful but I am now looking at the actual trading process.

Back-testing the pairs demonstrates good returns overall but I am finding recent trades are running at significant loss even though they back tested well.  I notice also that a number of you have suffered from losses in very recent trades.  I have found that in a lot of cases, the spread is showing no sign of reverting back to the mean as it has done in the past and there seems to be a lot of trending of the ratio charts as well.

Is there a fundamental change in the market dynamics at the moment or am I just not finding good trades and not being clever enough with my filtering process?  I am using the filtering ideas given by Pairs Trader in various parts of this thread.

Any help or guidance would be greatly appreciated; this is my first go at pairs trading so I am a complete novice.


----------



## tigger36

JohnGP said:


> Hi all, excuse me for jumping in on this thread but I am new to pairs trading and I have been following this thread with interest. I am based in the UK and intend to pairs trade via a couple of spread betting companies, MF Global Spreads and IG Index.
> 
> I have purchased Pair Trade Finder and loaded it up with FTSE 350 stocks that have an average volume in excess of 600k/day. I have paired stocks within specific industry groups.
> 
> I have received some good and helpful advice regarding the program set-up from Pairs Trader for which I am very grateful but I am now looking at the actual trading process.
> 
> Back-testing the pairs demonstrates good returns overall but I am finding recent trades are running at significant loss even though they back tested well.  I notice also that a number of you have suffered from losses in very recent trades.  I have found that in a lot of cases, the spread is showing no sign of reverting back to the mean as it has done in the past and there seems to be a lot of trending of the ratio charts as well.
> 
> Is there a fundamental change in the market dynamics at the moment or am I just not finding good trades and not being clever enough with my filtering process?  I am using the filtering ideas given by Pairs Trader in various parts of this thread.
> 
> Any help or guidance would be greatly appreciated; this is my first go at pairs trading so I am a complete novice.




hi,
I used to do exactly what you're doing using IGIndex on ftse350 stocks, and I suffered exactly the same issue of some bad losers. I've changed my strategy now, but still follow this forum with interest. What I found was that I got stung by stocks that were breaking out, causing a big move from the mean ratio, and they tended to not revert very well. What I was lacking was thorough researching of the pairs in question, like SKC does very well. In reviewing losing trades I found I was tending to pair poor performing stocks (fundamentally earnings/EPSetc..) with good/better ones, hence when one broke out the other didn't necessarily follow. Over the past year they had correlated well (and hence backtested well, good ratio graphs etc..) because both had suffered the same poor economic environment, but one was recovering better than the other. This was bad research on my part.

Good luck on your quest, I hope my experience helps and some of the other experts on here can help.


----------



## JohnGP

Hi Tigger36,

Thank you for your response, your analysis makes perfect sense and suggests that fundamental analysis is in fact very important for pairs trading. I shall do some more research on my failed trades and see if I can make better judgements for new ones.

Up to now, apart from ordinary mutual fund and stocks investments, I have been trading price action at support/resistance using Share Scope. Mainly going long at the moment with some success, I seem to get caught out every time I enter a short trade though even when the main markets are going down! It’s a tricky business!

I became interested in pair trading because on the surface it looks like a way of avoiding losses when the general markets take a sudden turn after speeches by various politicians, Mervin King etc. 

I am tempted to use technical analysis to control entry triggers for the long and short sides of the pair. The idea is that if the price moves in the wrong direction, I would be set-up for a better entry the following day. And if it carries on in the wrong direction for some reason such as a breakout I can scratch the trade altogether.   Or is this just getting far too complicated?

What strategy are you using now and do you still trade pairs?


----------



## tigger36

JohnGP said:


> Hi Tigger36,
> 
> Thank you for your response, your analysis makes perfect sense and suggests that fundamental analysis is in fact very important for pairs trading. I shall do some more research on my failed trades and see if I can make better judgements for new ones.
> 
> Up to now, apart from ordinary mutual fund and stocks investments, I have been trading price action at support/resistance using Share Scope. Mainly going long at the moment with some success, I seem to get caught out every time I enter a short trade though even when the main markets are going down! It’s a tricky business!
> 
> I became interested in pair trading because on the surface it looks like a way of avoiding losses when the general markets take a sudden turn after speeches by various politicians, Mervin King etc.
> 
> I am tempted to use technical analysis to control entry triggers for the long and short sides of the pair. The idea is that if the price moves in the wrong direction, I would be set-up for a better entry the following day. And if it carries on in the wrong direction for some reason such as a breakout I can scratch the trade altogether.   Or is this just getting far too complicated?
> 
> What strategy are you using now and do you still trade pairs?




I have a day job, so found pairs trading took too much time and I had the sort of problems you mentioned. I also found the cost of the IGIndex spreads took quite a chunk of the profits. As SKC indicates in some of his posts, he looks at 1-2% average gain per trade.
I now follow a medium term stock trading strategy, much of which I gleaned from reading the NakedTrader book (www.nakedtrader.co.uk). I typically hold between 1-3 months and buy strong stocks in strong sectors, based on TA and fundamental research. It's worked well for me this year, account up 96%! It also requires a lot less time than pairs trading.

Pairs trading definitely works nicely, as the guys here have shown, but you have to do your research, watch those news events, and find a cheap broker.


----------



## JohnGP

Hi Tigger36,

I also have a day job so my time is a bit limited for me as well. Unfortunately the day job makes it virtually impossible to trade UK markets during trading hours.  

Pairs trading is definitely time consuming during the learning phase but I am determined to give it my best shot. The broker fees do eat into profits though so I may find it difficult to generate a decent profit.

I have been looking at SKCs posts, he is very in touch with the markets and knows what he is doing. I think I am about a million light years behind him at the moment.

You have done very well with your medium term investments, I have been doing something similar but I am only up about 30% or so. 

I took a look at the Naked Trader site and have purchased the Naked Trader book, it’s one I have been meaning to get for a while.

Anyway, I don’t think others on this thread will appreciate me waffling on so I would like to say thank you very much for your help and ideas, greatly appreciated. I shall add another post after my next attempt at pairs trading. Thanks again.


----------



## SilverRanger

My first trade in the month:
Long TPI and short BLY, not a good pair to trade fundamentally but the correlation is showing ok. Also missed out earlier today on short CFX / long DXS, could have booked a 2.9% profit easily at market close 

Finally had my experimental Japanese pair started, with both companies from the construction sector (18xx), so far it had my brokerage covered. It turns out that the best broker in town for Japanese stocks is MF Global (0.125%), just slightly more than the ASX stocks from other brokers.


----------



## SilverRanger

And for those brokerage cost conscious ASX pair traders, have anyone looked at capitalcfds? It is an UK-based broker offering 0.05% brokerage on Australian 200 shares starting from $5. The cons is probably that it is a market maker and it's relatively new. But for 0.05% brokerage, I think I will give it a try


----------



## skc

SilverRanger said:


> And for those brokerage cost conscious ASX pair traders, have anyone looked at capitalcfds? It is an UK-based broker offering 0.05% brokerage on Australian 200 shares starting from $5. The cons is probably that it is a market maker and it's relatively new. But for 0.05% brokerage, I think I will give it a try




Always check who's the financial backer when you sign up for a new CFD provider. Some of them are truely very small fish with lax systems etc. There's a mob in Australia called Sonray which recently folded (google for more). So whatever saving you'd get from slightly cheaper broker must be offset by increased risk of potentially losing all your funds.

BTW if they are market maker then the spread you pay will more than offset the 0.03% broker that you've saved.


----------



## SilverRanger

skc said:


> Always check who's the financial backer when you sign up for a new CFD provider. Some of them are truely very small fish with lax systems etc. There's a mob in Australia called Sonray which recently folded (google for more). So whatever saving you'd get from slightly cheaper broker must be offset by increased risk of potentially losing all your funds.
> 
> BTW if they are market maker then the spread you pay will more than offset the 0.03% broker that you've saved.




These guys are backed by London Capital Group, an UK listed financial service company, so it seems a lot more sound than Sonray. But thanks for the warning, I think I should do more research on them before committing.

I always keep a market maker with me to trade "high value" shares like WOW, RIO, BHP and the banks, where I don't care too much about the spread. It works out to save a little for me. 

Where did you get 0.08% for brokerage?


----------



## SilverRanger

Forgot to add, another new trade at Friday's market close: Long MGR @ 1.265, short GPT @ 2.880


----------



## skc

SilverRanger said:


> These guys are backed by London Capital Group, an UK listed financial service company, so it seems a lot more sound than Sonray. But thanks for the warning, I think I should do more research on them before committing.
> 
> I always keep a market maker with me to trade "high value" shares like WOW, RIO, BHP and the banks, where I don't care too much about the spread. It works out to save a little for me.
> 
> Where did you get 0.08% for brokerage?




I use MF Global and my account size qualifies me for 0.08%.

IB is also 0.08% but there is no Australian shares for shorting.


----------



## SilverRanger

SilverRanger said:


> My first trade in the month:
> Long TPI and short BLY, not a good pair to trade fundamentally but the correlation is showing ok. Also missed out earlier today on short CFX / long DXS, could have booked a 2.9% profit easily at market close
> 
> Finally had my experimental Japanese pair started, with both companies from the construction sector (18xx), so far it had my brokerage covered. It turns out that the best broker in town for Japanese stocks is MF Global (0.125%), just slightly more than the ASX stocks from other brokers.




Closed BLY/TPI today for 5.2% profit, but the exit is even better as I type this 

Need another 7% somewhere in the remaining half of December to get 100% return for the year


----------



## SilverRanger

SilverRanger said:


> Closed BLY/TPI today for 5.2% profit, but the exit is even better as I type this
> 
> Need another 7% somewhere in the remaining half of December to get 100% return for the year




New trade: Long MCR/ Short MRE, and is already losing money


----------



## skc

SilverRanger said:


> New trade: Long MCR/ Short MRE, and is already losing money




Got the same signal but I've taken an isolated long trade on MCR instead of opening up a pair.

MRE released some positive guidance recently and the share price is doing a delayed reaction today. The chart for MCR is looking promising and should play catch up imo.

Of course MRE might retrace 5% tomorrow for all I know...


----------



## SilverRanger

skc said:


> Got the same signal but I've taken an isolated long trade on MCR instead of opening up a pair.
> 
> MRE released some positive guidance recently and the share price is doing a delayed reaction today. The chart for MCR is looking promising and should play catch up imo.
> 
> Of course MRE might retrace 5% tomorrow for all I know...




If I was to strictly follow my trigger criteria I should have gave this one a miss, since its correlation has been bad recently (currently around 60% and falling!!) But personally I always favour MCR over MRE (and there's always a remote chance of a merger between the two ), and I kinda see MRE being technically stretched...


----------



## SilverRanger

SilverRanger said:


> If I was to strictly follow my trigger criteria I should have gave this one a miss, since its correlation has been bad recently (currently around 60% and falling!!) But personally I always favour MCR over MRE (and there's always a remote chance of a merger between the two ), and I kinda see MRE being technically stretched...




Another surge today which got me in pain...I suppose the good news out of the bad is that the board doesn't know why either:
http://www.asx.com.au/asxpdf/20101222/pdf/41vt65sj2t30lr.pdf


----------



## SilverRanger

New trades today:
Short BXB & long CEU
Short MND & long TCL
Long NWS & short NWSLV

Getting desperate for my yearly 100%,


----------



## skc

SilverRanger said:


> New trades today:
> Short BXB & long CEU
> Short MND & long TCL
> Long NWS & short NWSLV
> 
> Getting desperate for my yearly 100%,




Definitely funny pairs you have there...

TCL and CEU both went ex-div today and may have triggered the signal. But having said that Aussie stocks tend to catch up the dividend drop off quite quickly so you never know. BXB has been strong in the last 2 months or so and I don't really understand why - I had a short BXB / long TOL trade some months ago and got cut badly both ways.

Actually closed and reversed my NWS/NWSLV position today. 1.1 ratio seems to be as low as it goes. Although I always wondered why NWSLV doesn't just trade at around the same price as NWS - considering that they receive the same dividend.

Hope you make the 100% mark.


----------



## SilverRanger

New trade for the month: 
Long NWS and short NWSLV, this pair is hitting a new low of 1.08 and a new low in spread, but the correlation is picking up. All triggers met, so I'm hoping to close this trade before the end of the week 

Didn't quite get my 100% annual profit, but luckily it didn't turn south either - managed to close my losing trades MCR/MRE and MGR/GPT at or close to breakeven


----------



## skc

SilverRanger said:


> New trade for the month:
> Long NWS and short NWSLV, this pair is hitting a new low of 1.08 and a new low in spread, but the correlation is picking up. All triggers met, so I'm hoping to close this trade before the end of the week
> 
> Didn't quite get my 100% annual profit, but luckily it didn't turn south either - managed to close my losing trades MCR/MRE and MGR/GPT at or close to breakeven




I have traded NWS / NWSLV many times but I don't understand what should be their 'correct' relationship. They enjoy the same dividend amounts. NWSLV has preference in dividend and in liquidation, but it has no voting rights and poorer liquidity.

So what's the right discount for NWSLV / NWS? I would have thought the current ~8% is probably right. Obviously the market will fluctuate depending on the sentiment and short term supply and demand. 

But because of this view, back in the days where NWS had a 15% premium to NWSLV, I would only long NWSLV and short NWS.

Profit season in Feb so tread carefully... I was too careful however and missed the MYR short last week


----------



## SilverRanger

skc said:


> I have traded NWS / NWSLV many times but I don't understand what should be their 'correct' relationship. They enjoy the same dividend amounts. NWSLV has preference in dividend and in liquidation, but it has no voting rights and poorer liquidity.
> 
> So what's the right discount for NWSLV / NWS? I would have thought the current ~8% is probably right. Obviously the market will fluctuate depending on the sentiment and short term supply and demand.
> 
> But because of this view, back in the days where NWS had a 15% premium to NWSLV, I would only long NWSLV and short NWS.
> 
> Profit season in Feb so tread carefully... I was too careful however and missed the MYR short last week




At the start of 2009 the "premium" was about 5.6%, then it gradually went up and peaked around 20% in 2010 and now going back down again, there's similar trend in the spread as well. But for all that matters, there's a market price for it and we are milking on its "mean reverting" properties 

For the notorious confession and reporting period, I think I will just stay out completely (with the exception of this pair of course)

No need to  for not hitting the jackpot, it could've been a nightmare as well


----------



## skc

SilverRanger said:


> At the start of 2009 the "premium" was about 5.6%, then it gradually went up and peaked around 20% in 2010 and now going back down again, there's similar trend in the spread as well. But for all that matters, there's a market price for it and we are milking on its "mean reverting" properties
> 
> For the notorious confession and reporting period, I think I will just stay out completely (with the exception of this pair of course)




Definitely tradable. But would be nice to know what is the right side of the trade.


----------



## fingl

skc, do u use a discretionary approach for taking signals? Whats your opinion of taking every signals for a pair to realize the backtest statistics compared to picking the best of what u think is best among your signals?


----------



## skc

fingl said:


> skc, do u use a discretionary approach for taking signals? Whats your opinion of taking every signals for a pair to realize the backtest statistics compared to picking the best of what u think is best among your signals?




It has to be discretionary for me, because you always need to take into account company specific news and events... e.g. rumours on takeover, capital raising, writedowns, upcoming dividends, ex-dividends, quarterly reporting etc etc.

The backtest statistics will contain false information as it cannot discriminate price movements due caused by the above.


----------



## fingl

skc said:


> It has to be discretionary for me, because you always need to take into account company specific news and events... e.g. rumours on takeover, capital raising, writedowns, upcoming dividends, ex-dividends, quarterly reporting etc etc.
> 
> The backtest statistics will contain false information as it cannot discriminate price movements due caused by the above.




Other than news, events and other information, do you use chart patterns and indicators to decide which signal has more potential and which has less potential for profit? 

And are not all these news and events accounted on the trading backesting statistics? Backtesting does not really care about all these news and events and take all valid signals using the specific rules.


----------



## skc

fingl said:


> Other than news, events and other information, do you use chart patterns and indicators to decide which signal has more potential and which has less potential for profit?
> 
> And are not all these news and events accounted on the trading backesting statistics? Backtesting does not really care about all these news and events and take all valid signals using the specific rules.




Chart patterns yes. Support / resistance yes. Indicators No.

The backtest doesn't care about a lot of things and you will have false profit/loss.

e.g. Backtest entry signal was to long NAB/short CBA the day before CBA went ex-div. The following day the exit signal is generated because CBA fell 2.5% on going ex-dividend. The backtest says a profitable trade. You've made no money...

The backtest also doesn't show what you've risked to take the reward. 

E.g. Share A spiked up on a takeover bid, generating all sorts of signals to short. You can short it for a possible few % profit but risk a bidding war. It's up to you if you want to believe the backtest results as gospel.


----------



## edman79

fingl said:


> Other than news, events and other information, do you use chart patterns and indicators to decide which signal has more potential and which has less potential for profit?
> 
> And are not all these news and events accounted on the trading backesting statistics? Backtesting does not really care about all these news and events and take all valid signals using the specific rules.




Hi fingl,
Things I have found that cause the backtester to differ from real results : 
1. Dividends
2. Consolidations.
3. restructuring of the company - ie westfield spliting. (the backtester thinks that the shares had dropped from about $12 to $9 but in reality you would have been issued with WRT shares.
4. Errors in the historical data - I have found when there is an error in the yahoo data feed for 1 day it always results in a trade opening that day, closing the next day (as the data returns to the correct amount) for a hefty profit...


----------



## fingl

Should the correlation be calculated using raw prices or percentage change? The plot of the two method is quite different using same bars calculation. Which method is more effective for generating successful trades?


----------



## skc

What a crazy day on the market. 3 periods of 40pt swings that we really haven't seen for a while. Volatility is truely back and it's a good time to pairs trade.

My account went from down 1.5% at the open and by 11am it was up 1%... amazing day.



fingl said:


> Should the correlation be calculated using raw prices or percentage change? The plot of the two method is quite different using same bars calculation. Which method is more effective for generating successful trades?




Not sure what you mean. Can you elaborate on your question?


----------



## fingl

skc said:


> What a crazy day on the market. 3 periods of 40pt swings that we really haven't seen for a while. Volatility is truely back and it's a good time to pairs trade.
> 
> My account went from down 1.5% at the open and by 11am it was up 1%... amazing day.
> 
> 
> 
> Not sure what you mean. Can you elaborate on your question?




Raw price represents the closing price of two securities and percentage change represents the percentage change of closing price for specific number of bars. 

The main different is for the second calculate the percentage change for 20 bars for individual security before calculating the correlation. 

skc, did you write on what filters you use for the trading? What value do you require the correlation to be above for trading? Correlation does not seems to relate alot to the pnl of individual trade. There are many winning trades with low correlation and losing trades with high correlation. Whats your opinion and why do you carry on using correlation for selecting trades?


----------



## fingl

skc do you focus your pairs trading on Australia market? Any preference for stock price?


----------



## skc

fingl said:


> Raw price represents the closing price of two securities and percentage change represents the percentage change of closing price for specific number of bars.
> 
> The main different is for the second calculate the percentage change for 20 bars for individual security before calculating the correlation.




I think using correlation of price makes more sense than correlation of the percentage changes. 

You can check using an example yourself.  Say stock A goes up 1% day one and -0.5% on the next day, then up 1% again on day three (and so on for 20 days). And stock B does exactly the same except it starts with -0.5% on day one and +1% on day (and so on for 20 days).

You will have to say that the price is correlated over 20 days, but the percent change are certainly not. 



fingl said:


> skc, did you write on what filters you use for the trading? What value do you require the correlation to be above for trading? Correlation does not seems to relate alot to the pnl of individual trade. There are many winning trades with low correlation and losing trades with high correlation. Whats your opinion and why do you carry on using correlation for selecting trades?




I don't have strict criteria for correlation. But I have reasonably tight criteria on fundamental correlation (i.e. same industry, same macro factors, same metal etc). Price correlation is often a proxy for fundamental correlation.

At the end of the day the most important on is your ratio chart - hopefully one that is range bound with a moving average through somewhere near the middle.



fingl said:


> skc do you focus your pairs trading on Australia market? Any preference for stock price?




Yes only Australian market. With stock price the bigger the better just from an ease of entry/exit and crossing the spread point of view.

You will always under perform the system if you trade too many 55c shares. The system say exit at 55c and you are there at the back of the queue with 2m shares in front of you... happened to me today with GMG and missed my exit


----------



## Pairs Trader

Hey guys, glad to see this pairs journal is still alive and well, just a quick update from me; 

For a few years we have wanted to get co-integration into Pairtrade Finder, however after many futile attempts we put it into the "too-hard basket" for those of you that have seen any co-integration code you will understand what we mean, however it has been our biggest feature request for the last year and again we faced up to this tedious task, luckily we've found a capable financial programmer who has experience with co-integration and who actually developed his own co-integration software, we have paid him handsomely to integrate co-integration into Pairtrade Finder and it should be available to all members within the next few weeks.

For those of you who don't know what co-integration is and why it's so important to pair trading here is a quick analogy;

A man and a women are walking down the street together at the same pace, the walking relationship between the man and women would show high correlation, now on the other side of the street a man and a women are walking down the street, however the women stops to look in a shop window and the man keeps on walking, soon after the women runs to catch up to the man, this is co-integration, whereas in this case correlation would have broken down. So to sum up, co-integration measures the tendency for a relationship to revert back to it's mean average. I'm sure you can understand the importance of this measure when selecting appropriate pairs to trade, we want pairs that have a high tendency to converge back to a normal relationship after diverging, it's the ultimate measure of mean reversion in any 2 variable relationship.

This is why every statistical arbitrage(pair trading) hedge fund uses co-integration to scan for profitable pairs to trade. 

The co-integration value will show between 0-100 in Pairtrade Finder, similar to the current correlation value shown, and our financial programmer has confirmed it's increase in profitability, in his own words "high co-integration + high back test profits = superb pair to trade" 

We highly anticipate the added feature of co-integration into PTF and are quite confident it will increase the profitability for all pair traders, including those that pursue this art full time.

Watch this space...


----------



## skc

Pairs Trader said:


> We highly anticipate the added feature of co-integration into PTF and are quite confident it will increase the profitability for all pair traders, including those that pursue this art full time.
> 
> Watch this space...




That will be awesome... I am (very) pleasantly surprised that you still have time to improve the PTF when you seem so busy doing many other things.


----------



## Pairs Trader

Thanks SKC! I too can't wait to have it in my own trading, plus to improve our pair trading signals service too, which is 2yrs+ running profitable, and yah im very busy but ive learnt to multitask, outsource and automate a lot more these days, the need came out of necessity, there is still a few things more I want in PTF and if you or anyone else has any suggestions I'm all ears...


----------



## skc

Pairs Trader said:


> Thanks SKC! I too can't wait to have it in my own trading, plus to improve our pair trading signals service too, which is 2yrs+ running profitable, and yah im very busy but ive learnt to multitask, outsource and automate a lot more these days, the need came out of necessity, there is still a few things more I want in PTF and if you or anyone else has any suggestions I'm all ears...




Real time prices for ASX shares!!! I will have that over anything else.


----------



## SilverRanger

skc said:


> Real time prices for ASX shares!!! I will have that over anything else.




Real time ASX prices +1, or better still generic methods to hook up to established data provider/ broker data (somewhat like what Ninja Trader can do).

Some multi-core optimisation (so that more price refreshes can be done in any given time) would be nice too


----------



## fingl

Assuming closing prices are used for entering orders how would a trader manage multiple pairs because you would require to compute the closing price whether there is a signal around market closing hr. Realtime data must be fetched according. And a signal does not necessary implies transaction. A trader would open individual chart to analyze patterns and indicators. Multiple pairs would all these be done quickly around market closing hr and not considering putting orders because only around these hr the closing price is fetched. How do you guy manage all these?

Is a nice slanting equity line be more important than fundametal consideration? Would you take a signal for two firms one on technology and the other on fashion but yet having a nice sloping equity line from testing? Some trader advocates using mainly testing statistics and ignore fundametal consideration and correlation.What your take?


----------



## skc

fingl said:


> Assuming closing prices are used for entering orders how would a trader manage multiple pairs because you would require to compute the closing price whether there is a signal around market closing hr. Realtime data must be fetched according. And a signal does not necessary implies transaction. A trader would open individual chart to analyze patterns and indicators. Multiple pairs would all these be done quickly around market closing hr and not considering putting orders because only around these hr the closing price is fetched. How do you guy manage all these?
> 
> Is a nice slanting equity line be more important than fundametal consideration? Would you take a signal for two firms one on technology and the other on fashion but yet having a nice sloping equity line from testing? Some trader advocates using mainly testing statistics and ignore fundametal consideration and correlation.What your take?




With the right trading platform you can largely get around those problems. I use webIress which displays the anticipated match price (which can and do change alot during the closing auction) and excess volume. I also run a spreadsheet which tells me at what price ratio I should be closing the trade. I can have 10-15 pairs open at any one time but it's mostly manageable.

I only pair things with the right fundamentals... but there are many ways to skin the pairs-trading cat. Just whatever you feel comfortable with...


----------



## sleepy

SilverRanger said:


> Real time ASX prices +1




Real time ASX prices +2

What sort of results has everyone been getting the past 3 months?
Is 2011 better or worse than previously? ... and is pairs trading still your main strategy?

sleepy


----------



## fingl

skc said:


> With the right trading platform you can largely get around those problems. I use webIress which displays the anticipated match price (which can and do change alot during the closing auction) and excess volume. I also run a spreadsheet which tells me at what price ratio I should be closing the trade. I can have 10-15 pairs open at any one time but it's mostly manageable.
> 
> I only pair things with the right fundamentals... but there are many ways to skin the pairs-trading cat. Just whatever you feel comfortable with...




How many pairs do you watch for potential signals? Do you study all their chart and fundametal even they do not have signals currently? 

Are you talking about fundmetal similar to p/e, sales, net profit, roc, cashflow, debt ratio and other many financial figures? And their variance should not be alot. The question is whether these fundametal provide additional edge to the trading.


----------



## skc

sleepy said:


> Real time ASX prices +2
> 
> What sort of results has everyone been getting the past 3 months?
> Is 2011 better or worse than previously? ... and is pairs trading still your main strategy?
> 
> sleepy




2011 has been quiet for me until March... I made more trades in the last 2 weeks than the whole of Jan and Feb combined. Account is up a healthy 8.5% in March, ~12% for the calendar year


----------



## skc

fingl said:


> How many pairs do you watch for potential signals? Do you study all their chart and fundametal even they do not have signals currently?
> 
> Are you talking about fundmetal similar to p/e, sales, net profit, roc, cashflow, debt ratio and other many financial figures? And their variance should not be alot. The question is whether these fundametal provide additional edge to the trading.




I have ~200 pairs so probably ~170 different stocks in total. Some stocks I know better fundamentally than others. There is not much point knowing all the charts  - it doesn't take long to look up the chart after a signal is given. 

I try to learn fundamentals at a higher level... things that can be looked up more quickly. What business are they in, where do they operate, are they profitable or not, a general idea about their debt levels (no debt, normal debt vs high debt) and what are some key drivers influencing the share price. 

E.g. BSL and OST are in the same industry, but OST makes a profit while BSL makes a loss. So I will have a bias to long OST / short BSL (which I did when BSL spiked up 2 days after the Japan earthquake).

Dividend yield is also quite useful... a quick glance at the Big 4 yield will show you that ANZ has the lowest yield, so I might think twic about long ANZ against say CBA or wait for the pair to diverge further than what the signal says.


----------



## fingl

skc said:


> I have ~200 pairs so probably ~170 different stocks in total. Some stocks I know better fundamentally than others. There is not much point knowing all the charts  - it doesn't take long to look up the chart after a signal is given.
> 
> I try to learn fundamentals at a higher level... things that can be looked up more quickly. What business are they in, where do they operate, are they profitable or not, a general idea about their debt levels (no debt, normal debt vs high debt) and what are some key drivers influencing the share price.
> 
> E.g. BSL and OST are in the same industry, but OST makes a profit while BSL makes a loss. So I will have a bias to long OST / short BSL (which I did when BSL spiked up 2 days after the Japan earthquake).
> 
> Dividend yield is also quite useful... a quick glance at the Big 4 yield will show you that ANZ has the lowest yield, so I might think twic about long ANZ against say CBA or wait for the pair to diverge further than what the signal says.




Do you choose these 200 plus because of their equity curves from historical trades are nicely trending or they are chosen because of other reasons or their nature of businesses and industry are the same. The best equity curve is from cross industries companies having little relation to each other. Would you take the trade for cross industries having little relation because of their excellent equity curve but may due to spurious relation? 

Assuming closing prices are used do you place orders on the close or on the next open? Because for 200 plus manually placing orders for 5 or more may require speed considering the market about to close and orders have to be placed on close.


----------



## skc

fingl said:


> Do you choose these 200 plus because of their equity curves from historical trades are nicely trending or they are chosen because of other reasons or their nature of businesses and industry are the same. The best equity curve is from cross industries companies having little relation to each other. Would you take the trade for cross industries having little relation because of their excellent equity curve but may due to spurious relation?
> 
> Assuming closing prices are used do you place orders on the close or on the next open? Because for 200 plus manually placing orders for 5 or more may require speed considering the market about to close and orders have to be placed on close.




I will answer these after you share something fingl... Have you started trading pairs? How's that going? Who do you use as your broker/provider? Which markets you trade? What's your approach? 

Just feeling a bit one-wayed


----------



## fingl

skc said:


> I will answer these after you share something fingl... Have you started trading pairs? How's that going? Who do you use as your broker/provider? Which markets you trade? What's your approach?
> 
> Just feeling a bit one-wayed




skc, did not try trading pairs but has been interested. There are a few reasons why not. One reason is the reward/risk profile for this field. Done quite a lot of backtesting on us securities and the r/r figures varies 0.3 between 1.5. No doubt there are exceptional r/r > 1 but the bulk average is 0.5 to 0.8. And the max downdraw figures are not beyond what a trader should accept. On 1000 securities, > 70% has max dd > 40%. Max dd of 25% accounts for < 5%. 

On using more data for backtesting, these r/r and max dd figures become more unfavor for a trader. Same for the win rate 55% to 65%. With these win rate and on r/r average 0.5 to 0.8 any more large losing trades would steer the equity curve south. This field maybe alot of winners but a few large trades would give back most of the profit. Exiting using trades bars do not seems to solve the problem. The main reason is exiting on trades bars might be more unfavor compared to let the trade exit using the original rules. The trade might exit on the lowest pnl.

Using a simple rsi rule for backtesting, on 1000 securities, there are definitely a certain % with exceptional good equity trend. Is this due to the individualize nature of the security suiting the rsi rule or spurious? A random rule would also generate a certain % of good equity trend.

You have a good equity trend which seems to deviate from mass stat figures for this field. Do you use alot of discretion on trades selection? Any recommendations to prevent large losing trades beside the 3 rules you have. Because unless the trader is really really really experience, there are definitely large losing trades and these would decrease the r/r to very unfavor. 

Alot of traders advocate allocate a small amount of equity on each trade but multiple small losing trades consecutively with each losing amount to the largest losing dollar would also meant max dd. Take 6 trades with with each losing 6% consecutively would meant a 36% down. And 6% is a very conservative figure. Off course 6 consecutive losing trades is remote but they do occur no matter how experience the trader is.


----------



## skc

fingl said:


> skc, did not try trading pairs but has been interested. There are a few reasons why not. One reason is the reward/risk profile for this field. Done quite a lot of backtesting on us securities and the r/r figures varies 0.3 between 1.5. No doubt there are exceptional r/r > 1 but the bulk average is 0.5 to 0.8. And the max downdraw figures are not beyond what a trader should accept. On 1000 securities, > 70% has max dd > 40%. Max dd of 25% accounts for < 5%.
> 
> On using more data for backtesting, these r/r and max dd figures become more unfavor for a trader. Same for the win rate 55% to 65%. With these win rate and on r/r average 0.5 to 0.8 any more large losing trades would steer the equity curve south. This field maybe alot of winners but a few large trades would give back most of the profit. Exiting using trades bars do not seems to solve the problem. The main reason is exiting on trades bars might be more unfavor compared to let the trade exit using the original rules. The trade might exit on the lowest pnl.
> 
> Using a simple rsi rule for backtesting, on 1000 securities, there are definitely a certain % with exceptional good equity trend. Is this due to the individualize nature of the security suiting the rsi rule or spurious? A random rule would also generate a certain % of good equity trend.
> 
> You have a good equity trend which seems to deviate from mass stat figures for this field. Do you use alot of discretion on trades selection? Any recommendations to prevent large losing trades beside the 3 rules you have. Because unless the trader is really really really experience, there are definitely large losing trades and these would decrease the r/r to very unfavor.
> 
> Alot of traders advocate allocate a small amount of equity on each trade but multiple small losing trades consecutively with each losing amount to the largest losing dollar would also meant max dd. Take 6 trades with with each losing 6% consecutively would meant a 36% down. And 6% is a very conservative figure. Off course 6 consecutive losing trades is remote but they do occur no matter how experience the trader is.




Interesting stats. On those numbers you wouldn't pairs trade that's for sure. My numbers are better so I guess it shows that I haven't wasted all my time in understanding the company fundamentals and watching market news.

The simplest way to reduce drawdown is to reduce your position size. I have done ~1000 trades in the last 2 and a bit years and my single largest losing trade was 2.2% of my account. That particular trade went 20% against me, but my position size was only ~10% of my account. It wasn't a pair I know well and they were smaller, more volatile companies. I also exited at the worst possible PnL - but $hit happens and I had to follow my stop rules.

Position sizing is the key to survival in most trading strategies. Trade bigger and you have to brace for bigger drawdown. Personally I have a specific annual return target in mind, and so I know how hard/not hard I need to push my account to achieve that. This means that I rarely have a position that is >20% of my account. If you trade with a smaller account however it will be a different story. 

Trust me you don't have to worry about consecutive losses. Without any doubt your largest drawdown will occur when you hit a patch of low win rate, not when you hit consecutive losses. You see consecutive losses mentioned a lot in many trading books but it's simply wrong. 

My largest drawdown was ~8% for the account. It took me 60 trades to get there from the previous equity high. Within that time, the longest losing streak was only 4 losses, but the win% fell to 55% (compared to the usual 75-80%). Avg win/avg loss was 0.35, compared to the usual 0.6. Consecutive losses have nothing to do with it.

All I can say is somehow I've managed to make pairs trading work most of the time, and I personally don't know how one can do it without a bit of investment in fundamental research. In my view that goes a long way to improving your win rate and avoiding large losses.


----------



## Pairs Trader

Guys, thanks for the suggestion and I agree live ASX data would be a bonus, but here is the brutal honest truth why I haven't done it, I think by telling you exactly why, you may understand and hopefully this comes across the right way, not that i'm under-committed to us down-under traders;

Finding a suitable data feed;

Believe me I've searched high and low to find a suitable data feed, but for ASX this doesn't seem feasible, aside from the high cost to implement this feature there would be a very high cost to the trader (about $150 per month) for a suitable feed, it's not as simple as hooking into a master feed or some website(that's illegal), each trader would need a subscription, because the feed we would have to implement needs to be API supported and be well documented for my programmer to integrate, there is a lack of this type of service here in aussie.

So it's a cost vs benefit argument, I know from experience with our IQfeed for real time data on US stocks, forex, commodities at $60 per month that not many traders take that up and the majority of our clients are US based, because not many people like subscriptions, they like one-off costs, so at a high cost to me to develop it I don't think many ASX traders would take it up.

That's the honest reason. Now, if a bunch of you are really keen and we can find a suitable provider that has good support, maybe we can all chip in to get my programmer to develop a custom version, he charges $100 per hour, however at this stage it would be a loss-maker for me, please don't take offense, it's just business.


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## fingl

skc said:


> Interesting stats. On those numbers you wouldn't pairs trade that's for sure. My numbers are better so I guess it shows that I haven't wasted all my time in understanding the company fundamentals and watching market news.
> 
> The simplest way to reduce drawdown is to reduce your position size. I have done ~1000 trades in the last 2 and a bit years and my single largest losing trade was 2.2% of my account. That particular trade went 20% against me, but my position size was only ~10% of my account. It wasn't a pair I know well and they were smaller, more volatile companies. I also exited at the worst possible PnL - but $hit happens and I had to follow my stop rules.
> 
> Position sizing is the key to survival in most trading strategies. Trade bigger and you have to brace for bigger drawdown. Personally I have a specific annual return target in mind, and so I know how hard/not hard I need to push my account to achieve that. This means that I rarely have a position that is >20% of my account. If you trade with a smaller account however it will be a different story.
> 
> Trust me you don't have to worry about consecutive losses. Without any doubt your largest drawdown will occur when you hit a patch of low win rate, not when you hit consecutive losses. You see consecutive losses mentioned a lot in many trading books but it's simply wrong.
> 
> My largest drawdown was ~8% for the account. It took me 60 trades to get there from the previous equity high. Within that time, the longest losing streak was only 4 losses, but the win% fell to 55% (compared to the usual 75-80%). Avg win/avg loss was 0.35, compared to the usual 0.6. Consecutive losses have nothing to do with it.
> 
> All I can say is somehow I've managed to make pairs trading work most of the time, and I personally don't know how one can do it without a bit of investment in fundamental research. In my view that goes a long way to improving your win rate and avoiding large losses.




Felt there are not much significant things to contribute compared to many of veterans in this field except to learn more from you guys. skc what were the reasons for your 8% dd which decreases your win % to a mere 55%? Any steps you took to prevent this max dd after reaching new equity high? Consecutive losers may not be the main factor for dd. More losing trades compared to winning trades on whatever sequences might be more contributing to dd. Your r/r averaging on 0.6? Thats imply you are putting a dollar to profit 0.6. Your win % must be really good to maintain the current equity trend.

About reducing position size with relation to max dd. No doubt small allocation of equity would reduces dd but this would imply your win would reduce too. Most trader would concern what is the duration to reach new equity high. Smaller allocation would imply proportional more trades and more duration to cover the previous max dd. How does position allocation helps with the < 1 r/r for pairs trading?

Good to consider fundametal. There are alot of different ways to use fundametals. Some uses value and growth rules, accounting statements, cashflow positions, debt to equity, pnl determination and not considering more ratios derive from more calculations. But which is more relevant to pairs trading?


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## fingl

Is trading trading signals from cross but related industries a good idea?


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## edman79

Does anyone want to post some trades in real time and (more importantly) explain why they took the trade. In order for me to learn, the profit of the trade is less important than why it was actually taken. 
--Looking at you SKC    

There are many real time trades on this thread but they dont really explain by saying "I took this trade because the PE ratio was out ... etc. etc.

The ones that are taken are based on technical data (charts etc) but the explanations dont seem to be consistant ie. some are justified with spread, some with RSI, some at all time highs/lows but never 2 the same.


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## skc

fingl said:


> Is trading trading signals from cross but related industries a good idea?




What is cross but related industries?



edman79 said:


> Does anyone want to post some trades in real time and (more importantly) explain why they took the trade. In order for me to learn, the profit of the trade is less important than why it was actually taken.
> --Looking at you SKC
> 
> There are many real time trades on this thread but they dont really explain by saying "I took this trade because the PE ratio was out ... etc. etc.
> 
> The ones that are taken are based on technical data (charts etc) but the explanations dont seem to be consistant ie. some are justified with spread, some with RSI, some at all time highs/lows but never 2 the same.




*Looking away....*

Too time consuming, and the more I post the worst entry/exit I am going to get! I struggle with liquidity on some pairs already.

There is nothing wrong with looking at multiple charts/data points... the more things that support a trade, the higher chance of a profitable outcome.


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## fingl

Cross but related industries 

One security might be dealing with oil the other deal with oil equipment. Both are on oil industry and amount of oil business affect both securities profit.


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## fingl

skc you are trading the asx 200 and having liquidity issue? You have problem having fill on the selling? What do you do with one security fill on buy but the other not getting fill on sell?


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## skc

fingl said:


> Cross but related industries
> 
> One security might be dealing with oil the other deal with oil equipment. Both are on oil industry and amount of oil business affect both securities profit.




Sure. I would pair those up.



fingl said:


> skc you are trading the asx 200 and having liquidity issue? You have problem having fill on the selling? What do you do with one security fill on buy but the other not getting fill on sell?




I trade outside ASX200 as well. The volumes I do are not that great, but some ASX200 shares can have bad liquidities on certain days. I consider liquidity as poor if I can't close my position without taking out more than 1 level (when I hit the market). Or if I put my full size in a single price level (as limit order) and it changes the market depth balance a bit too much.

If I have 1 leg open but can't get a fill on the other leg, I either close the open leg (i.e. abandon the trade - which I do if the profit target is thin), or I reach down to open the other leg (more acceptable if the profit target is high). Or I sit in the queue and keep waiting, if the stock is just bouncing between bid and ask and the whole market is steady. But this can be risky as well - I can't tell you the number of times I waited and waited for 1m shares to trade in front of me, and only to have the price moving away from me when there were only 20K left... it's like someone knew I was there! Then I have to decide whether to wait again, or reach down over 2 price levels (which is significant if the share price value is under $1).


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## kingcarmleo

Just read most of this thread from the start, awesome!


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## skc

Thanks to HST plunging today by ~75%, I see for the first time ever, a 6-sigma event in pairs trading.

Apparently the confidence interval of 6 standard deviations is 99.9999998027%.

My signals calculate standard deviations based on 14 days standard deviations. A 6 sigma event should only be experienced once every 19 million years... crazy stuff.


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## fingl

skc you took trades on securities with prices a dollar plus on a few posts. Their buy sell spread accounts for a significant different on the entry and exit prices. Profit on backtest might be loss on real time trading because of the buy sell spread on the low price. A buy sell spread of 0.005 is 0.5% on a dollar security. These are not a problem to you considering the low profit margin of pairs trading?


----------



## skc

fingl said:


> skc you took trades on securities with prices a dollar plus on a few posts. Their buy sell spread accounts for a significant different on the entry and exit prices. Profit on backtest might be loss on real time trading because of the buy sell spread on the low price. A buy sell spread of 0.005 is 0.5% on a dollar security. These are not a problem to you considering the low profit margin of pairs trading?




Yes it's a big problem but you don't have to hit the bid or ask all the time. That why I spent a lot of my day sitting in the queue and watching market depth. 

$1 stock aren't that bad. Try 50c where the spread is 1%.


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## fingl

skc said:


> Yes it's a big problem but you don't have to hit the bid or ask all the time. That why I spent a lot of my day sitting in the queue and watching market depth.




How does sitting in the queue and market depth gives you more chance to get prices better than the spread price? On a volatile prices with prices moving quickly away from the open price, the open price might be difficult to get filled.

Do you use yahoo for securities quotes less than a dollar because they are inaccurate.


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## skc

fingl said:


> How does sitting in the queue and market depth gives you more chance to get prices better than the spread price? On a volatile prices with prices moving quickly away from the open price, the open price might be difficult to get filled.
> 
> Do you use yahoo for securities quotes less than a dollar because they are inaccurate.




The bid is 50c and ask is 50.5c. If I want to go long I can either hit the ask at 50.5 or sit in the bid at 50c waiting to be hit. I don't have to cross the spread. 

I have not experience inaccurate Yahoo pricing for <$1 stocks. They are however delayed for ASX shares.


----------



## SilverRanger

skc said:


> The bid is 50c and ask is 50.5c. If I want to go long I can either hit the ask at 50.5 or sit in the bid at 50c waiting to be hit. I don't have to cross the spread.
> 
> I have not experience inaccurate Yahoo pricing for <$1 stocks. They are however delayed for ASX shares.




Why is queueing important for sub $1 pair? Well, your expected net profit is around 2-3% per trade, now you decided to have "quick entries" for both legs, that eats away 2% of your profit, not much juice left is there? 

I guess it's really ASX that you will see this kind of problem, it's a much more pleasant experience pair trading in other markers (except Japan, thanks to its uptick rule)


----------



## skc

SilverRanger said:


> Why is queueing important for sub $1 pair? Well, your expected net profit is around 2-3% per trade, now you decided to have "quick entries" for both legs, that eats away 2% of your profit, not much juice left is there?
> 
> I guess it's really ASX that you will see this kind of problem, it's a much more pleasant experience pair trading in other markers (except Japan, thanks to its uptick rule)




Definitely. I think ASX should have a rule something like all companies with market cap >$1B market cap should do a consolidation so share price is >$1.

And they should also change the minimum tick to 0.1 cent for all <$1 stocks. No real reason not to really...


----------



## fingl

skc said:


> The bid is 50c and ask is 50.5c. If I want to go long I can either hit the ask at 50.5 or sit in the bid at 50c waiting to be hit. I don't have to cross the spread.
> 
> I have not experience inaccurate Yahoo pricing for <$1 stocks. They are however delayed for ASX shares.




Putting buy limit on 50c and queue. How often do you get filled? Maybe for 50c to be the absolutely lowest low of the trading session is 1 out of 10?


----------



## skc

fingl said:


> Putting buy limit on 50c and queue. How often do you get filled? Maybe for 50c to be the absolutely lowest low of the trading session is 1 out of 10?




I am not looking for the low of the day. I am just looking for not having to pay the spread. You can always back your market reading ability short term and open the leg in the direction of the market first. Then you would have a better chance of being filled on the other leg. Sometimes you get it right, other times you are down 2% before you complete trade.


----------



## fingl

skc said:


> I am not looking for the low of the day. I am just looking for not having to pay the spread. You can always back your market reading ability short term and open the leg in the direction of the market first. Then you would have a better chance of being filled on the other leg. Sometimes you get it right, other times you are down 2% before you complete trade.




Not talking about you looking for the lowest low but there are trading session with 50c sell price making the lowest low. Without the buy price decrease to 50c buy orders would not be filled regardless of the queue. How often do you not get filled even using queue?

Did some real time trading on the US market and putting buy orders on the low of the previous bar but they would not be filled because the buy price is above the low of the prevous bar. The sell price makes the lowest low equal to the low of the previous bar.


----------



## fingl

Assuming there are two pairs xyz/abc and wrs/abc and both gives signal concurrently with the first one signaling a buy on abc and the second one signaling a sell on abc. How to place orders for abc because both pairs are using the same abc but signaling order on oppposite direction concurrently. The broker would not let a trader buy and sell abc concurrently.

What about xyz/abc signals a buy on abc today and the trader brought abc and tomorrow wrs/abc signals a sell on abc with xyz/abc trade not close yet? Should a trader close the abc trade assuming that both trades have same position units trading.


----------



## skc

fingl said:


> Not talking about you looking for the lowest low but there are trading session with 50c sell price making the lowest low. Without the buy price decrease to 50c buy orders would not be filled regardless of the queue. How often do you not get filled even using queue?
> 
> Did some real time trading on the US market and putting buy orders on the low of the previous bar but they would not be filled because the buy price is above the low of the prevous bar. The sell price makes the lowest low equal to the low of the previous bar.




Not sure what you are talking about at all. What has the previous previous bar got anything to do with sitting in the queue and waiting to be hit? 

Telling you a percent of time I get hit is pointless - it depends on the stock, liquidity, short term picture of the market depth and the overall market direction. I already outlined a few methods above on improving your chances of being hit, and of what to do if you can't get a fill...



fingl said:


> Assuming there are two pairs xyz/abc and wrs/abc and both gives signal concurrently with the first one signaling a buy on abc and the second one signaling a sell on abc. How to place orders for abc because both pairs are using the same abc but signaling order on oppposite direction concurrently. The broker would not let a trader buy and sell abc concurrently.
> 
> What about xyz/abc signals a buy on abc today and the trader brought abc and tomorrow wrs/abc signals a sell on abc with xyz/abc trade not close yet? Should a trader close the abc trade assuming that both trades have same position units trading.




In your example it would of course be silly to long abc and short abc at the same time, regardless of whether your broker let you do it or not. You better off having a look at long wrs and short xyz and see if that has any merit. This is equivalent you having the 2 pairs open, but saves you some commission. Same if you already have a abc long position - make a call to see which trade is more profitable/less risk.


----------



## SilverRanger

New trade today: Long MND, short UGL
Reason for trade:
1. Good returns in the past
2. Ratio of 1.25 looks like a good support in the past couple of months
3. Good correlation
4. No news

And yes, I was lining up in the queue in both legs


----------



## SilverRanger

Just found the following in my inbox:


> Shorting Stocks in Australia Now Available
> 
> IB is pleased to announce that as of 19th of April 2011 we will be offering the ability to short a segment of the most liquid stocks that are listed on the Australian stock exchange. A list of the securities available for shorting as well as the quantity can be found by selecting the Trading and then Short Sales menu options from the IB home page. From there, select the Available Instruments tab and the link for Australia. In addition, information regarding indicative borrow rates is made available through the Stock Loan Borrow tool located in the tools section of Account Management.
> 
> Interactive Brokers Customer Service



There are 27 stocks shortable at this stage, not bad for a start 
http://www.interactivebrokers.com/e...try=australia&tag=Australia&ib_entity=llc&ln=


----------



## skc

SilverRanger said:


> Just found the following in my inbox:
> 
> There are 27 stocks shortable at this stage, not bad for a start
> http://www.interactivebrokers.com/e...try=australia&tag=Australia&ib_entity=llc&ln=




Will give it a go today...



SilverRanger said:


> New trade today: Long MND, short UGL
> Reason for trade:
> 1. Good returns in the past
> 2. Ratio of 1.25 looks like a good support in the past couple of months
> 3. Good correlation
> 4. No news
> 
> And yes, I was lining up in the queue in both legs




Good setup. The spread on these guys are pretty good so queue is not as important. But anything you can squeeze out will be a positive for sure.

Some news (or rumour) here on UGL btw... feels a bit like hot wind imo.

http://www.theaustralian.com.au/bus...nsfield-ugl-deal/story-e6frg9if-1226040593900


----------



## fingl

Most brokers commission is 0.1%. For 10,000 trade value, commission would be 10 dollar. For a trade, total commission would be 40 dollars. Assuming average return on back testing is 2.5% per trade, the dollar value would be 250 dollars. Commission accounts for 16%. This amount is very significant. Is there edge for retail traders given the expensive retail commission? What much are you guys paying?


----------



## SilverRanger

fingl said:


> Most brokers commission is 0.1%. For 10,000 trade value, commission would be 10 dollar. For a trade, total commission would be 40 dollars. Assuming average return on back testing is 2.5% per trade, the dollar value would be 250 dollars. Commission accounts for 16%. This amount is very significant. Is there edge for retail traders given the expensive retail commission? What much are you guys paying?




I pay around 0.1% for ASX stocks. It could have been lower (0.08%) if I use IB, but I'm better off using IB for other markets.

If you can get around 2% average return after costs, I would say that's more than decent already, simply because - it only takes 50 trades to get 100%!!

If you are worry about brokerage costs, then you should probably just look at the US market.


----------



## fingl

Some exchanges have matching prices to determine the closing price. The trading hours close at 5pm but the closing price is determine at 5.05pm or 5.08pm. The 5 to 8 mins are for matching of prices to determine the closing price which differs from the closing price at 5pm. Signals using 5pm closing price would become invalid because of the differences of the official closing price at 5.08pm. Most of the data provider provides the official closing price at 5.08pm which is not filling because trading hours is to 5pm. This implies backtesting is inaccurate. Do you guys have signals filled on 5pm closing price and signals become invalid using 5.08pm closing price? SilverRanger does ib has this problem too?


----------



## SilverRanger

fingl said:


> Some exchanges have matching prices to determine the closing price. The trading hours close at 5pm but the closing price is determine at 5.05pm or 5.08pm. The 5 to 8 mins are for matching of prices to determine the closing price which differs from the closing price at 5pm. Signals using 5pm closing price would become invalid because of the differences of the official closing price at 5.08pm. Most of the data provider provides the official closing price at 5.08pm which is not filling because trading hours is to 5pm. This implies backtesting is inaccurate. Do you guys have signals filled on 5pm closing price and signals become invalid using 5.08pm closing price? SilverRanger does ib has this problem too?




I'm not sure which exchange you are talking about, but if that's the case, the gap should have equal chance to go for or against your profit, and on average cancel each other out.

In fact, you don't really have to use this as an EOD system, a lot of signals come and go intra-day, and they are just as good as EOD signals.


----------



## fingl

SilverRanger said:


> I'm not sure which exchange you are talking about, but if that's the case, the gap should have equal chance to go for or against your profit, and on average cancel each other out.
> 
> In fact, you don't really have to use this as an EOD system, a lot of signals come and go intra-day, and they are just as good as EOD signals.




Most of the asia exchanges have these matching prices. Trying to adhering to the original system rules closely and do not want to open or close trades which are not valid because of the matching price differences. Ib has moc order but they must be submitted 15 mins before close for the US market and withdrawal is not allowed right? !5 mins implies more significant price changes.

Have not study intraday signals but do chart them. Some diverge more than few trading sessions while others revert during the trading session. SilverRanger how many trading session do you hold the position given that the price diverge and did not revert on the trading session?


----------



## SilverRanger

fingl said:


> Ib has moc order but they must be submitted 15 mins before close for the US market and withdrawal is not allowed right? !5 mins implies more significant price changes.



There probably is, but I have never used it myself (not that I need to). What is more handy from IB is the Pair Combo, simply buy or sell the pair at limit or market (or LMT + MKT), use that to lock in your profit with trailing stop.



fingl said:


> Have not study intraday signals but do chart them. Some diverge more than few trading sessions while others revert during the trading session. SilverRanger how many trading session do you hold the position given that the price diverge and did not revert on the trading session?



Same treatment as any other EOD signals, if it diverges further enough for absolutely no reason, I might consider layering/averaging in


----------



## skc

I don't normally trade indices, but I think this warrants a trade. An 8% gap pretty much explained by the $A rise. My exit would be a 4% closing up of the gap.




IG markets provides a A$ denominated contract for the US indices...so that takes care of any currency issues.


----------



## fingl

Here are some equity curves with comparison to with and without correlation for trade entries.

With correlation rules adding on, the equity curve become more losing and max dd become more. 1) No correlation 2) Correlation 30 > 0.6 3) Correlation  90 > 0.6 4) Correlation 180 > 0.6

Why the equity curve is performing lacking with more correlation adding on? Isn't correlation important? Anyone has done a mass data backtesting statistics on whether correlation matters?


----------



## skc

fingl said:


> Here are some equity curves with comparison to with and without correlation for trade entries.
> 
> With correlation rules adding on, the equity curve become more losing and max dd become more. 1) No correlation 2) Correlation 30 > 0.6 3) Correlation  90 > 0.6 4) Correlation 180 > 0.6
> 
> Why the equity curve is performing lacking with more correlation adding on? Isn't correlation important? Anyone has done a mass data backtesting statistics on whether correlation matters?




Interesting. Here's my take on correlation...

Correlation matters because of the underlying premise of pairs trading - i.e. two shares that are influenced by same factors diverge for no apparent reason. However, correlation needs to breakdown during the divergence / convergence process. If share A goes up 1% each day and share B goes up 0.8%, their correlation will be high (0.8), but this pair certainly is not profitable, even though a signal may eventually be generated.

That might explain why by taking trades with long periods of good correlation (180 > 0.6), you end up trading more A & B type set up which results in poor profitability.

Here's a screen shot of a great pair...

Notice the peaks and troughs (green verticle lines) on the ratio chart (i.e. when they are most diverged) correspond to the lows on the correlation chart. Notice also the peaks in the correlation chart (red lines) correspond with not a lot of divergence from the mean. So putting on a trade when correlation is low can yield better results, provided that correlation is normally good. 




BTW the new software is coming out with co-integration calculated which is going to be fantastic...


----------



## fingl

skc said:


> So putting on a trade when correlation is low can yield better results, provided that correlation is normally good.




Why are most of the traders and Jared taking trades with correlation at least 0.7 or better with taking trades on low correlation yielding better results? Most of Jared trades have correlation more than 0.8. skc do you have correlation rule for your entries?

There are some equity curves improved with correlation rules and big loses are not taken while others have more big loses with correlation rules similar to the jpeg posted. Should pairs be curve fitted to have correlation rules on entries depending on whether the rules improve the equity curve?


----------



## skc

fingl said:


> Why are most of the traders and Jared taking trades with correlation at least 0.7 or better with taking trades on low correlation yielding better results? Most of Jared trades have correlation more than 0.8. skc do you have correlation rule for your entries?
> 
> There are some equity curves improved with correlation rules and big loses are not taken while others have more big loses with correlation rules similar to the jpeg posted. Should pairs be curve fitted to have correlation rules on entries depending on whether the rules improve the equity curve?




I don't have a fixed correlation rule. I like to think that I address that by only pairing stocks that are fundamentally similar. With an example like above, you can definitely see how you don't need correlation to trade that ratio chart for mean reversion.

Play around with the signal timeframe and the mean. Look for a ratio chart that is range bounded and zigzags a lot, and find a mean line that plots close to the middle - and you have found a decent reliable pair. Correlation doesn't actually come into it.


----------



## fingl

skc, you use a lot of discretionary in your pairs trading do you? Finding the right ratio chart and picking the right signal. The pair you post is the perfect pair to trade. Most of the ratio charts are either a little upward or downward oscillating. They are in a trading range mostly for a while before shooting to new high or low in a furious manner. How do you protect against taking trades in trading range but is going to take out the high or low of the trading range?

Do ratios from different sectors tend to move together? Which sector is most suit for pairs trading and what are the reasons?


----------



## skc

fingl said:


> skc, you use a lot of discretionary in your pairs trading do you? Finding the right ratio chart and picking the right signal. The pair you post is the perfect pair to trade. Most of the ratio charts are either a little upward or downward oscillating. They are in a trading range mostly for a while before shooting to new high or low in a furious manner. How do you protect against taking trades in trading range but is going to take out the high or low of the trading range?
> 
> Do ratios from different sectors tend to move together? Which sector is most suit for pairs trading and what are the reasons?




Yes I use a lot of discretion and I don't always trade at the signal price - I tend to wait and back my market reading skill to hopefully get an extra tick here or there for better entry and exit. Doesn't always work out but I see it as good practice...

You will get ratios that blow out when you are in a trade. If that happens with news then I exit immediately taking the loss. If it happens without news then my hard stops of 2% or time-based stop will be hit eventually.

Here's a good example. A great pair to trade until EQN was the subject of a takeover. Fortunately there was no signal before the gap up but I could easily have been in a trade as well. 




Different sectors offer more or less opportunities over different times, but that's mostly due to spates of fundamental news and/or corporate activities. E.g. I traded a lot of media stocks last year but I probably haven't had one on for 6 months - too many downgrades going on. 

It's best to just trade the sector you are familiar with and avoid sectors that throws out big swings... e.g. trading mid-cap miners will always expose you to an exploration risk so I tend to keep my position size smaller. REITs on the other hand rarely have single piece of company specific news that move the ratio out of wack too much. So they are better stocks to trade. Similarly with infrastructure and utilities.


----------



## luckyforteja

Hi All,

Gone through the whole journal, very informative. I have couple of questions
1) What is the best instrument for Pair trading, mainly for shorting?
2) What would be minimum amount that need to be investing for each leg of the pair?

I have downloaded the trail version of pair trader and tried CFD(both long and short), with a leg size of 2000 and realised that brokerage was killing me.

Cheers,
Sri


----------



## SilverRanger

luckyforteja said:


> Hi All,
> 
> Gone through the whole journal, very informative. I have couple of questions
> 1) What is the best instrument for Pair trading, mainly for shorting?
> 2) What would be minimum amount that need to be investing for each leg of the pair?
> 
> I have downloaded the trail version of pair trader and tried CFD(both long and short), with a leg size of 2000 and realised that brokerage was killing me.
> 
> Cheers,
> Sri




1) For ASX it would be CFD for the availability and leverage, although IB is starting to offer share shorting (but only limited to 20 or so stocks), so you can save a bit of brokerage there
2) Depends on the liquidity of the stock and your provider, this can range from 5% to up to 100% of your leg size, but on average about 15% - 30% (50% for IB)

With a leg size of 2000 you are effectively paying 0.5% per trade, so that's 2% in total!! I would be happy enough if I can break even with that amount of brokerage costs 
But if that's the amount you are willing to risk, I think you are better off starting in the US market, where brokerage cost isn't generally an issue like the ASX. The flip side - sleep 1 am at night or wake up 6 am in the morning !!


----------



## luckyforteja

SilverRanger said:


> 1) For ASX it would be CFD for the availability and leverage, although IB is starting to offer share shorting (but only limited to 20 or so stocks), so you can save a bit of brokerage there
> 2) Depends on the liquidity of the stock and your provider, this can range from 5% to up to 100% of your leg size, but on average about 15% - 30% (50% for IB)
> 
> With a leg size of 2000 you are effectively paying 0.5% per trade, so that's 2% in total!! I would be happy enough if I can break even with that amount of brokerage costs
> But if that's the amount you are willing to risk, I think you are better off starting in the US market, where brokerage cost isn't generally an issue like the ASX. The flip side - sleep 1 am at night or wake up 6 am in the morning !!




Thanks for the reply mate.

Would you recommend any broker for US/UK trades ?

Cheers
Sri


----------



## fingl

A trader should establish some rules to determine whether a pair performance is good for trading regardless of how good the historical performance. Exceeding historical max draw down is one way but this may delete some excellent pairs. Traders should expect max draw down to be exceeded in real time trading. What is the optimal rules to determine whether a pair is good for trading?


----------



## fingl

fingl said:


> What is the optimal rules to determine whether a pair is good for trading?




Should those pairs exceeding historical max draw down in real time trading be deleted from the portfolio because their performance is no good currently compared to historical performance?


----------



## SilverRanger

luckyforteja said:


> Thanks for the reply mate.
> 
> Would you recommend any broker for US/UK trades ?
> 
> Cheers
> Sri




Interactive Brokers, the cheapest everywhere!! Haven't done much trading in the UK, but from memory it's better to use CFD over shares to avoid the stamp duty, even then the brokerage is still not as cheap as US


----------



## SilverRanger

fingl said:


> Should those pairs exceeding historical max draw down in real time trading be deleted from the portfolio because their performance is no good currently compared to historical performance?




There's no right or wrong answer for this, personally I do remove any bad performing pairs from my watchlist, but I would refresh the list every quarter.


----------



## fingl

SilverRanger said:


> There's no right or wrong answer for this, personally I do remove any bad performing pairs from my watchlist, but I would refresh the list every quarter.




How do you define bad performing pairs? Is quarterly refresh the optimal adjustment? You would carry on trade a bad performing pair to the next quarterly refresh?


----------



## luckyforteja

SilverRanger said:


> Interactive Brokers, the cheapest everywhere!! Haven't done much trading in the UK, but from memory it's better to use CFD over shares to avoid the stamp duty, even then the brokerage is still not as cheap as US




Thanks for the reply mate.


----------



## skc

luckyforteja said:


> Hi All,
> 
> Gone through the whole journal, very informative. I have couple of questions
> 1) What is the best instrument for Pair trading, mainly for shorting?
> 2) What would be minimum amount that need to be investing for each leg of the pair?
> 
> I have downloaded the trail version of pair trader and tried CFD(both long and short), with a leg size of 2000 and realised that brokerage was killing me.
> 
> Cheers,
> Sri




I started with ~$5-6K per leg and was able to generate reasonable return after brokerage. $2K is pushing it a bit imo for ASX shares.

If you use CFDs make sure you are using DMA, and not paying the spread each time.



skc said:


> Here's a screen shot of a great pair...
> 
> Notice the peaks and troughs (green verticle lines) on the ratio chart (i.e. when they are most diverged) correspond to the lows on the correlation chart. Notice also the peaks in the correlation chart (red lines) correspond with not a lot of divergence from the mean. So putting on a trade when correlation is low can yield better results, provided that correlation is normally good.
> 
> View attachment 42959
> 
> 
> BTW the new software is coming out with co-integration calculated which is going to be fantastic...




So much for my great pair... coming into dividend season for these trusts and the yield chasers are pushing MAP from >7% to 6.5% yield. AIX is 5.4%. 

Moral of the story? Know your dividend schedule well in advance.


----------



## fingl

skc said:


> $2K is pushing it a bit imo for ASX shares.




What about 2k for the us market?


----------



## luckyforteja

I hope that people are still using this strategy successfully.

Can we have some updates ?


----------



## skc

luckyforteja said:


> I hope that people are still using this strategy successfully.
> 
> Can we have some updates ?




Yes still beavering away. May was a great month for me but June so far has been very poor. The market has been choppy and volatile so opportunities do creep up often, but I am finding convergences harder to come by. The beaten down stocks just don't bounce back up easily anymore.


----------



## luckyforteja

skc said:


> Yes still beavering away. May was a great month for me but June so far has been very poor. The market has been choppy and volatile so opportunities do creep up often, but I am finding convergences harder to come by. The beaten down stocks just don't bounce back up easily anymore.




Thanks for the reply,

Are you still using v2.99 or have you upgraded to V3.0 with cointegration ?

If you have, are there any +/- changes in your returns ?

Cheers
Sri


----------



## skc

skc said:


> Yes still beavering away. May was a great month for me but June so far has been very poor. The market has been choppy and volatile so opportunities do creep up often, but I am finding convergences harder to come by. The beaten down stocks just don't bounce back up easily anymore.




A great week last week made back half June's loss. When the market turns one way or the other the account usually gets a boost... it is when oversold shares finally converge with their stronger counterparts.



luckyforteja said:


> Thanks for the reply,
> 
> Are you still using v2.99 or have you upgraded to V3.0 with cointegration ?
> 
> If you have, are there any +/- changes in your returns ?
> 
> Cheers
> Sri




I've upgraded to v3.0. I have re-jigged my database and culled some pairs while added a few new ones. It's too early to tell the impact of the P&L, and I am not using a strict cointegration filter anyway.

One thing you need to watch with cointegration is that a choppy share will show high cointegration with any other share, regardless of whether they are truely 'fundamentally cointegrated' or not. It's up to the trader to decide whether they want true cointegration or just mathsmatical cointegration.


----------



## luckyforteja

skc said:


> A great week last week made back half June's loss. When the market turns one way or the other the account usually gets a boost... it is when oversold shares finally converge with their stronger counterparts.
> 
> 
> 
> I've upgraded to v3.0. I have re-jigged my database and culled some pairs while added a few new ones. It's too early to tell the impact of the P&L, and I am not using a strict cointegration filter anyway.
> 
> One thing you need to watch with cointegration is that a choppy share will show high cointegration with any other share, regardless of whether they are truely 'fundamentally cointegrated' or not. It's up to the trader to decide whether they want true cointegration or just mathsmatical cointegration.




Thanks for the prompt reply.

What do you check to see that the Pair is fundamentally cointegrated? 
Do you look for fundamental data like PE etc or the business?

Cheers
Sri


----------



## maximillian

Is'nt cointegration just decorrelation over a shorter period with correlation over a longer period?

I think CBA versus WBC would be my pick.  2 WBC shares to 1 CBA shares would be approximately a neutral spread.  Fundamental equals. Maximum divergence 15% over the last 15 years.
Holding both and selling options on them would smooth the equity curve somewhat too.

Cheers!


----------



## SilverRanger

maximillian said:


> Is'nt cointegration just decorrelation over a shorter period with correlation over a longer period?
> 
> I think CBA versus WBC would be my pick.  2 WBC shares to 1 CBA shares would be approximately a neutral spread.  Fundamental equals. Maximum divergence 15% over the last 15 years.
> Holding both and selling options on them would smooth the equity curve somewhat too.
> 
> Cheers!



It's merely a statiscal property involving 2 or more time series (http://en.wikipedia.org/wiki/Cointegration). The main (if not the only) reason traders look at cointegration is its stationarity (or mean reverting), if things divert enough in a stationary process, it WILL revert to its mean (but the exact timing of when is not known). It has absolutely nothing to do with correlation, which is another statistical concept.

Generally speaking the big four banks are good candidates for pair trading, but because they are good, they often not diverge enough to generate good profit after brokerage costs. (And more annoyingly, one bad trade will often erode 3 - 5 profitable trades)

It will be interesting to see how people go with the extra "cointegration" feature in PTF 3.0. 
Personally I have some reservations about how cointegration can be expressed in a number between 0 to 1 (perhaps 1 - it is cointegrated, and 0 - it is not cointegrated? ). Nothing offensive and it may work out brilliantly, but just don't feel like using something I don't understand...


----------



## SilverRanger

skc said:


> A great week last week made back half June's loss. When the market turns one way or the other the account usually gets a boost... it is when oversold shares finally converge with their stronger counterparts.




Over the last 2 weeks 2 of my losing trades (out of 2) turned around, in both cases the fundamentally inferior leg were playing the catch up in a general bullish market. Perhaps the trades aren't as market neutral as I want them to be...


----------



## skc

luckyforteja said:


> Thanks for the prompt reply.
> 
> What do you check to see that the Pair is fundamentally cointegrated?
> Do you look for fundamental data like PE etc or the business?
> 
> Cheers
> Sri




The business! Do they both make steel or does one make bread? Go pair up BSL (the steel maker) and GFF (the bread maker) and you will probably find good correlation and may be even good co-integration. But their businesses are not fundamentally cointegrated. 

If you can make money trading that pair, however, then by all means.

I do look at PE sometimes but it's not that important considering my positions are usually 2 weeks at most. However you can use PE for longer term pairs trading (I think).



SilverRanger said:


> It's merely a statiscal property involving 2 or more time series (http://en.wikipedia.org/wiki/Cointegration). The main (if not the only) reason traders look at cointegration is its stationarity (or mean reverting), if things divert enough in a stationary process, it WILL revert to its mean (but the exact timing of when is not known). It has absolutely nothing to do with correlation, which is another statistical concept.
> 
> Generally speaking the big four banks are good candidates for pair trading, but because they are good, they often not diverge enough to generate good profit after brokerage costs. (And more annoyingly, one bad trade will often erode 3 - 5 profitable trades)
> 
> It will be interesting to see how people go with the extra "cointegration" feature in PTF 3.0.
> Personally I have some reservations about how cointegration can be expressed in a number between 0 to 1 (perhaps 1 - it is cointegrated, and 0 - it is not cointegrated? ). Nothing offensive and it may work out brilliantly, but just don't feel like using something I don't understand...




So true about the Big 4...

I found that a lot of my favourite pairs (REITs, building materials etc) that I have high confidence in all have really high co-integration. However I still apply my own discretion...

2 examples currently is API/SIP and BSL/OST. Both pairs have 0.99 co-integration and screaming for a trade, but I can't pull the trigger. I just know that the moment I do, API/BSL will go into a trading halt announcing the next profit downgrade and capital raising...


----------



## maximillian

SilverRanger said:


> It's merely a statiscal property involving 2 or more time series (http://en.wikipedia.org/wiki/Cointegration). The main (if not the only) reason traders look at cointegration is its stationarity (or mean reverting), if things divert enough in a stationary process, it WILL revert to its mean (but the exact timing of when is not known). It has absolutely nothing to do with correlation, which is another statistical concept.
> 
> Generally speaking the big four banks are good candidates for pair trading, but because they are good, they often not diverge enough to generate good profit after brokerage costs. (And more annoyingly, one bad trade will often erode 3 - 5 profitable trades)
> 
> It will be interesting to see how people go with the extra "cointegration" feature in PTF 3.0.
> Personally I have some reservations about how cointegration can be expressed in a number between 0 to 1 (perhaps 1 - it is cointegrated, and 0 - it is not cointegrated? ). Nothing offensive and it may work out brilliantly, but just don't feel like using something I don't understand...





I would view the number 1 as 100% sameness and 0 as opposite or least sameness in terms of that undisclosed indicator formula.   Perhaps they used the Pearson algorithm or Dicky-fuller test.  Both of their measurements values are between 1 to -1 though, which could be adjusted to a 1 to 0 boundry.

Once I was told by a maths teacher that polynomials were a completely different concept to calculus.  The following day she conceded that both are methods for producing curves.  She sure had them  
For cointegration and correlation, I would postulate that both mathematical & statistical methods are measuring 'sameness' within 2 different time series.  Although we shouldn't  mix our apples and oranges, for me they're wholesome and nutritious, blendable and we can equally sqeeze them for their juice 

I was thinking more of writing options for instant reward, or CFD's for that bank pair.
Preferably some testing needs to be done first.


----------



## skc

As a game here are the ratio charts of 6 pairs... would people like to guess what the ballpark co-integration value is for each pair according to PTF software?




I shall reveal the answer in a few days


----------



## LiL_JaSoN

Just learning about pair trading,

Where do you guys find the pairs to trade?


----------



## SilverRanger

skc said:


> As a game here are the ratio charts of 6 pairs... would people like to guess what the ballpark co-integration value is for each pair according to PTF software?
> 
> View attachment 43557
> 
> 
> I shall reveal the answer in a few days




Do I get to know the names of the pairs as the prize? I'm drooling over pairs 1, 4 and 5, so they must have a damn high score


----------



## skc

SilverRanger said:


> Do I get to know the names of the pairs as the prize? I'm drooling over pairs 1, 4 and 5, so they must have a damn high score




Yes I will PM the pairs to you after the game


----------



## skc

I had a short on MCC yesterday and I copped it sweet today.

Never would I have thought that someone would launch a takeover for a coal stock one day after the carbon tax is announced. In fact, yesterday I noticed surprise strength in WHC and NHC - so I avoided shorting them (in case something was up), and chose the beaten down MCC instead. Unbelievable...  

This is the first takeover I ran into after over 1000 trades. Thankfully the position was <5% of the account, so the 35% jump today only caused me ~1.6% damage. Not the worst percentage wise, but the worst in terms of $$ lost as I just doubled the capital in my account for this financial year.

Oh well. I guess if you try to pick up pennies long enough in a doggie park you will step onto dog poo eventually.


----------



## LiL_JaSoN

iv been reading on pair trading over the couple of days, i have a few questions;

*when looking at the correlation between 2 shares, how far back do you go? 1month? 6month? 12month? etc as it will be different for each time frame.

*when/how do you do determine the entry points to enter? when there's a xx gap? etc? 

*is it better to trade 2 stocks from the same sector (eg rio/bhp) or different sectors?


----------



## SilverRanger

skc said:


> I had a short on MCC yesterday and I copped it sweet today.
> 
> Never would I have thought that someone would launch a takeover for a coal stock one day after the carbon tax is announced. In fact, yesterday I noticed surprise strength in WHC and NHC - so I avoided shorting them (in case something was up), and chose the beaten down MCC instead. Unbelievable...
> 
> This is the first takeover I ran into after over 1000 trades. Thankfully the position was <5% of the account, so the 35% jump today only caused me ~1.6% damage. Not the worst percentage wise, but the worst in terms of $$ lost as I just doubled the capital in my account for this financial year.
> 
> Oh well. I guess if you try to pick up pennies long enough in a doggie park you will step onto dog poo eventually.




This dog poo definitely stinks as hell, I guess no one but Peabody & ArcelorMittal could really see it coming in this sort of timing. Glad you have proper capital management in place so your account doesn't blow up otherwise.


----------



## skc

SilverRanger said:


> This dog poo definitely stinks as hell, I guess no one but Peabody & ArcelorMittal could really see it coming in this sort of timing. Glad you have proper capital management in place so your account doesn't blow up otherwise.




That position size was about 1/2 of what I would have used. But with the recent increase in account size I wanted to take things slower and make 2 entries to build the full position.

So lucky it was half the size. Very unlucky to get hit straight away on the day...


----------



## SilverRanger

Two interesting stocks today:

1. Profit downgrade from DJS today making it plunged 15%, I'm closely watching this one cuz I really don't see fundamentally MYR can be any better if DJS is doing bad in sales

2. FXJ, some heavy selling is happening right now, for no apparent news (still researching), might try my luck if I really find nothing...


----------



## skc

SilverRanger said:


> Two interesting stocks today:
> 
> 1. Profit downgrade from DJS today making it plunged 15%, I'm closely watching this one cuz I really don't see fundamentally MYR can be any better if DJS is doing bad in sales
> 
> 2. FXJ, some heavy selling is happening right now, for no apparent news (still researching), might try my luck if I really find nothing...




DJS and MYR are forecasting the same NPAT now. But DJS is worth ~$1.7B vs MYR ~$1.45B. 

Saw the FXJ plunge but by the time the PTF alert came through it's already moved back up... that's why we want live data!!


----------



## SilverRanger

skc said:


> DJS and MYR are forecasting the same NPAT now. But DJS is worth ~$1.7B vs MYR ~$1.45B.
> 
> Saw the FXJ plunge but by the time the PTF alert came through it's already moved back up... that's why we want live data!!




DJS's new PAT is down 0.5% to 2%, vs -5% reaffirmed by MYR, DJS also did so from a better earning figure last year (positive growth) against MYR (negative). These numbers are still telling me that DJS is a better business over MYR and deserves its price premium.

The long term average price ratio is 1.39 (since MYR listing, 1.4 on day 1), so some long term cointegration may be happening (not tested). Anyway, I only took half position size than normal to test my read of the two stocks, and hopefully I can see a good outcome.

Watching FXJ yesterday around 11 am was fun (and rewarding), the plunge from .905 to .855 all happened in less than 1 minute (institution sell off, then possibly followed by stop loss triggers at .9 and below, or the institution was just keen to dump more of FXJ), then a V shape rebound soon after. 

Another stock that seems out of whack in the last few days is TOL, not quite sure what's happening with that, so it looks like there is a good trading opportunity.


----------



## skc

SilverRanger said:


> DJS's new PAT is down 0.5% to 2%, vs -5% reaffirmed by MYR, DJS also did so from a better earning figure last year (positive growth) against MYR (negative). These numbers are still telling me that DJS is a better business over MYR and deserves its price premium.
> 
> The long term average price ratio is 1.39 (since MYR listing, 1.4 on day 1), so some long term cointegration may be happening (not tested). Anyway, I only took half position size than normal to test my read of the two stocks, and hopefully I can see a good outcome.
> 
> Watching FXJ yesterday around 11 am was fun (and rewarding), the plunge from .905 to .855 all happened in less than 1 minute (institution sell off, then possibly followed by stop loss triggers at .9 and below, or the institution was just keen to dump more of FXJ), then a V shape rebound soon after.
> 
> Another stock that seems out of whack in the last few days is TOL, not quite sure what's happening with that, so it looks like there is a good trading opportunity.




Basically the whole market is bearish on domestic economy stocks. TOL is considered a barometer of the domestic economy, much like FedEx in the US. Having said that TOL is fast approaching its GFC low and they didn't even do a cap raising during that time. I think TOL is a fundamentally cheap share and can be paired with say the XJO for a trade.

With DJS / MYR: DJS has enjoyed an aura for a while as being a well-managed, resilent company, and has a higher PE than retail peers to boost. That's why the common headline for yesterday was SHOCK downgrade. That NPAT change % is the full year, but their forecast for H1 12 is much worse, although MYR didn't even provide a forecast. Anyway, fundamentally I wouldn't say DJS deserves a higher multiple than MYR, but it doesn't mean there isn't a profitable trade to be had.

Also I think fundamentally HVN and JBH are more screwed if you want to look at the thread of online shopping. It's pretty hard to buy dresses online but I can't remember the last time I bought any electronics without getting a better deal on ebay etc.

I actually opened a long MYR short BBG today. BBG's chart will plunge on a break below $6, whether MYR should not plunge too much after yesterday... Let's see if that is the correct read.


----------



## SilverRanger

skc said:


> Basically the whole market is bearish on domestic economy stocks. TOL is considered a barometer of the domestic economy, much like FedEx in the US. Having said that TOL is fast approaching its GFC low and they didn't even do a cap raising during that time. I think TOL is a fundamentally cheap share and can be paired with say the XJO for a trade.
> 
> With DJS / MYR: DJS has enjoyed an aura for a while as being a well-managed, resilent company, and has a higher PE than retail peers to boost. That's why the common headline for yesterday was SHOCK downgrade. That NPAT change % is the full year, but their forecast for H1 12 is much worse, although MYR didn't even provide a forecast. Anyway, fundamentally I wouldn't say DJS deserves a higher multiple than MYR, but it doesn't mean there isn't a profitable trade to be had.
> 
> Also I think fundamentally HVN and JBH are more screwed if you want to look at the thread of online shopping. It's pretty hard to buy dresses online but I can't remember the last time I bought any electronics without getting a better deal on ebay etc.
> 
> I actually opened a long MYR short BBG today. BBG's chart will plunge on a break below $6, whether MYR should not plunge too much after yesterday... Let's see if that is the correct read.




Yes HVN and JBH (especially HVN) are definitely the screwed ones in retail. That's why I generally have no hestitation in shorting them when they overshoot. Personally I have never shopped in both stores!!

Retailers like BBG and KMD seemed less affected by the DJS downgrade, which I think makes sense as they are more diversified than the domestic retailers. But after the plunge I too would not see MYR going south relative to its peers (til they give profit guidance for 2012 perhaps ), so this could be good.

I ended up pairing TOL with LEI, just out of convinience and good past record (and amazingly high correlation), could do it with XJO too, but ideally I like XNJ (which can't be traded) or CEU (might need to queue for it)


----------



## skc

SilverRanger said:


> Yes HVN and JBH (especially HVN) are definitely the screwed ones in retail. That's why I generally have no hestitation in shorting them when they overshoot. Personally I have never shopped in both stores!!
> 
> Retailers like BBG and KMD seemed less affected by the DJS downgrade, which I think makes sense as they are more diversified than the domestic retailers. But after the plunge I too would not see MYR going south relative to its peers (til they give profit guidance for 2012 perhaps ), so this could be good.
> 
> I ended up pairing TOL with LEI, just out of convinience and good past record (and amazingly high correlation), could do it with XJO too, but ideally I like XNJ (which can't be traded) or CEU (might need to queue for it)




LEI is not a bad one and it is as good a proxy for the domestic economy as TOL is. CEU just beware that it is supposedly the takeover target for TCL... well it has been for the last 3 years anyway...


----------



## SilverRanger

skc said:


> LEI is not a bad one and it is as good a proxy for the domestic economy as TOL is. CEU just beware that it is supposedly the takeover target for TCL... well it has been for the last 3 years anyway...




Interesting mention of TOL and LEI on BusinessSpectator today, both going in my favour 

Toll Holdings
Toll Holdings is another stock that has come under fire of late, with the logistics firm’s shares lagging its peers by about 20 per cent in the last nine months or so. Toll is also looking to replace outgoing head honcho Paul Little with an internal candidate, most likely current CFO Paul Kruger, after a lengthy search process, and amid the negativity UBS analysts reckon the company could be a good target for private equity suitors. According to UBS, a new owner could bring some fresh blood into the company, divest the Singapore logistics arm for a hefty price tag and focus more on the mining services side of the business, rather than the ailing retail services. The analysts add that Toll could fetch a price tag of around $5.5 billion.

Leighton Holdings
Leighton Holdings may be in for some more pain with Goldman Sachs analysts saying that the construction firm could be facing the prospect of further profit downgrades, up to the tune of $200 million, despite positive signals at its Airport Link project and its Habtoor Leighton Group venture. The main source of the speculation is the Victorian Desalination project, which is already behind schedule and, according to analysts, expected to be further weight on Leighton’s overall numbers.


----------



## skc

SilverRanger said:


> Interesting mention of TOL and LEI on BusinessSpectator today, both going in my favour
> 
> Toll Holdings
> Toll Holdings is another stock that has come under fire of late, with the logistics firm’s shares lagging its peers by about 20 per cent in the last nine months or so. Toll is also looking to replace outgoing head honcho Paul Little with an internal candidate, most likely current CFO Paul Kruger, after a lengthy search process, and amid the negativity UBS analysts reckon the company could be a good target for private equity suitors. According to UBS, a new owner could bring some fresh blood into the company, divest the Singapore logistics arm for a hefty price tag and focus more on the mining services side of the business, rather than the ailing retail services. The analysts add that Toll could fetch a price tag of around $5.5 billion.
> 
> Leighton Holdings
> Leighton Holdings may be in for some more pain with Goldman Sachs analysts saying that the construction firm could be facing the prospect of further profit downgrades, up to the tune of $200 million, despite positive signals at its Airport Link project and its Habtoor Leighton Group venture. The main source of the speculation is the Victorian Desalination project, which is already behind schedule and, according to analysts, expected to be further weight on Leighton’s overall numbers.




I was going to open a TOL position until I read this. I get scared when a broker so kindly volenteer something as a takeover target... probably just means they want some fees from possible corporate action, or worse they want to sell a whole pile of shares...

The LEI rumour probably has some truth in it imo. I will let you know next time I drive to the airport here in Brisbane


----------



## SilverRanger

New trade today: WPL/OSH, WPL has been under pressure since the cost blowout/project delay announcemnet and perhaps BHP making moves in shale gas. Fundamentals aside, I'm expecting a short term rebound later in the week.

Halfway through to July and it is already my best performing month of all time!!


----------



## skc

SilverRanger said:


> New trade today: WPL/OSH, WPL has been under pressure since the cost blowout/project delay announcemnet and perhaps BHP making moves in shale gas. Fundamentals aside, I'm expecting a short term rebound later in the week.




I went with ORG/OSH... your trade doing better than mine today 



SilverRanger said:


> Halfway through to July and it is already my best performing month of all time!!




Nice. I am only breakeven


----------



## keroppi

Hi guys,

I have been trading pairs for a long time with a friend. We started pairs trading before this thread was created.

I have been a longtime lurker on this thread, but thought I'd start to get involved with questions, comments, and trades.

Couple of questions to start off with:

We have found the year to date to be tough.  We are only slightly above breakeven.  How have you been doing this year?

Do you pairs trade as a full time job?  My friend and I both hold full time jobs and sometimes find it difficult monitoring and trading pairs because of the amount of time involved.

Opened a position in AMP/QBE today.


----------



## skc

keroppi said:


> Hi guys,
> 
> I have been trading pairs for a long time with a friend. We started pairs trading before this thread was created.
> 
> I have been a longtime lurker on this thread, but thought I'd start to get involved with questions, comments, and trades.
> 
> Couple of questions to start off with:
> 
> We have found the year to date to be tough.  We are only slightly above breakeven.  How have you been doing this year?
> 
> Do you pairs trade as a full time job?  My friend and I both hold full time jobs and sometimes find it difficult monitoring and trading pairs because of the amount of time involved.
> 
> Opened a position in AMP/QBE today.




For 2011, Jan / Feb were flat for me but Mar to May were great going with all that volatility. June was average but I took 2 weeks off then. I'd say 2011 has been a decent year to pairs trade so far.

I trade the market full time and pair trading takes up ~2/3 of my capital (can't tell what proportion of time though). I would find it difficult if I am not able to monitor my pairs on a full-time, continuous basis.

So do you use the Pair Trades Finder software or some other methods to generate your signals? How do you pairs trade with a friend?


----------



## skc

skc said:


> LEI is not a bad one and it is as good a proxy for the domestic economy as TOL is. CEU just beware that it is supposedly the takeover target for TCL... well it has been for the last 3 years anyway...




Not a moment too soon. CEU getting a bid at 55c.

http://www.smh.com.au/business/cp2-bids-for-connecteast-20110722-1hrkl.html


----------



## keroppi

skc said:


> So do you use the Pair Trades Finder software or some other methods to generate your signals? How do you pairs trade with a friend?




We use PTF software combined with other modelling methods.  We enter a pair when one of us identify that a pair is on and we both agree to entering the trade. As for exiting, we exit when it breaches a criteria, however, both of us have the ability to exit any trade at any time.

Exited AMP/QBE for a small, quick profit yesterday.


----------



## SilverRanger

skc said:


> Not a moment too soon. CEU getting a bid at 55c.
> 
> http://www.smh.com.au/business/cp2-bids-for-connecteast-20110722-1hrkl.html




Nice call, sadly TOL didn't get much benefit, and even more sad is I was queuing to buy CEU at 43.5 cents just two days ago and missed out!!! 

This morning missed out on APN/FXJ as I realised FXJ isn't shortable....


----------



## skc

keroppi said:


> We use PTF software combined with other modelling methods.  We enter a pair when one of us identify that a pair is on and we both agree to entering the trade. As for exiting, we exit when it breaches a criteria, however, both of us have the ability to exit any trade at any time.
> 
> Exited AMP/QBE for a small, quick profit yesterday.




Sounds like a good system to keep each other from taking ill considered trades.



SilverRanger said:


> Nice call, sadly TOL didn't get much benefit, and even more sad is I was queuing to buy CEU at 43.5 cents just two days ago and missed out!!!
> 
> This morning missed out on APN/FXJ as I realised FXJ isn't shortable....




TOL doesn't run toll roads! I actually have MQA/TCL on at the moment but both are just moving in sync after the CEU news. Will probably exit half the short leg sooner than later just in case some Canadian teachers get cute on me.

TEN is shortable and I am queueing for a APN/TEN, although both shares are somewhat risky...


----------



## SilverRanger

skc said:


> Sounds like a good system to keep each other from taking ill considered trades.
> 
> 
> 
> TOL doesn't run toll roads! I actually have MQA/TCL on at the moment but both are just moving in sync after the CEU news. Will probably exit half the short leg sooner than later just in case some Canadian teachers get cute on me.
> 
> TEN is shortable and I am queueing for a APN/TEN, although both shares are somewhat risky...




For the last couple of days I kept thinking TOL is in fact TCL (Toll Holdings to run toll roads, that make sense), lucky that would have made no difference to my trade decision at the end, as I treat them as "industrials" broadly (and both considered as takeover targets)

New trades today: WDC/GMG, APN/TEN (thanks skc!!), probably won't take on any more pairs til I close off my existing ones. 

Skc, do you have an upper limit on the number of pairs you open at a time?


----------



## skc

SilverRanger said:


> Skc, do you have an upper limit on the number of pairs you open at a time?




I don't have a hard limit but the maxium I've had is ~18 pairs. It does become quite unwieldy and often I end up killing the older pairs or taking quick small early profits to bring the total down. When I have 18 pairs it also start to push the initial margin required on my CFD account.

However having more pairs allow me to take smaller positions on each pair and reduce the risk of any individual trade.


----------



## magin

Hi.
i'm new in this site and in Pair trading. At this moment i read all this thread and are testing PTF. This thread is really amassing, congratulation all of yours for it. It help me a lot to understand some things.  

I  would like to know what configuration are using in this moment at PTF. I read that in same case use 14 days for Std deviation and 100 for correlation. I don't change the default configuration, so if you have a better one please let me know. 

Pair trading is an excellent strategy, but what score have in the past years. I want to know to set up my expectations and allocate a portafolio to it.  

A came from Uruguay so i am not an english speaker. Sorry for my mistakes. 

 Thanks very much for your helps. 
MagÃ­n MartÃ­nez.


----------



## skc

magin said:


> Hi.
> i'm new in this site and in Pair trading. At this moment i read all this thread and are testing PTF. This thread is really amassing, congratulation all of yours for it. It help me a lot to understand some things.
> 
> I  would like to know what configuration are using in this moment at PTF. I read that in same case use 14 days for Std deviation and 100 for correlation. I don't change the default configuration, so if you have a better one please let me know.
> 
> Pair trading is an excellent strategy, but what score have in the past years. I want to know to set up my expectations and allocate a portafolio to it.
> 
> A came from Uruguay so i am not an english speaker. Sorry for my mistakes.
> 
> Thanks very much for your helps.
> MagÃ­n MartÃ­nez.




Welcome, Magin. Which market are you trading? US, Australia or Uruguay?

I don't know what the default setting is but you need to understand what you want to achieve and set the parameters your way. In general, a shorter std dev will produce more signals. You might also want to adjust the layer setting to suit your shares and trading style.


----------



## magin

skc said:


> Welcome, Magin. Which market are you trading? US, Australia or Uruguay?
> 
> I don't know what the default setting is but you need to understand what you want to achieve and set the parameters your way. In general, a shorter std dev will produce more signals. You might also want to adjust the layer setting to suit your shares and trading style.




Thanks for your response. 
US market I trading.

I have all set to 100 days, layer to 2.7 stddev and exit at 1.
I like to trade pairs not long time, ten days(or less) it will be excellent to me.

Any recommendation will be fine. 

Good trades!
MagÃ­n.


----------



## keroppi

Magin, yes, I have found the best trades usually last a few days. Although, with those settings you have, some pairs may take longer to breach exit.

Entered a position in MND/UGL

By the way, do any of you trade FX?  I know Jared does, but I am not fully sold on those trading robots.


----------



## EasyTrader

Traders

I have been a few trading pairs for about 12 months using my own methods and programs. While I am happy with my progress I am looking to expand into other suitable pairs to trade. Need to be ASX 200 type stocks, strong dividend yields in similar sectors. One example I use is CBA/WBC. Can you suggest some others for me.


----------



## magin

keroppi said:


> Magin, yes, I have found the best trades usually last a few days. Although, with those settings you have, some pairs may take longer to breach exit.
> 
> Entered a position in MND/UGL
> 
> By the way, do any of you trade FX?  I know Jared does, but I am not fully sold on those trading robots.




Thanks. 
Can you tell me please, some configuration to test and verified it fill me?
I dont trade FX at the moment. 

Thanks. Magin


----------



## skc

magin said:


> Thanks for your response.
> US market I trading.
> 
> I have all set to 100 days, layer to 2.7 stddev and exit at 1.
> I like to trade pairs not long time, ten days(or less) it will be excellent to me.
> 
> Any recommendation will be fine.
> 
> Good trades!
> MagÃ­n.




The answer by yourself you must find, is the only recommendation 

Sorry if I sound like Yoda but you must understand what the program is doing, decide what you want to do and set the parameters for it to do it.



EasyTrader said:


> Traders
> 
> I have been a few trading pairs for about 12 months using my own methods and programs. While I am happy with my progress I am looking to expand into other suitable pairs to trade. Need to be ASX 200 type stocks, strong dividend yields in similar sectors. One example I use is CBA/WBC. Can you suggest some others for me.




Why do you need strong dividend yield?

Banks: CBA, ANZ, WBC, ANZ, BEN, BOQ
Financials: MQG, PPT, PTM, IFL, AMP, QBE, IAG
REITs: WDC, SGP, MGR, LLC
Miners: BHP, RIO, OZL


----------



## magin

skc said:


> The answer by yourself you must find, is the only recommendation
> 
> Sorry if I sound like Yoda but you must understand what the program is doing, decide what you want to do and set the parameters for it to do it.




Thanks Skc. By the time I understand the software and  parameters individually, but i need to understand what the parameters do together and what happen if i modify one of them. 

Sadistically ratio return to the mean, but the problem are the parameters set to determine how long it take. And if is true in short time. 

I will try to test others parameters to verify it. 
If you can recommend something to read, i will appreciate it. 

Thanks. 
Magin.


----------



## SilverRanger

magin said:


> Thanks Skc. By the time I understand the software and  parameters individually, but i need to understand what the parameters do together and what happen if i modify one of them.
> 
> Sadistically ratio return to the mean, but the problem are the parameters set to determine how long it take. And if is true in short time.
> 
> I will try to test others parameters to verify it.
> If you can recommend something to read, i will appreciate it.
> 
> Thanks.
> Magin.




Read up about bollinger band, particular the settings on SD and MA period.


----------



## EasyTrader

skc said:


> The answer by yourself you must find, is the only recommendation
> 
> Sorry if I sound like Yoda but you must understand what the program is doing, decide what you want to do and set the parameters for it to do it.
> 
> 
> 
> Why do you need strong dividend yield?
> 
> Banks: CBA, ANZ, WBC, ANZ, BEN, BOQ
> Financials: MQG, PPT, PTM, IFL, AMP, QBE, IAG
> REITs: WDC, SGP, MGR, LLC
> Miners: BHP, RIO, OZL




Strong dividend yield and the franking credits they carry can cause strong buy/sell conditions for certain stocks. The trick is obviously determining if the stock is over bought or over sold. With the stocks suggested are you able to arrange them from your experiance into what might be likely pairs.


----------



## magin

Hi boys,

As the month has finished I close my numbers. 

Software: PTF
Market: US
Portfolio: $100.000
MaxPerTrade: $10.000 plus margin. 
Number Max of trade: 10

June (1st month testing PTF)
Open: 7 pairs (5 concurrent) 
Closed: 2 pairs
*Earning: 1% over the portfolio. *


July (2do month testing PTF)
Open: 8 pairs (9 concurrent)
Closed: 5 pairs
*Earning: 4% over the portfolio. *

Base in your experience, i would like to know if earning from July are good and can be replicated month by month. Or this earning are very low based on your results?
For me is a good result but i have not other data to compare. 

Thank very much for your time.
MagÃ­n.


----------



## fingl

magin said:


> Hi boys,
> 
> As the month has finished I close my numbers.
> 
> Software: PTF
> Market: US
> Portfolio: $100.000
> MaxPerTrade: $10.000 plus margin.
> Number Max of trade: 10
> 
> June (1st month testing PTF)
> Open: 7 pairs (5 concurrent)
> Closed: 2 pairs
> *Earning: 1% over the portfolio. *
> 
> 
> July (2do month testing PTF)
> Open: 8 pairs (9 concurrent)
> Closed: 5 pairs
> *Earning: 4% over the portfolio. *
> 
> Base in your experience, i would like to know if earning from July are good and can be replicated month by month. Or this earning are very low based on your results?
> For me is a good result but i have not other data to compare.
> 
> Thank very much for your time.
> MagÃ­n.




Magin, do you use correlation or cointegration above some level for ptf entry or purely ptf entry?


----------



## magin

fingl said:


> Magin, do you use correlation or cointegration above some level for ptf entry or purely ptf entry?




I use both but Correlation and Co-integration never below 60%. 
As i am testing the parameters, they can change in future.  

MagÃ­n.


----------



## fingl

magin said:


> I use both but Correlation and Co-integration never below 60%.
> As i am testing the parameters, they can change in future.
> 
> MagÃ­n.




ptf do not have correlation or cointegration integrated on the backtesting entries do they? Anyone has done sufficient samples using correlation and cointegration above some level for entries and without?


----------



## SilverRanger

Closed my experimental DJS/MYR for a slight profit. 4 open pairs remain with 2 in profit and 2 in loss.


----------



## keroppi

Closed MND/UGL for a small profit for 2/2.

Entered CPU/IRE. 

Magin, the results so far look ok.  In pairs trading, it can be difficult to consistently replicate good results.


----------



## SilverRanger

keroppi said:


> Closed MND/UGL for a small profit for 2/2.
> 
> Entered CPU/IRE.
> 
> Magin, the results so far look ok.  In pairs trading, it can be difficult to consistently replicate good results.




Closed WDC/GMG at market close. Earlier in the day opened long MND/DOW (always keen to short DOW )

Got a long leg of CQO opened yesterday, and it went into trading halt, a sale near book value (I hope) should be good for CQO as it is trading .8x NTA.


----------



## skc

keroppi said:


> Closed MND/UGL for a small profit for 2/2.
> 
> Entered CPU/IRE.
> 
> Magin, the results so far look ok.  In pairs trading, it can be difficult to consistently replicate good results.




Close the same trade. But passed on CPU/IRE. CPU reports next Wednesday so didn't want to chance it. It will probably bounce a couple of % tomorrow however.



SilverRanger said:


> Closed WDC/GMG at market close. Earlier in the day opened long MND/DOW (always keen to short DOW )
> 
> Got a long leg of CQO opened yesterday, and it went into trading halt, a sale near book value (I hope) should be good for CQO as it is trading .8x NTA.




Missed the DOW short (which would have been great). Missed also the CQO trade. They their US portfolio at 2% premium to book so a $1.08 capital return is coming. It will spike up tomorrow lucky you.

Closed my MYR/BBG for a good gain.
Day traded WTF/CRZ for 6% but the position was only small.
Opened MGR/LLC and BOQ/BEN. Both in small profits...


----------



## SilverRanger

skc said:


> Close the same trade. But passed on CPU/IRE. CPU reports next Wednesday so didn't want to chance it. It will probably bounce a couple of % tomorrow however.
> 
> 
> 
> Missed the DOW short (which would have been great). Missed also the CQO trade. They their US portfolio at 2% premium to book so a $1.08 capital return is coming. It will spike up tomorrow lucky you.
> 
> Closed my MYR/BBG for a good gain.
> Day traded WTF/CRZ for 6% but the position was only small.
> Opened MGR/LLC and BOQ/BEN. Both in small profits...




It's a bit beyond my grasp to see a sudden evaporation of buyers in CQO this morning, are people not happy with the sale price or the strength of AUD since last valuation?

MND/DOW is doing well, which more than offets my CQO loss, so still an overall happy day.


----------



## skc

SilverRanger said:


> It's a bit beyond my grasp to see a sudden evaporation of buyers in CQO this morning, are people not happy with the sale price or the strength of AUD since last valuation?
> 
> MND/DOW is doing well, which more than offets my CQO loss, so still an overall happy day.




I watched CQO closely today. I think what happened was that some insto holders (e.g. hedge funds) who were holding the stock trying to change the management has decided to exit their positions. The buyers simply retreated and let them unload...

I closed my BOQ/BEN this morning as it reached half my target in just 1 day. BOQ plunged in the afternoon so I ended up opening the same trade again by 3:30pm. 

There's panic in the market now and I am staying up to watch the carnage in the US. My put options are gaining 50 to 120%... this is definitely 2008 again (or was that 1929). Certainly crazy times and being a pairs trader is way way better than an investor in such market condition.


----------



## keroppi

Exited IRE/CPU for another win. 3/3.

Entered WDC/SGP

I was absolutely hammered for my long CFD positions in the ASX. Didn't anticipate the drop last night in the US and now I have got out but the damage has been done.


----------



## SilverRanger

keroppi said:


> Exited IRE/CPU for another win. 3/3.
> 
> Entered WDC/SGP
> 
> I was absolutely hammered for my long CFD positions in the ASX. Didn't anticipate the drop last night in the US and now I have got out but the damage has been done.




Saw the WDC/SGP setup but chose to ignore it - SGP earning is due next Wednesday, and WDC is expected to announce US mall sale any time from now

Closed MND/DOW for good profit, and opened long SWM/FXJ. Plenty of other opportunities in volatile market liket this


----------



## skc

Glorious day to be a pairs trader :

Closed UGL/BLY
Closed BOQ/BEN
Closed APN/TEN
Closed AIO/QRN (a surprise profit)
Day traded and closed GMG/DXS (someone forgot to sell DXS this morning)
Layered AMP/IAG
Opened CQO/CQR

My broker should be a happy man today.


----------



## Pairs Trader

skc said:


> Glorious day to be a pairs trader :




Got that right! Love these days, mispricings galore


----------



## fingl

There is little discussion about layering. Most of the opinions about layering are layering would have more downdraw and require unlimited fund to generate profit.


----------



## luckyforteja

How did you guys go last week ? Markets had a wild wild ride, should be good time for pair trading..


----------



## SilverRanger

luckyforteja said:


> How did you guys go last week ? Markets had a wild wild ride, should be good time for pair trading..




It's been a good week, closed most of my pairs in profit (except SWM/FXJ), though I haven't opened any new ones due to Aus report season. I will temporarily focus on other markets


----------



## skc

luckyforteja said:


> How did you guys go last week ? Markets had a wild wild ride, should be good time for pair trading..




Very good week. Things were all out of whack and then whipped back with vengence.

Opened 24 trades and closed 30 over the last week. Took a lot of quick wins off the table because of the reporting season, but because of the volativity, those wins averaged ~2.5-3x my historical average win.


----------



## Dracuu

Just trying to fully understand pairs trading before jumping in. Would this trade make sense? Short ORG, Long QBE. 3.36 deviations. Very high correlation and cointergration and the charts look good to me. Is there anything that would deter the experienced pairs trader from taking this trade?

Thanks


----------



## skc

Dracuu said:


> Just trying to fully understand pairs trading before jumping in. Would this trade make sense? Short ORG, Long QBE. 3.36 deviations. Very high correlation and cointergration and the charts look good to me. Is there anything that would deter the experienced pairs trader from taking this trade?
> 
> Thanks




QBE is an insurance company while ORG is in oil and gas and utilities. They display correlation and cointegration purely on a statistical level but not on a fundamental level. 

You can trade the pair if you are aware of the fact and is comfortable with trading purely on a statistical level.

What you won't get with this pair is a natural hedge against fundamental factors. E.g. if there's an earthquake tomorrow QBE will fall a lot but ORG might not. 

You should also be aware that QBE is reporting tomorrow.

Closed my QBE/IAG trade today at a loss - just don't feel like holding over profit announcement, even though I think QBE should have better relative performance tomorrow.


----------



## Dracuu

Thanks skc for your reply. Your points are well noted. I have taken a small position on the trade and will see how it goes. I didn't however know QBE was reporting tomorrow so it will be intersting. Thanks once again.


----------



## skc

Dracuu said:


> Thanks skc for your reply. Your points are well noted. I have taken a small position on the trade and will see how it goes. I didn't however know QBE was reporting tomorrow so it will be intersting. Thanks once again.




Corporate calendar here.

http://www.morningstar.com.au/Stocks/CorpCalendar

It's not perfect but good enough for sidestepping most dates.


----------



## Dracuu

Thanks mate, it will come in very handy!


----------



## skc

Dracuu said:


> Thanks skc for your reply. Your points are well noted. I have taken a small position on the trade and will see how it goes. I didn't however know QBE was reporting tomorrow so it will be intersting. Thanks once again.




Certainly an interesting day for QBE - huge 6% range but ended with a reasonable close. Had I held the QBE/IAG pair it would be down just a fraction at the end of the day, but I could just easily have panicked and sold around the bottom. Same with pairing with ORG.

That's why avoid holding over profit annoucement can result in a smoother equity curve, especially in this market condition.


----------



## luckyforteja

I have been paper trading using this strategy for last two months, it has been an interesting ride. I have couple of questions, 

What criteria would you use to find your pairs ?

I have used PTF back tester and selected pairs based on Correlation and Co-integration in the same sector. Would this be enough ? 

Is there anything in particular that I need to look for in the Ratio, Spread, RSI or any other charts ?

Do you look for any technical indicators for individual stocks RSI, MA etc before entering the trade ?

I am analyzing my result from last 2 months to see if I see any patters, I have taken every trade that was generated by PTF, so I am not expecting a flash result.

Thanks in Advance
Sri


----------



## skc

luckyforteja said:


> I have been paper trading using this strategy for last two months, it has been an interesting ride. I have couple of questions,
> 
> What criteria would you use to find your pairs ?
> 
> I have used PTF back tester and selected pairs based on Correlation and Co-integration in the same sector. Would this be enough ?
> 
> Is there anything in particular that I need to look for in the Ratio, Spread, RSI or any other charts ?
> 
> Do you look for any technical indicators for individual stocks RSI, MA etc before entering the trade ?
> 
> I am analyzing my result from last 2 months to see if I see any patters, I have taken every trade that was generated by PTF, so I am not expecting a flash result.
> 
> Thanks in Advance
> Sri




Read through the whole thread. Most answers are there.


----------



## luckyforteja

skc said:


> Read through the whole thread. Most answers are there.




Hi SKC,

Thanks for the prompt reply. I did read the entire thread as well as 400+ page thread in elitetrader as well. I am one of those guys who over analyzes things and being an engineer doesn't help, eye for detail is good but looking for perfection in trading seems to be difficult.

I did various things in last two months with reasonable results which really put me off.

1) I selected pairs based on Fundamental Business, which were making profits in last year. Didn't concentrate in Correlation and Co-integration. I ended up with over 150 pairs
2)Had multiple signals every day and I traded based on individual RSI and MA
3)Result seems fairly similar to the Pairs which were selected using only correlation and co-integration.

Now I started having doubts about the importance of correlation and co-integration. Considering correlation and co-integration are statistical figures, Why would selecting 2 stocks with similar fundamentals wouldn't give same hedging benefit?

I asked all those question because I am not sure whether I am in the right direction.

Thanks in Advance
Sri


----------



## skc

luckyforteja said:


> Hi SKC,
> 
> Thanks for the prompt reply. I did read the entire thread as well as 400+ page thread in elitetrader as well. I am one of those guys who over analyzes things and being an engineer doesn't help, eye for detail is good but looking for perfection in trading seems to be difficult.
> 
> I did various things in last two months with reasonable results which really put me off.
> 
> 1) I selected pairs based on Fundamental Business, which were making profits in last year. Didn't concentrate in Correlation and Co-integration. I ended up with over 150 pairs
> 2)Had multiple signals every day and I traded based on individual RSI and MA
> 3)Result seems fairly similar to the Pairs which were selected using only correlation and co-integration.
> 
> Now I started having doubts about the importance of correlation and co-integration. Considering correlation and co-integration are statistical figures, Why would selecting 2 stocks with similar fundamentals wouldn't give same hedging benefit?
> 
> I asked all those question because I am not sure whether I am in the right direction.
> 
> Thanks in Advance
> Sri




Selecting 2 stocks in the same industry helps you neutralise/reduce market/industry risk, but within the sector each stock do have their own characteristics - high/low growth, stable/lumpy profits, stronger/weaker balance sheet - not to mention market perception. Using correlation and cointegration can help you take into account of these factors from a stats window.

Having said that, I don't have a strick criteria when it comes to correlation and co-integration. My primary focus is the ratio chart and how the MA of the ratio is drawn. See post #950 - look for patterns that look like pairs 1 and 4, but be aware that something like pair 5 can also happen - nice range until it is broken. I supplement that with getting a good handle on the typical price behaviour of the stock and a little bit of technical analysis.

Always remember that the software is nothing more than a giant (and very useful) spreadsheet that works out various statistics between pairs. The parameters set by the trader, as well as the execution of the trades, are what give you the edge.


----------



## fingl

Hi Skc, 

Is not pair 3 a trending one? Which pair give you most consistent result? Might pair 5 give individual stk price behavior or funda give some clue on the out of range? Most of the chart are of pair 2 with some on range and some trending. 
Pair 4 is very rare. Most of the pair range pair 4 are for a while. Skc do you want to have the price range to be minimum of X wks or mths to establish is suit for signal considering?


----------



## skc

fingl said:


> Hi Skc,
> 
> Is not pair 3 a trending one? Which pair give you most consistent result? Might pair 5 give individual stk price behavior or funda give some clue on the out of range? Most of the chart are of pair 2 with some on range and some trending.
> Pair 4 is very rare. Most of the pair range pair 4 are for a while. Skc do you want to have the price range to be minimum of X wks or mths to establish is suit for signal considering?







Pair 1 = SUN/IAG. Co-Integration = 0.99
Pair 2 = CFX/CPA. Co-I = 0.9
Pair 3 = SIP/API. Co-I = 0.99
Pair 4 = CQR/DXS. Co-I = 0.32
Pair 5 = LLC/SGP. Co-I = 0.23
Pair 6 = STO/ORG. Co-I = 0.59

These pairs are all fundamentally correlated and I trade all of them except Pair 3. I chose these pairs to illustrate how the Co-integration number doesn't always explain the behaviour of the pair. Pair 4 is an exception because CQR went through a share consolidation. And I think that's one of the issue with the co-integration number - I believe it goes back too far and isn't tailored to the "speed" of your signal (I could be wrong as I don't know the calculation of the Co-I stat).

Pair 3 used to perform well but SIP has powered along while API is in the doghouse. The ratio is now 2.4 so it's very much broken. 

Pair 5 blew out to 3.1 but has now come back to ratio ~2.6. I traded this pair on the way up and closed for a bad loss on a time exit. SGP was really unloved for no reason I could see, while LLC was very strong, again for no reason that I could see. 

I don't have a minimum range duration... take it when it comes because chances are the ranging won't stay forever.

If a ratio chart looks like pair 4 I would most often take the signal as soon as they come, but with a chart like pair 6 I would wait for better entries and make quicker exits.


----------



## fingl

>> I don't have a minimum range duration... take it when it comes because chances are the ranging won't stay forever.

Skc, what is the duration of the 6 charts on the pic?  Exactly a trader zooming in on a 1 mth chart the ratio might be on a range pair 4 but zoom out on a 6 mths chart the ratio is in fact a little consoliidation of a existing trend 
and trading might have loss.


----------



## skc

fingl said:


> >> I don't have a minimum range duration... take it when it comes because chances are the ranging won't stay forever.
> 
> Skc, what is the duration of the 6 charts on the pic?  Exactly a trader zooming in on a 1 mth chart the ratio might be on a range pair 4 but zoom out on a 6 mths chart the ratio is in fact a little consoliidation of a existing trend
> and trading might have loss.




180 days. Considering the average trade duration is a matter of days the 6 month picture is a long enough view imo. 

Of course "trading might have loss"... you can't always be 100% sure about everything before you pull the trigger.


----------



## fingl

skc said:


> View attachment 44495
> 
> If a ratio chart looks like pair 4 I would most often take the signal as soon as they come, but with a chart like pair 6 I would wait for better entries and make quicker exits.




Skc, you are saying you would take the signal as soon as they come for pair 4. What about pair 1, pair 2 and 5? Better entries referring to waiting for the ratio chart to form range prior to taking signal? Would you take more "with the trend signals" or equal counter trend signal for pair 2 and 5. Quicker exits apply for counter trend signal.


----------



## effraye

What about COH/CSL? COH struggling with product, whilst CSL benefitting from stronger US Dollar?


----------



## skc

fingl said:


> Skc, you are saying you would take the signal as soon as they come for pair 4. What about pair 1, pair 2 and 5? Better entries referring to waiting for the ratio chart to form range prior to taking signal? Would you take more "with the trend signals" or equal counter trend signal for pair 2 and 5. Quicker exits apply for counter trend signal.




By better entry I mean either further divergence or a lower ratio (i.e. lower price for the long and higher price for the short). I try to use basic chart analysis to supplement these decisions where possible. e.g. Long signal @$5.15 activated on XXX, but it looks like heading towards support at $5. Then you might be better off waiting to see if it gets there before going long.

With trending pairs, I wait for better entries when they are countertrend, and probably immediate entry with the trend. But they are just guides and not gospel.



effraye said:


> What about COH/CSL? COH struggling with product, whilst CSL benefitting from stronger US Dollar?




So you want to long COH with a product problem and short CSL which is benefiting from a strong $USD. Does that make sense in your view?


----------



## fingl

skc said:


> With trending pairs, I wait for better entries when they are countertrend, and probably immediate entry with the trend.




Moving ave for trend is not really an effective indicator. The number is winner for taking trend signal is lower to taking countertrend signal with ratio above moving ave. Should discretionary analysis interfere with following system signal? The ratio is trending and want the ratio to be more diverge and more resistances to take countertrend signal but the system has a countertrend signal. Would you take the countertrend signal?  Discretionary analysis is not really effective unless the trader really gifted and the analysis really realize on the ratio movement


----------



## Gringotts Bank

What sort of % annual return is possible with pairs trading?

Would 30%pa be about right?  15%??


----------



## skc

Gringotts Bank said:


> What sort of % annual return is possible with pairs trading?
> 
> Would 30%pa be about right?  15%??




The range of possibility is -100% to +1000%. The real answer depends on your skill, risk appetite, position size, leverage and of course market condition.

The base level expectancy: %win x avg $win - %loss x $avg loss is dependent mostly on skill and market conditions.

The actual average P/L in % of account depends on your position size.

Your position size depends on the leverage available and your risk appetite.

The total annual $P/L depends on the number of trades you take, which are in turn dependant on market conditions, the number of pairs you monitor, your skill and the leverage available (which caps the maximum number of pairs you can hold at the one time).


----------



## Gringotts Bank

skc said:


> The range of possibility is -100% to +1000%. The real answer depends on your skill, risk appetite, position size, leverage and of course market condition.
> 
> The base level expectancy: %win x avg $win - %loss x $avg loss is dependent mostly on skill and market conditions.
> 
> The actual average P/L in % of account depends on your position size.
> 
> Your position size depends on the leverage available and your risk appetite.
> 
> The total annual $P/L depends on the number of trades you take, which are in turn dependant on market conditions, the number of pairs you monitor, your skill and the leverage available (which caps the maximum number of pairs you can hold at the one time).




Are you more towards 1000% or -100% side of the scale?! 

Pairs trader listed his very high %win rate but I'd prefer a %annual return on total capital employed.  Makes more sense to me.  Anyone know what he makes?


----------



## skc

Gringotts Bank said:


> Are you more towards 1000% or -100% side of the scale?!
> 
> Pairs trader listed his very high %win rate but I'd prefer a %annual return on total capital employed.  Makes more sense to me.  Anyone know what he makes?




I aim for ~40-60% return each year... so definitely closer to -100% than +1000%.

But I don't push my account very hard at all. My position size averages <10% of my account size and I only ever reached ~70% margin. 

So I could crank up the position size by another 20-30% and increase the returns to 50-70% p.a., with corresponding increase in risk.


----------



## Gringotts Bank

Nice one.


----------



## Gringotts Bank

Anyone looking at the PairTrade Finder software, the guy who owns it is useless.  Doesn't answer emails (5 days - no response).  The other thing is, his PairTrades alert signals were posted a day late on his website, making them useless.  Waste of time.

Any other software of service recommendations?


----------



## skc

Gringotts Bank said:


> Anyone looking at the PairTrade Finder software, the guy who owns it is useless.  Doesn't answer emails (5 days - no response).  The other thing is, his PairTrades alert signals were posted a day late on his website, making them useless.  Waste of time.
> 
> Any other software of service recommendations?




You mean as a subscriber to the signal? Or just free stuff he shows on his website?

BTW you can always write your own spreadsheet to do the calculations involved...


----------



## Gringotts Bank

As a subscriber.  On the site it says he puts them out at approx. 7am Aus time, but that wasn't the case for the most recent ones.  It was a day late.

Actually, skc, can you tell me how these pairs are going?

12/6/2011	Sell / Buy	CADJPY.FXCM	76.834	GBPJPY.FXCM	121.12[FOREX]
12/6/2011	Sell / Buy	EWC	27.35	       EWT	12.1	[ETF]


----------



## skc

Gringotts Bank said:


> As a subscriber.  On the site it says he puts them out at approx. 7am Aus time, but that wasn't the case for the most recent ones.  It was a day late.
> 
> Actually, skc, can you tell me how these pairs are going?
> 
> 12/6/2011	Sell / Buy	CADJPY.FXCM	76.834	GBPJPY.FXCM	121.12[FOREX]
> 12/6/2011	Sell / Buy	EWC	27.35	       EWT	12.1	[ETF]




I thought his signal used to be real time on twitter...

BTW I don't use his signals and I only pair trade Australian equities.


----------



## Gringotts Bank

I don't do Twitter.  Was using the dedicated subscriber website.

The worst thing is the no reply once he's taken my subs.  Maybe he's not well.  I'll give him the benefit of the doubt and wait another week for a response.


----------



## skc

Gringotts Bank said:


> I don't do Twitter.  Was using the dedicated subscriber website.
> 
> The worst thing is the no reply once he's taken my subs.  Maybe he's not well.  I'll give him the benefit of the doubt and wait another week for a response.




Sorry... you don't do Twitter or he doesn't offer his signals on Twitter anymore?

He's normally pretty good with his emails but it's been a while since I had to contact him. May be even send him a PM on this site.


----------



## Gringotts Bank

I just checked Twitter.  He still has an account - not sure if it's active but I don't do Twitter.  

Reason I subscribed was because I expected to have access to some pretty good pair trade signals, since he is the guy who created this software and also, he looks across a huge variety of markets worldwide.  I'd like to get it up and running.


----------



## SilverRanger

Gringotts Bank said:


> As a subscriber.  On the site it says he puts them out at approx. 7am Aus time, but that wasn't the case for the most recent ones.  It was a day late.
> 
> Actually, skc, can you tell me how these pairs are going?
> 
> 12/6/2011	Sell / Buy	CADJPY.FXCM	76.834	GBPJPY.FXCM	121.12[FOREX]
> 12/6/2011	Sell / Buy	EWC	27.35	       EWT	12.1	[ETF]




Pair trading CADJPY/GBPJPY = Net long/short in GBPCAD, hope those doing it know that it is not hedged...


----------



## Gringotts Bank

I hadn't noticed that.  I would have thought if the same currency appears in both the buy and sell side it would either cancel the signal or just say "place one trade long/short".


----------



## skc

SilverRanger said:


> Pair trading CADJPY/GBPJPY = Net long/short in GBPCAD, hope those doing it know that it is not hedged...




I know... trading FX with same denominator is no different to buying/selling bollinger bands of the numerator pair.

A bit silly really.


----------



## sinner

skc said:


> I know... trading FX with same denominator is no different to buying/selling bollinger bands of the numerator pair.
> 
> A bit silly really.




There are probably more efficient ways to trade, but it isn't *identical* to "b/s the bollingers of the numerator pair". The timescales are completely different to stocks, but *there are* exploitable inefficiencies (of course with the caveat you trade on a liquid ECN with tight spreads and not with CFDs).

As always, avoiding correlated instruments and ensuring cointegration of the basket are the real keys.

Here is an interesting place to start

http://www.forexfactory.com/showthread.php?t=265350


----------



## notting

When WBC share price fall below ANZ I like to buy WBC and short ANZ!!
It's good fun and has never failed me!


----------



## Gringotts Bank

The OP who calls himself *pairs trader *(the one who spruiks the software) has been lurking around my ASF profile page, yet won't answer questions.

Very dodgy character.  AVOID.


----------



## skc

Gringotts Bank said:


> The OP who calls himself *pairs trader *(the one who spruiks the software) has been lurking around my ASF profile page, yet won't answer questions.
> 
> Very dodgy character.  AVOID.




GB,

The person lurking on your profile page *IS NOT *the OP of this thread.

OP is *P*airs *T*rader. His real name is Jarad and yes he sells this software.

The lurker is *pairstrader* (no cap, no space). He started another thread and was promptly banned by Joe.
https://www.aussiestockforums.com/forums/showthread.php?t=23825&pagenumber=

Rather confusing as they have similar nics... but they are *NOT *the same person.


----------



## Gringotts Bank

Thanks for that skc.

What about this Jared guy?  What's his deal with not answering any emails?  Does he reply to your correspondence?


----------



## skc

Gringotts Bank said:


> Thanks for that skc.
> 
> What about this Jared guy?  What's his deal with not answering any emails?  Does he reply to your correspondence?




I have no idea and I hope he's still around. 

My last correspondence with him was ~18 months ago.


----------



## Gringotts Bank

skc, have you seen this?

http://www.youtube.com/watch?v=b-BuYraqfpo&feature=youtu.be

Tell me what you think.


----------



## skc

Gringotts Bank said:


> skc, have you seen this?
> 
> http://www.youtube.com/watch?v=b-BuYraqfpo&feature=youtu.be
> 
> Tell me what you think.




It looks interesting but it is not for serious traders imo.

When pairs trading real equities I can take early partial profits, take advantage of spikes or funny opening auctions etc. They all add to my win%. And even though I have a high win%, I can't really be sure if my trade will be in profit or not in exactly 1hr / 1 day or 1 wk's time. In this case the time-value of option actually work against you.

The built-in "spread" (or house edge) is pretty massive (like 20%) and I am not sure pairs trading has that much of an edge to overcome the spread.

I do think occassionly you can have a decent chance of winning if you see short term technical resistances/supports that the option pricing model can't / don't take into account. I will take a look at the Australian pair prices during market hrs and see how they move.

But more importantly I would never put any serious money in this unless you are able to quantify your counterparty risk (MF Global anyone?). How much money would you be comfortable giving to these guys, who don't appear to be regulated by any financial authorities? 

Having said all that, binaries are growth areas (who doesn't like another way to bet?) so getting to know them may not be a bad investment in knowledge accumulation.


----------



## skyQuake

20% bonus on first deposit? Sign me up!


----------



## skc

skyQuake said:


> 20% bonus on first deposit? Sign me up!




Haven't read the fine prints but, like the free bets that gets offered every now and then from casinos, I doubt you are able to withdraw those!


----------



## sinner

Hi guys,

I came across this link today while hunting for some spread trading info. Thought you guys might find it very handy!

http://quanttrader.info/public/testForCoint.html


----------



## SilverRanger

sinner said:


> Hi guys,
> 
> I came across this link today while hunting for some spread trading info. Thought you guys might find it very handy!
> 
> http://quanttrader.info/public/testForCoint.html




Good find, but a google search will get you other ways to do the ADF tests as well (e.g. Excel plugin). The OLS regression can be done in Excel (easy with some form of macro). I suppose the key difference between this system and PTF is that it does not trade dollar neutral, and the result of the cointegration is very sensitive to the period chosen, e.g. it may be cointegrated over 3 months timeframe but not longer.


----------



## sinner

SilverRanger said:


> Good find, but a google search will get you other ways to do the ADF tests as well (e.g. Excel plugin). The OLS regression can be done in Excel (easy with some form of macro). I suppose the key difference between this system and PTF is that it does not trade dollar neutral, and the result of the cointegration is very sensitive to the period chosen, e.g. it may be cointegrated over 3 months timeframe but not longer.




Excel doesn't really hold up to R in terms of this sort of stuff. The dollar neutral issue you mention is only a task of tweaking the *example code*. The other issues you mention are simply the considerations that come with statistical arbitrage which the trader must be aware of regardless of PTF or homegrown or whatever software is used...right?


----------



## SilverRanger

sinner said:


> Excel doesn't really hold up to R in terms of this sort of stuff. The dollar neutral issue you mention is only a task of tweaking the *example code*. The other issues you mention are simply the considerations that come with statistical arbitrage which the trader must be aware of regardless of PTF or homegrown or whatever software is used...right?




Excel is nowhere close to R in this sort of stuff, but it's more convenient to use with macros, especially if you are doing this stuff daily on multiple pairs.

You can relax the hedge ratio to be dollar neutral, but that would also mean it will be even harder to find a cointegrated pair!  (You are effectively applying a filter to pairs where their hedge ratio naturally offset pthe price ratio)


----------



## skc

SilverRanger said:


> Excel is nowhere close to R in this sort of stuff, but it's more convenient to use with macros, especially if you are doing this stuff daily on multiple pairs.
> 
> You can relax the hedge ratio to be dollar neutral, but that would also mean it will be even harder to find a cointegrated pair!  (You are effectively applying a filter to pairs where their hedge ratio naturally offset pthe price ratio)




I don't seem to understand any of this stuff you guys are talking about.

Should I be worried??


----------



## SilverRanger

skc said:


> I don't seem to understand any of this stuff you guys are talking about.
> 
> Should I be worried??




Not when you are already full time pair trading and making money 
My point was really that it's quite a bit of hassle to do co-integration properly, yet the result may not be necessarily better than the simple bollinger band approach

Nice spike on DJS today and yesterday, finally managed to close my DJS/HVN trade, but JHS/HVN is still under water


----------



## skc

SilverRanger said:


> Not when you are already full time pair trading and making money
> My point was really that it's quite a bit of hassle to do co-integration properly, yet the result may not be necessarily better than the simple bollinger band approach
> 
> Nice spike on DJS today and yesterday, finally managed to close my DJS/HVN trade, but JHS/HVN is still under water




Shorting JBH (just a directional trade) on open today, sorry!


----------



## notting

Short DLS Long BPT
Think they’re both overpriced but protecting myself with BPT against a mental case market rally.
Sharing. Feel free to tell me how stupid I am as I'm no expert.


----------



## Gringotts Bank

How do you guys like ASX/SUN today?  Look ok?


----------



## skc

notting said:


> Short DLS Long BPT
> Think they’re both overpriced but protecting myself with BPT against a mental case market rally.
> Sharing. Feel free to tell me how stupid I am as I'm no expert.




Not a pair I keep track but DLS has outperformed BPT by a country mile in the last 4 months. You are trading against the trend of the ratio chart. It doesn't necessarily make it a loser, but you just need to be aware that is the case, and perhaps reassess whether there are fundamental reasons driving the divergence in performance.

There are also talks recently about foreign interests in Australian shale gas/oil assets so I would not go shorting any of the DLS/BPT/SXY etc.



Gringotts Bank said:


> How do you guys like ASX/SUN today?  Look ok?




Not a pair that I've traded but looks OK... the ASX chart on its own doesn't look like a long and the SUN chart doesn't look like a short. But you never know...


----------



## Gringotts Bank

thanks skc


----------



## notting

I can't find a fundamental reason for the exaggerated divergence. Which is why I like it.
I think it's because DLS is a much smaller stock and is just exaggerating the recent uptrend, which will over correct and I will exit.  Beach is more diverse and has relatively less in the project that has popped them both.
Am reasonably comfortable trading against the trend with pairs, probably because I don't understand the ratio chart!
I know you divide say BPT by DSL which gives you, I don't know, a down trending spread?
Don't know what the blue line means or what it means when they diverge down or diverge up or come together or cross!!?
I only really get the spread.
Maybe you could explain
ASX and SUN are not a pair as far as I'm concerned as they are too different in their activities.


----------



## skc

notting said:


> I know you divide say BPT by DSL which gives you, I don't know, a down trending spread?
> Don't know what the blue line means or what it means when they diverge down or diverge up or come together or cross!!?
> I only really get the spread.
> Maybe you could explain
> ASX and SUN are not a pair as far as I'm concerned as they are too different in their activities.




Yes... BPT/DLS shows a down trending *ratio* (not spread) curve which basically means that DLS has been rising consistently faster than BPT. Back in Sept the ratio was 2.8. Today the ratio is 1.4. 

The blue line is simply the "X" day moving average of the ratio. That is, over the last X days, the average value of BPT/DLS was ~1.6. Divergence is measured as the distance between the green line (the ratio) and the blue line (the moving average of the ratio) in terms of standard deviations. A convergence means that the green line moves back towards the blue and you profit as a result.

Over different timeframe X the blue line will look different and one can pair trade on many different timeframes.




Right now this sector seems to have decent momentum and I would guess that long DLS or BPT alone might yield better outcome than trading them as a pair.


----------



## notting

Thanks SKC your an Angel.


----------



## skc

The market is iffy, the volatility is high. As market behaves less rationally, divergences are often and wide and this usually means a good time for pairs trading. 

I am going to post my trades for the next couple of months as an attempt to revive this thread and get some discussion going.... the trades and prices are real, but the volumes are based on a account size of $100k.


----------



## skc

Trade #1 opened - Long CPA @ $0.985. Short DXS @ $0.945. Size = 15% of account for each leg.
Trade #2 opened - Long ALZ @ $2.54. Short WDC @ $9.26. Size = 15% of account for each leg.

Will post some charts later.


----------



## skc

Trade #3 opened - Long STO @ $11.39, Short ORG @ $12.78. Size = 15% of account for each leg.


----------



## notting

WPL and OSH are nicely spread against STO if you want to triple against one, for a bit more fun!
Long RIO Short BHP!?
Long PDN short ERA.
Long JBH short HVN.
Long MST short WOW.


----------



## notting

notting said:


> WPL and OSH are nicely spread against STO if you want to triple against one, for a bit more fun!
> Long RIO Short BHP!?
> Long PDN short ERA.
> Long JBH short HVN.
> Long MST short WOW.



Sorry should read MTS
You can add Short SXL Long SWM


----------



## skc

notting said:


> WPL and OSH are nicely spread against STO if you want to triple against one, for a bit more fun!
> Long RIO Short BHP!?
> Long PDN short ERA.
> Long JBH short HVN.
> Long MST short WOW.




PDN/ERA are off my watchlist these days as they are too small and volatile. I wouldn't long JBH against HVN because HVN is trading at NTA while JBH is trading like 8x NTA. MTS and SWM both had recent downgrades so no long trades on those for me.

RIO / BHP is the only decent candidate, but the market needs to turn up (probably mid this week) for it to be a winner imo.


----------



## notting

I bet they will all pay simply because it is so chaotic that sectors will move with macro sentiment details, will be neglected till things settle down and company sentiment dominates again.
I'm in the RIO BHP having shorted BHP a few days ago and slowly filling up the RIO long today.
Have small position in SWM and SXL which I will increase if they diverge further.
Have fairly full position on the WOW MTS one(MTS's relative dividend strength should give it support regardless of downgrade).
Waiting for JBH to stop being so extreme relative to HVN before entering that, but whatching.
Have also been short BPT short AWE which is still diverging, so adding to that as BPT tends to correct hard and you need to be there to get it.
Took you up on ORG against STO at the end of the day. Not a pair I would have put together with only 50% syncronicity and ORG utility element would give it relative strength!? But was feeling a bit happy!


----------



## sinner

No offense to you guys (and I don't wanna harp on this), but I can't believe people are still chasing barely cointegrated spreads which look like this:



when it only takes a little bit of effort to find (or build using regression) spreads that look like this:



and using signals like Boll(14) when you could be using kickarse signals like:
http://cssanalytics.wordpress.com/2009/07/29/differential-dv2-calculation/

These links have good ideas and setups:
http://www.tradingtheodds.com/2010/08/34826/
http://www.tradingtheodds.com/2010/08/pairs-trading-part-ii-spy-vs-rth/


----------



## notting

I probably would be doing what ever you are talking about if i understood it!
Regardless, I have a lot of fun with pairs.
It seems to hedg my psycology and seems to assist me often take profits on one then on the other a few days later, which is pretty cool.
Trading nakedly, unless it's system induced, seems to destort my psycology too much unless I just love the stock like COH.


----------



## sinner

notting said:


> I probably would be doing what ever you are talking about if i understood it!
> Regardless, I have a lot of fun with pairs.




If you want to have an edge in statistical arb, it helps to have a good understanding of the statistics behind it. I didn't care about it while studying at uni, so had to actually teach myself from scratch.

Autocorrelation (can the time-series significantly predict itself?), cointegration (test for stationarity), multicorrelation (do any other time-series predict this time-series), etc.



> It seems to hedg my psycology and seems to assist me often take profits on one then on the other a few days later, which is pretty cool.
> Trading nakedly, unless it's system induced, seems to destort my psycology too much unless I just love the stock like COH.




Yah, market neutral is psychologically good. But don't let it fool you, make sure you are market neutral (hint, none of the spreads you chose are even close). I never see anyone in this thread even talking about adjusting for beta. skc is the exception of course, as he applies his regular bottom up and top down analysis to the pairs, so the regular rules don't apply. For the rest of us who don't have alpha coming out of our ears, we have to try and keep within the bounds of science.

That means looking for (or constructing yourself - absolutely nothing wrong with this and how they do it in the big boys world) a spread or pair which is at minimum weakly stationary, where the components exhibit low multicorrelation and the spread exhibits statistically significant short-term (1 moment lag) positive or negative autocorrelation.


----------



## skc

sinner said:


> No offense to you guys (and I don't wanna harp on this), but I can't believe people are still chasing barely cointegrated spreads which look like this:
> 
> when it only takes a little bit of effort to find (or build using regression) spreads that look like this:
> 
> and using signals like Boll(14) when you could be using kickarse signals like:
> http://cssanalytics.wordpress.com/2009/07/29/differential-dv2-calculation/




Thanks Sinner. What's the units for the vertical scale on the 2nd chart? Std Dev or something else?

Interesting signal constructed by DV. It is trading divergence over much longer timeframes (with 250-day lookback) than what I look at. You would be able to ride some larger mean reversals but it also entails holding longer and probably much subsceptible to copmany fundamentals. I will probably give it a play with some quicker signals.

The Boll(14) signal has actually not worked for many of my pairs for some time. Indeed, taking the signals as they come would have yielded -25% since Nov last year. I've been using a lot of discretion with my entries and exits - often with entries only after much divergence and much quicker exits than full mean reversals. It's a market for quick hits whether one is trading directional or pairs.

P.S. If one was to take offence to your post they are not interested in improving their trading...


----------



## sinner

skc said:


> Thanks Sinner. What's the units for the vertical scale? Std Dev or something else?




Units of ratio.



> Interesting signal constructed by DV. It is trading divergence over much longer timeframes (with 250-day lookback) than what I look at. You would be able to ride some larger mean reversals but it also entails holding longer and probably much subsceptible to copmany fundamentals. I will probably give it a play with some quicker signals.




Actually it's the opposite dude. This indicator measures 2 day range/strength. It will spit out signals with a hold time <5 days. 250-day %rank is to normalise the data over a recent range (in this case normalise the data over 1Y), an insanely useful technique for normalisation. Almost all of David Varadis work uses %rank for normalisation.



> The Boll(14) signal has actually not worked for many of my pairs for some time. Indeed, taking the signals as they come would have yielded -25% since Nov last year. I've been using a lot of discretion with my entries and exits - often with entries only after much divergence and much quicker exits than full mean reversals. It's a market for quick hits whether one is trading directional or pairs.




Like I said "skc is the exception of course"


----------



## skc

sinner said:


> Units of ratio.




Sorry I am still unclear. What is the unit of the vertical scale on the 2nd chart? You mean that is the actual ratio? The image you've posted had the scale partially cut off.



sinner said:


> Actually it's the opposite dude. This indicator measures 2 day range/strength. It will spit out signals with a hold time <5 days. 250-day %rank is to normalise the data over a recent range (in this case normalise the data over 1Y), an insanely useful technique for normalisation. Almost all of David Varadis work uses %rank for normalisation.




I am not sure that is correct. It's taking a calculated average of the C, H, L over the last 2 days, but the Percentrank function will rank it against the 250 day range. So for instance, ABC 2-day average is $6, while 250 day range is $5 to $15, it will have a DV2~10%. XYZ with the same range but 2-day average of $14 will have DV2 of ~90%. 

It's basically calculating how the share has done in the last 2 days (on average) compared to how it's been travelling for the last year. 

Do tell if I am have completely mis-interpreted it.



sinner said:


> Like I said "skc is the exception of course"




Thanks. You managed to make me feel slightly better after being down 3% today.

BTW - I agree that with ETF you can (and probably have to) treat it entirely as a statistical exercise.


----------



## sinner

skc said:


> Sorry I am still unclear. What is the unit of the vertical scale on the 2nd chart? You mean that is the actual ratio? The image you've posted had the scale partially cut off.




That's the actual ratio. I cut off the scale because I don't want anyone identifying my spread based on its price.



> I am not sure that is correct. It's taking a calculated average of the C, H, L over the last 2 days, but the Percentrank function will rank it against the 250 day range. So for instance, ABC 2-day average is $6, while 250 day range is $5 to $15, it will have a DV2~10%. XYZ with the same range but 2-day average of $14 will have DV2 of ~90%.




Err...sort of yes and no? ABC 2-day avg is $6, the 250day %rank is where that avg sits if it was ranked 0-100 against all the other 2 day avg in the set. It's not measuring 2 day against the the 250 day "range".

Not sure why you think that would generate "divergence over much longer timeframes". Plug the raw and %rank normalised into a spreadsheet, you will see how it works. The %rank function just provides a good "robust" adaptivity mechanism, to adjust based on current market conditions.

e.g.

"When the 2 day close/strength is within the top 30% of the last 250 days close/strength values then short." is the sort of logic it tries to express, instead of the usual "when the 2 day close/strength is above some arbitrary threshold X then short"....in one year the threshold of X might be good but next year the indicator may never reach X!



> Thanks. You managed to make me feel slightly better after being down 3% today.
> 
> BTW - I agree that with ETF you can (and probably have to) treat it entirely as a statistical exercise.




Sweet, you owe me one, I'll hit you up tomorrow to make me feel slightly better when I do my monthly rotation in my super account (which has been 25% invested in XJO for the last month). :swear:


----------



## skc

sinner said:


> That's the actual ratio. I cut off the scale because I don't want anyone identifying my spread based on its price.




Ok. Never seen ratio chart shown like that before. Looks like an awesome pair to trade.



sinner said:


> Err...sort of yes and no? ABC 2-day avg is $6, the 250day %rank is where that avg sits if it was ranked 0-100 against all the other 2 day avg in the set. It's not measuring 2 day against the the 250 day "range".




Ok. Got it now. Didn't pay enough attention to the fact that it was working off strength. I thought it was just calculating some weighted function of the actual C, H & L prices. 

Using this you will get very quick signals. Probably short anything that has two consecutive days closing on its highs...



sinner said:


> Sweet, you owe me one, I'll hit you up tomorrow to make me feel slightly better when I do my monthly rotation in my super account (which has been 25% invested in XJO for the last month). :swear:




It's alright. Share market always goes up in the long run


----------



## sinner

skc said:


> Ok. Never seen ratio chart shown like that before. Looks like an awesome pair to trade.




Hint: ETF space is still littered with spreads that should have a theoretical correlation of 1, basically you can compete until a HFT adds it to their arb list. Here's a free one, which for example HFT arbs probably won't touch (if you can guess why then you will have no problem finding more): XRT:XLY (NYSE). 

If the spread narrows more than it should relative to market vol, someone with big pockets has started to arb it, time to move on.



> Using this you will get very quick signals. Probably short anything that has two consecutive days closing on its highs...




Which is very profitable in markets/spreads showing statistically significant negative 1 lag autocorrelation...something that pops up a lot in indices in high vol 

I am sure you can see how it would work on the example spread I gave above, especially if you can trade intraday. You can increase efficiency by working the order hard instead of just splurging at market. 



> It's alright. Share market always goes up in the long run




Doing ok overall, just miffed 'cos the rules say I gotta rotate out right when the tea leaves say market is ripe for a rally. Still in SLF and IOO, at least for June.


----------



## notting

Great now SKC, since this is your thread, can explain that to me.  Just pretend I'm 5 years old and very gullible. Your in jail, and I have control of all your money! 
I'm sure others would benefit.


----------



## skc

sinner said:


> Hint: ETF space is still littered with spreads that should have a theoretical correlation of 1, basically you can compete until a HFT adds it to their arb list. Here's a free one, which for example HFT arbs probably won't touch (if you can guess why then you will have no problem finding more): XRT:XLY (NYSE).
> 
> If the spread narrows more than it should relative to market vol, someone with big pockets has started to arb it, time to move on.
> 
> Which is very profitable in markets/spreads showing statistically significant negative 1 lag autocorrelation...something that pops up a lot in indices in high vol
> 
> I am sure you can see how it would work on the example spread I gave above, especially if you can trade intraday. You can increase efficiency by working the order hard instead of just splurging at market.




The correlation is great and it looks simply enough to take small bites out of it with some auto scripts. Unfortunately, I am a complete idiot when it comes to ETFs, the US market and writing scripts. It's also not possible for me to trade US intraday... OK it's possible but I don't want to live like a bat. I will switch over if my ASX pairs ever stop working for me (and if ETF industry hasn't blown up by then ). 



notting said:


> Great now SKC, since this is your thread, can explain that to me.  Just pretend I'm 5 years old and very gullible. Your in jail, and I have control of all your money!
> I'm sure others would benefit.




What is it that you want explained?

Not really my thread - I just waste a lot of time on it...


----------



## notting

Short ABC Long BKN.
It's only 21% correlation but has crossed 4 times in 1 year - fairly safe on this large spread you'd think.
All my others are kicking butt so why not? (truely dangerous thought)

PS Don't worry about explanations SKC I'll bumble along.


----------



## skc

notting said:


> Short ABC Long BKN.
> It's only 21% correlation but has crossed 4 times in 1 year - fairly safe on this large spread you'd think.
> All my others are kicking butt so why not? (truely dangerous thought)
> 
> PS Don't worry about explanations SKC I'll bumble along.




Not a pair I have as BKN is bundled with mining services while ABC is more building materials. BKN is down a lot because it A). Is in mining services and B). Had a big profit downgrade of late. Usually when big fundamental news moved the share price a lot, I put the stock on ignore for some time - unless I think the market has it wrong.

Anyway.... there are always reasons to not take a certain trade I suppose.

P.S. Why did ALZ trade down to $2.19 today? And why was I not looking?


----------



## notting

Good points, as usual, still I like the fact that miners use stuff that ABC make.



skc said:


> P.S. Why did ALZ trade down to $2.19 today? And why was I not looking?



Probably because I hadn't taken a positive position on against SGP which I have success with a few times!
My radar just loves mental markets.  (I am mental - clearly)
The rest of the time I'm a hack and need guidance!
Thanks for the heads up however will run and have a look now!


----------



## notting

Two months ago it seems the money machine was invented!!
ASL Vs BLY.


----------



## skc

I did say I'd post some charts. These are all ratio charts with the blue line representing 40-day moving average of the ratio line.

CPA/DXS - A pretty reliable pair for some time. Heading into dividend season (most REITs go ex-div on 24 Jun) I like to trade pairs that have similar dividend yield, so there's less disadvantage in getting caught by yield chasers. CPA is ~8.5c off recent high while DXS is only 2.5c away... the profit objective for this pair would be half this range or so.



WDC/ALZ - Even though it's a trending chart it has good trading opportunities. ALZ is going ex-div along with the rest of the REITs, while WDC is on a different cycle. So there may be a little bit of advantage from that. It also wasn't that long ago (2 May) that ALZ went up to $2.87 on the back of a good corporate presentation. It looks like ALZ fell into a bit of a market depth hole this afternoon and traded as low as $2.19.... I think I was too busy eating lunch at the time ...



STO/ORG - Pretty large divergence with spread pretty much at 6-month low. Looking at individual price charts, STO yesterday fell through a small ledge resulting in a gap to be filled, while ORG remain above the ledge (~$12.60). Given the good correlation, either STO will come back (which it did today) or ORG will fall through.  There were some chatters about ORG needing additional capital so the short may benefit from any weakness of the share price stemming from that.


----------



## skc

notting said:


> Two months ago it seems the money machine was invented!!
> ASL Vs BLY.




Love this pair. Add in IMD and NWH in the mix.


----------



## skc

End of Day P&L




NB: Commission = 8bps each way. These trades use CFDs but I've ignored interest charges for the sake of laziness. Margin required is also ignored but it will only come into play when you hold too many pairs (or your position too large).


----------



## skc

skc said:


> Trade #3 opened - Long STO @ $11.39, Short ORG @ $12.78. Size = 15% of account for each leg.




Trade #3 closed - Sell STO @ $11.78, Cover ORG @ $12.78. Net +3.5%.

It's done half the convergence in 2 days and that's good enough in this market.


----------



## skc

Trade #4 opened - Long NWH @ $3.09, Short ASL @ $3.34. Position size 7.5% (so far).


----------



## notting

Long AMP short SUN


----------



## skc

skc said:


> Trade #4 opened - Long NWH @ $3.09, Short ASL @ $3.34. Position size 7.5% (so far).




Added another 2.5%. NWH @ $3.06 and ASL @ $3.30.

Average Long NWH @ $3.08, Short ASL @ $3.325.


----------



## edman79

Hi SKC,

Who are you trading with now, and what is the minimum size account you need to get a commision of 8bps?
Also (as a matter of interest) what is the short/long funding rate they are giving you?


----------



## skc

edman79 said:


> Hi SKC,
> 
> Who are you trading with now, and what is the minimum size account you need to get a commision of 8bps?
> Also (as a matter of interest) what is the short/long funding rate they are giving you?




I am trading with IG markets. You will need to ask them what volume you need for 8bps. The funding rate I think is base +/- 2%. So with pairs long/short being the same size the effective funding cost for each position is 4%.

Trade #5 - Long QBE @ $12.22, short SUN @ $7.94. Size 10% of account.


----------



## skc

Trade #6 - Long CHC @ $2.23, Short WRT @ $2.80. Size = 5%

Waiting for the remaining half to be filled at $2.22 / $2.81.


----------



## skc

skc said:


> Trade #6 - Long CHC @ $2.23, Short WRT @ $2.80. Size = 5%
> 
> Waiting for the remaining half to be filled at $2.22 / $2.81.




Got the WRT fill at $2.81 but ended up reaching for CHC @ $2.24. So gained no advantage with my 20 minutes of patience.

So the line reads:

Trade #6 - Long CHC @ $2.235, Short WRT @ $2.805. Size = 10%


----------



## skc

Trade #7 - Long SMX @ $5, Short IRE @ $6.38. Size = 7.5%.

This is a half-size position as SMX hasn't the deepest market depth.



notting said:


> Long AMP short SUN




I think I like yours AMP long better than my QBE long. QBE has been unkind to me for a while...


----------



## skc

Some charts

Trade #4 - ASL/NWH. Two pretty sound mining services firm that enjoyed huge run up since Feb results, followed by massive sell off from the recent MAYham. This pair has >95% correlation while each on its own can have pretty large (5-8%+) daily swings. Profit target is for the ratio to revert to ~1 against opening ratio ~0.93.




Trade #5 - QBE/SUN. SUN has been amongst the strongest performer in financials of late although it broke support at $7.80 2 weeks ago. Today's 4.5% spike up against a flat XFJ just didn't seem right. QBE on the other hand appear to have found support above $12 at least for the time being. Profit target is ~3-4% net movement (basically for SUN to give back the spike).




Trade #6 - CHC/WRT. I haven't been able to understand why WRT (and many REITs for that matter) are trading at 52wk highs while all data indicates that property prices are falling. I know REITs offer good yield and interest rate is falling, but it just doesn't seem to make much sense. WRT is pure Australian retail which makes even less sense. Anyway, CHC going ex-div in 3 weeks and WRT is not. CHC is 10% off recent high while WRT just reached 52wk high. So plenty of opportunity for convergence. Profit target ~5%.




Trade #7 - IRE-SMX. I wrote on the IRE thread how it is a bit overvalued although historically well loved. IRE fell below support at $6.6 following the AGM so that should offer resistance even if it is to move further north. SMX on the other hand is imo a good value IT stock that's been caught up in the general sell down. If recent lows hold there is little resistance until $5.40. Profit target ~6-8%.




Note: These profit targets are based on convergence towards the mean (blue line) but I rarely wait that long if there's quick profit to be had. The blue line also moves over time and the longer a pair is open, the smaller the profit target.


----------



## skc

EOD P&L




P.S. CPA/DXS is pretty much finished but I am trying to pinch an extra pip on both legs.


----------



## skc

skc said:


> Trade #1 opened - Long CPA @ $0.985. Short DXS @ $0.945. Size = 15% of account for each leg.




Trade #1 closed. Sold CPA @ $1.015, covered DXS @ $0.94. P&L = 3.5%.

P.S. Managed to pinch half a cent from CPA but not from DXS.


----------



## skc

Trade #8 opened - Long AIO @ $4.36. Short QRN @ $3.49. Size = 12.5%.


----------



## skc

Trade #9 opened - Long SYD @ $2.95. Short AIX @ $2.42. Size = 15%.


----------



## skc

skc said:


> Trade #6 - CHC/WRT. I haven't been able to understand why WRT (and many REITs for that matter) are trading at 52wk highs while all data indicates that property prices are falling. I know REITs offer good yield and interest rate is falling, but it just doesn't seem to make much sense. WRT is pure Australian retail which makes even less sense. Anyway, CHC going ex-div in 3 weeks and WRT is not. CHC is 10% off recent high while WRT just reached 52wk high. So plenty of opportunity for convergence. Profit target ~5%.




Closed CHC @ $2.33. Waiting for a fill on WRT at $2.81. If I get these fills, trade is closed as:

Trade #6 Closed - Sold CHC @ $2.33, Covered WRT @ $2.81. P&L = 4.07%.

Achieving 80% of the profit target over 1 day is a good close.

P.S. Of course CHC has more to run as soon as I closed it... :swear:


----------



## skc

Charts on trades today.

Trade #8 - AIO/QRN. QRN issued a profit downgrade back in March and share price has been trending down from then. It's ~8% off recent lows but has resistance ahead in the $3.55 region. AIO on the other hand only got caught up in the selling since May and printed a 2 month low today at $4.28, and there are only minor resistances up to $4.6. Profit target for mean reversion is ~6%. With both TOL and QRN in the same sector issuing downgrades I'd exercise a bit of caution and aim for a quicker exit... so anything above 4%.




Trade #9 - SYD/AIX. Pretty good pair to trade with both essentially monopolistic airport owners. The large change in ratio on the chart comes from SYD doing a large capital return late last year. Dividend season coming up and SYD is going ex-div for 11c (3.7%) while AIX has only been paying about 5c (2%). I don't know how AIX gets away with paying such low yields, considering that the Perth Airport is tied to the mining boom while their Athens airport (albeit small in their portfolio) is probably struggling big time. AIX can have shallow market depth sometimes and I sometimes put some low ball cover bids in there just to test my luck. Profit target ~4%.


----------



## skc

EOD state of play. 




Exited CHC a bit too early but bids for CHC can disappear quickly without prior warning. WRT also ran back up in the afternoon so a good enough result. I was surprised by the weakness in NWH and ASL today with both finishing on their lows, there was enough range today to close the position, but the movements between the two were a little bit too well synced. Probably should have taken the exit with QBE/SUN when ~3.7% was there to be picked up - instead SUN finished on its high (although right at resistance) and QBE closed near its low. This makes me a bit negative about the pair's prospect.


----------



## skc

skc said:


> Trade #5 - QBE/SUN. SUN has been amongst the strongest performer in financials of late although it broke support at $7.80 2 weeks ago. Today's 4.5% spike up against a flat XFJ just didn't seem right. QBE on the other hand appear to have found support above $12 at least for the time being. Profit target is ~3-4% net movement (basically for SUN to give back the spike).




Out of this one. Sold QBE @ $12.46, covered SUN @ $7.83. Profit = 3.35%


----------



## notting

Short ASL Long BLY  just paid again,
As did L PDN S ERA Tuesday


----------



## skc

Trade #10 Opened. Long SEK @ $6.57, short CRZ @ $5.8. Size = 7.5%.


----------



## skc

Trade #11 Opened. Long CPA @ $1.005, Short WRT @ $2.81. Size 15%.


----------



## notting

L MTS S WOW just paid
L ASL S BLY again!! - The machine continues!
I forgot to mention L BLD S JHX, I have a particular affection for this one!


----------



## skc

notting said:


> I forgot to mention L BLD S JHX, I have a particular affection for this one!




I hate this one with a passion. Always get my entry wrong and lose money on sustained divergence. Nothing wrong with the actual pair. It just doesn't like me


----------



## Sutekh

notting said:


> ...
> L ASL S BLY again!! - The machine continues!
> ...




I'm new to using this program (demo atm), so I'm sorry if this is obvious, but are you using modified settings? I can't see any signals for this trade; the std dev never seems never to vary very much.


----------



## notting

skc said:


> I hate this one with a passion. Always get my entry wrong and lose money on sustained divergence. Nothing wrong with the actual pair. It just doesn't like me




I usually build into it slowly start small then go sick on it when it looks like divergence is exhausting, because they both have a tendency to run in the wrong directions and BLD is a bit like BPT which reverses hard usually up! So you wanna be their regadless. 
It should be noted that JHX is about to pay some kind of special dividend which is what is giving it special strength.  If market's are still edgy it should cover it quickly.  However, Ben turns the taps on just before it may be a hard one so a little caution required!


----------



## skc

Charts for the day.

Trade #10 SEK/CRZ. Seek and Carsales are really two departments of the old newspaper "rivers of gold" and this pair had good correlation and has been a good performer. CRZ is getting close to all-time high at $5.87, seemingly unaffected by the recent correction, while SEK is off 15% since May but sitting on a decent support ~$6.4. Both companies trade on similar PE multiple. Full mean reversion ~9% but anything above 6% will do.




Trade #11 CPA/WRT. I have traded both CPA and WRT before so the same "lean-on ex-div REIT" strategy applies here. WRT looks poised to move down from recent highs but CPA's chart isn't looking too bullish either. Both closing on the low today so the trade's profit will depend on the speed of fall of each share. Full profit potential is ~4.5%.


----------



## skc

End of Day. 

I was expecting weakness today but not this much from the starting bell -otherwise I would have sell to close on open some positions. I also expected some sort of flight to safety towards the REITs and infrastructure (i.e. airports) but they were sold down just the same.




4 closed trades. 7 still open. Total P&L 1.21% for the week so not a bad start. Yes, 1.21% is nothing to write home about but average that for the next 50 weeks and you'd have done pretty well for the year.


----------



## spec

skc said:


> End of Day.
> 
> I was expecting weakness today but not this much from the starting bell -otherwise I would have sell to close on open some positions. I also expected some sort of flight to safety towards the REITs and infrastructure (i.e. airports) but they were sold down just the same.
> 
> View attachment 47360
> 
> 
> 4 closed trades. 7 still open. Total P&L 1.21% for the week so not a bad start. Yes, 1.21% is nothing to write home about but average that for the next 50 weeks and you'd have done pretty well for the year.




Nice results !!! Keep posting. I learned a lot from you posts.


----------



## nulla nulla

> Trade #9 - SYD/AIX. Pretty good pair to trade with both essentially monopolistic airport owners. The large change in ratio on the chart comes from SYD doing a large capital return late last year. Dividend season coming up and SYD is going ex-div for 11c (3.7%) while AIX has only been paying about 5c (2%). I don't know how AIX gets away with paying such low yields, considering that the Perth Airport is tied to the mining boom while their Athens airport (albeit small in their portfolio) is probably struggling big time. AIX can have shallow market depth sometimes and I sometimes put some low ball cover bids in there just to test my luck. Profit target ~4%.
> 
> View attachment 47346




I previously thought, by "pairs trading", you were trading the divergence between like shares. You are actualy trading one of the pair long and hedging the trade with a short on the other. I guess this reduces the risk. 

Win win would be when you get both right for your 4% over a short period, which would represent a greater percentage when annualised over the fiscal year (1 in 4 probability). Lose would be when both go sour (1 in four probability), break square or lesser profit when one wins & one loses(2 in 4 probability).
All in all you have a 3 in 4 likelihood of regular small gains compounding over a year.

We follow the ups and downs in reit's and infrastructure but don't short (hedge). We tend to swing between them in respect of whichever one appears to be oversold (in comparison with the other like shares) at the time we are ready (cashed up) to re-enter. Other trades are pretty much sticking with the same share. At the point we sell, having reached our target exit, we lodge a low ball bid where we consider the share price will likely return after the spike. 

With some, we have rolled the funds from the previous trade back in, picking up incrementaly more shares each time. Like your system our small margins of 1.5% - 3% per trade compound significantly over the fiscal period.

Cheers.


----------



## Huskar

SKC how do you calculate the price move required on either pair for reversion to the mean (ie your profit target)? 

I am thick as a doorpost and can't work it out .


----------



## fingl

Hey guys,

For guys use hedge ratio how erratic is the ratio using say 200 look back? Do you guys adjust according when the hedge ratio change forwardly? Is comparing to option delta adjustment


----------



## skc

nulla nulla said:


> I previously thought, by "pairs trading", you were trading the divergence between like shares. You are actualy trading one of the pair long and hedging the trade with a short on the other. I guess this reduces the risk.




I am still trading divergence between like shares. The program signal alerts me to a statistical divergence, but these days I tend not to take the signal straight away. I wait for prices to enter zones of support / resistance / congestion and lean against those. And this usually offers me better entry prices - actually, I pretty much only enter if the entry prices are better. "Hedged trading" however is not a bad description and you can probably do that even if you don't run your pairs through any statistical analysis. But I do think the combination of sensible pairs, statistical divergence and basic chart reading improves performance.



nulla nulla said:


> We follow the ups and downs in reit's and infrastructure but don't short (hedge). We tend to swing between them in respect of whichever one appears to be oversold (in comparison with the other like shares) at the time we are ready (cashed up) to re-enter. Other trades are pretty much sticking with the same share. At the point we sell, having reached our target exit, we lodge a low ball bid where we consider the share price will likely return after the spike.
> 
> With some, we have rolled the funds from the previous trade back in, picking up incrementaly more shares each time. Like your system our small margins of 1.5% - 3% per trade compound significantly over the fiscal period.




I like your strategy and I think you've picked the perfect sector to run it in. I do often wonder if I can pick up a few percent here and there without the corresponding opposite "hedge" - it would certainly be more economical when it comes to commission, margin used etc. But while it may be easy to spot one REIT being oversold, it's not necessary that it must go back up... others can come down. 

Another key factor is where to put the stop (assuming your strategy does employ one) - with a small profit target one needs high win %, and with high win % you can either be very good at "predicting" where price goes, or you need a pretty wide stop. With small stops you will just get taken out of the trades a lot, hurting the win %. Pairs trading takes a lot of the negatives of tight stops out of the equation. It doesn't matter if the long position falls 5% (which may trigger a tight stop on a naked long trade), as long as the short has moved as well. So if I was to model your long-only strategy it will take me a lot more research to think about the effects of stops and risk management.



Huskar said:


> SKC how do you calculate the price move required on either pair for reversion to the mean (ie your profit target)?




The profit target is simply what the current ratio is vs what the N-day moving average of the ratio is (N being the parameter you set for the pair). So say N = 30 and ABC/XYZ = 2.5 while over the last 30 days that ratio has averaged 2.75, the "convergence target" is 10%. Over time, the moving average will change so the target will also move.



spec said:


> Nice results !!! Keep posting. I learned a lot from you posts.




Thanks for spending your first post on me... you will never get it back!


----------



## SilverRanger

Glad to still see this post alive (great work skc ) Interestingly I have similar pairs open atm: CFX/WRT, AIO/QRN, CPA/WDC. SYD/AIX was also on my list but I turned away because I was afraid of more asset sale news out of AIX.
SEK/CRZ looks like a good signal (didn't have it on my list for some reason), see if I can get in first thing today...
Now just another 1.5 hour to go for England vs France!


----------



## nulla nulla

skc said:


> I like your strategy and I think you've picked the perfect sector to run it in. I do often wonder if I can pick up a few percent here and there without the corresponding opposite "hedge" - it would certainly be more economical when it comes to commission, margin used etc. But while it may be easy to spot one REIT being oversold, it's not necessary that it must go back up... others can come down.
> 
> Another key factor is where to put the stop (assuming your strategy does employ one) - with a small profit target one needs high win %, and with high win % you can either be very good at "predicting" where price goes, or you need a pretty wide stop. With small stops you will just get taken out of the trades a lot, hurting the win %. Pairs trading takes a lot of the negatives of tight stops out of the equation. It doesn't matter if the long position falls 5% (which may trigger a tight stop on a naked long trade), as long as the short has moved as well. So if I was to model your long-only strategy it will take me a lot more research to think about the effects of stops and risk management.




I was going to ask you whether you used stops but you have answered that now. We don't use stops. 
When determining our entry we are influenced by:
previous trend support areas;
general market sentiment;
sector sentiment;
any news specific to the share; and 
proximity timing for dividends. 

It is not uncommon for the share price to dip below our entry price (getting the bottoms and tops right is never perfect) and in the right circumstance we will double up taking a further trade.  Yes, reit's and infrastructure are the perfect sectors, in our opinion, for our style of trading. 

Thank you for drawing our attention to AIX, we have traded map/syd for many years but for some reason overlooked AIX. It has now been added to our watch list. 

Cheers.


----------



## skc

nulla nulla said:


> I was going to ask you whether you used stops but you have answered that now. We don't use stops.
> When determining our entry we are influenced by:
> previous trend support areas;
> general market sentiment;
> sector sentiment;
> any news specific to the share; and
> proximity timing for dividends.
> 
> It is not uncommon for the share price to dip below our entry price (getting the bottoms and tops right is never perfect) and in the right circumstance we will double up taking a further trade.  Yes, reit's and infrastructure are the perfect sectors, in our opinion, for our style of trading.
> 
> Thank you for drawing our attention to AIX, we have traded map/syd for many years but for some reason overlooked AIX. It has now been added to our watch list.
> 
> Cheers.




I do have stops but they are not price-level based in the usual manner. They are time-based and max loss based. I am uncomfortable trading without stops in directional trades (or any trade for that matter) especially in this market... but the wrong use of stops can also be detrimental to performance for sure.

BTW - who are "we" that you speak of.



SilverRanger said:


> Glad to still see this post alive (great work skc ) Interestingly I have similar pairs open atm: CFX/WRT, AIO/QRN, CPA/WDC. SYD/AIX was also on my list but I turned away because I was afraid of more asset sale news out of AIX.
> SEK/CRZ looks like a good signal (didn't have it on my list for some reason), see if I can get in first thing today...
> Now just another 1.5 hour to go for England vs France!




Good to see you here, SilverRanger. Having fun with the volatility?

I'd be worry for AIX to announce that the Athens airport has been burnt down by riot crowds...


----------



## notting

skc said:


> I am still trading divergence between like shares. The program signal alerts me to a statistical divergence, but these days I tend not to take the signal straight away. I wait for prices to enter zones of support / resistance / congestion and lean against those. And this usually offers me better entry prices - actually, I pretty much only enter if the entry prices are better. "Hedged trading" however is not a bad description and you can probably do that even if you don't run your pairs through any statistical analysis. But I do think the combination of sensible pairs, statistical divergence and basic chart reading improves performance.




Very good advice.  
One thing you need to be careful of if your not doing the above is to remember that pairs trading tends to be counter trend so stocks may be showing relative strength or weakness for a good reason that is not yet taken on by the full market particapation!

L AMP S SUN just paid!


----------



## PinguPingu

What do you do when the divergence keeps going (so that you're losing money on both trades)? Do you have a stop level where you exit and try to time a better entry?


----------



## notting

PinguPingu said:


> What do you do when the divergence keeps going (so that you're losing money on both trades)? Do you have a stop level where you exit and try to time a better entry?




Usually I become discretionary about it.  
I'll sometimes build more into one of the positions that I think is more irrational than the other, and lose a bit of the one I least like when it has positive days. I rarely just exit both as an over all stop.  You get quite a bit of room to muck around unless there is a takeover or capital raising which pretty much stuffs you up so you need to take that possibility into account with position size.
Also if the markets having an extreme day and overseas markets have all done the same for the night before I'll take some profits in line with the exteme usually the market corrects back to some degree and you can even up the sizing again.  Sometimes I'll feel awful about taking one of the positions so just fill one of them and wait a little for the other.  For some reason my feeling works well with pairs, it's much hard trying to sense that with naked longs and shorts even though it's kind of the same thing in that case.  Somehow the pair relative assists with keeping a poise even if you just take one of them and over all I do not like the stock fundamentally as much as the other and it is the long!! Not for everyone I'm sure. 
It but it works for me!
I'll also give myself room to triple up in volume each way to then make the descretionary exits when they appear. So a fair bit has to go wrong before you have to take a full loss.


----------



## sinner

PinguPingu said:


> What do you do when the divergence keeps going (so that you're losing money on both trades)? Do you have a stop level where you exit and try to time a better entry?




On a purely mechanical basis you do nothing until the spread mean reverts and then you exit the position, regardless of whether it's in profit or loss.


----------



## skc

PinguPingu said:


> What do you do when the divergence keeps going (so that you're losing money on both trades)? Do you have a stop level where you exit and try to time a better entry?






sinner said:


> On a purely mechanical basis you do nothing until the spread mean reverts and then you exit the position, regardless of whether it's in profit or loss.




Some discussion on stops around this post. Everyone would be different of course.

https://www.aussiestockforums.com/f...=14508&page=23&p=529612&viewfull=1#post529612


----------



## skc

skc said:


> Trade #9 opened - Long SYD @ $2.95. Short AIX @ $2.42. Size = 15%.




Trade #9 closed. Sold SYD @ $2.95. Covered AIX @ $2.33. P&L = +3.72%.

New trade #12 opened. Long PNA @ $2.69, Short OZL @ $8.48. Size = 10%.


----------



## nulla nulla

skc said:


> BTW - who are "we" that you speak of?




My Spouse, Head Honcho, better half, She who must be obeyed. Makes for some robust discussions from time to time but it appears to work.


----------



## skc

Chart for today.

Trade #12. PNA/OZL. On the charts, PNA is sitting somewhat dangerously on support around current levels, while OZL is in a bit of no man's land between $8 and $9. The recent evening star however suggests potential move down. Fundamentally, OZL has a sizeable cash in relation to market cap and is doing buyback on-market so the pair is more likely to perform if the overall market trends up (although I don't actually have a firm view for that). Profit target is ~4.5% compared to full mean reverion of 6%.




End of day status.




Good converging day on ALZ/WDC and decent moves on a couple of other pairs. SYD/AIX is a tick shy of profit but I will be away from the screen from time to time for the rest of the week so there's no point not taking the win.

5 good closed trades so far. 7 open trades basically at breakeven.


----------



## skc

nulla nulla said:


> My Spouse, Head Honcho, better half, She who must be obeyed. Makes for some robust discussions from time to time but it appears to work.




Nice. If I had to trade with my wife I would have gone through about 6 of them by now.


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## PinguPingu

Thanks for you replies guys  This is a great thread


----------



## blue0810

PinguPingu said:


> Thanks for you replies guys  This is a great thread




+1

Hate  “Compare the Pair” – Industry fund  Ad
Love  “ Trade the Pair “ –   great  thread


----------



## Huskar

skc said:


> The profit target is simply what the current ratio is vs what the N-day moving average of the ratio is (N being the parameter you set for the pair). So say N = 30 and ABC/XYZ = 2.5 while over the last 30 days that ratio has averaged 2.75, the "convergence target" is 10%. Over time, the moving average will change so the target will also move.




Thanks SKC

The moving average age was what was tricking me


----------



## notting

Got heavier in S JHX and L BLD looks to be exhausting remembering the larg div payout coming form JHX treating it as taken out of the price.


----------



## skc

EOD P&L




Down a few bucks today mostly on SEK losing 2.5%. It announced that their sub notes are dead (those notes were such a rip off anyway so I am not surprised) and the market didn't seem to like it. Funny though the market also didn't like the initial announcement of SEK issuing those notes. So I am taking a netural stance on this development.

I was away from the computer for most of the afternoon so missed an exit on AIO/QRN. Hopefully there'd be another opportunity tomorrow.


----------



## SilverRanger

Lol I didn't even notice there was an exit signal on AIO/QRN/

Opened NWH/ASL today, it's quite a volatile pair so I waited to see higher divergence (8% from mean) for entry. 

Missed out on MRM today, might do it with WOR or MND tomorrow if I don't find anything suspicious tonight (and of course assuming the boat is still there!)


----------



## notting

skc said:


> AIO QRN



I sold my short on AIO this morning flipped the long on QRN a couple of days ago and made money on shorting it as well! From memory I did lose a bit on the long QRN.
Just to keep my ego in check am still long COK and building, for a take over when it comes.  I almost don't care if I end up with everything in it!


----------



## skc

Trade #13 Opened. Long CPB @ $52.44 Short MND @ $21.88. Size = 15% of account.


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## skc

Left this out yesterday.




Couldn't be at my desk yesterday until 2pm and there wasn't much action from then. 

This is one of the negative of pairs trading (or my brand of it anyway) - to make the most of it you really need to be glued to the screen.


----------



## skc

skc said:


> Charts on trades today.
> 
> Trade #8 - AIO/QRN. QRN issued a profit downgrade back in March and share price has been trending down from then. It's ~8% off recent lows but has resistance ahead in the $3.55 region. AIO on the other hand only got caught up in the selling since May and printed a 2 month low today at $4.28, and there are only minor resistances up to $4.6. Profit target for mean reversion is ~6%. With both TOL and QRN in the same sector issuing downgrades I'd exercise a bit of caution and aim for a quicker exit... so anything above 4%.




Trade #8 closed. Sold AIO @ $4.29. Covered QRN @ $3.32. P&L 3.3%. 

Not the best exit in the world but AIO has fallen below a recent ledge yesterday, while QRN still has some support to lean on around this price level. The QRN chart probably warrants a naked short - but I don't want to be nake in anything heading into G-day weekend.


----------



## skc

skc said:


> Chart for today.
> 
> Trade #12. PNA/OZL. On the charts, PNA is sitting somewhat dangerously on support around current levels, while OZL is in a bit of no man's land between $8 and $9. The recent evening star however suggests potential move down. Fundamentally, OZL has a sizeable cash in relation to market cap and is doing buyback on-market so the pair is more likely to perform if the overall market trends up (although I don't actually have a firm view for that). Profit target is ~4.5% compared to full mean reverion of 6%.




Trade #12 Closed. Sold PNA @ $2.73. Covered OZL @ $8.25. Profit = 4.32%.


----------



## skc

EOD.




7 closed trades. 6 still open. Overall P&L 2.2% (~1% for the past week).


----------



## skc

skc said:


> Trade #13 Opened. Long CPB @ $52.44 Short MND @ $21.88. Size = 15% of account.




Trade #13 closed. Sold CPB @ $54.6. Covered MND @ $21.9. Profit = 4.03%.

Not quite at target. Actually trailling a close stop on CPB to see if I can get a few ticks out of it but will mark the prices as far as this strategy is concerned.


----------



## SilverRanger

skc said:


> Trade #13 closed. Sold CPB @ $54.6. Covered MND @ $21.9. Profit = 4.03%.
> 
> Not quite at target. Actually trailling a close stop on CPB to see if I can get a few ticks out of it but will mark the prices as far as this strategy is concerned.




Good choice you picked there, my MRM isn't even doing half as good today!

With the dividend season coming, any thoughts on pairing up AREITs that pay dividend (but with 0% franking) and ones that don't (or already gone ex)?


----------



## skc

SilverRanger said:


> Good choice you picked there, my MRM isn't even doing half as good today!
> 
> With the dividend season coming, any thoughts on pairing up AREITs that pay dividend (but with 0% franking) and ones that don't (or already gone ex)?




I tend to avoid A-REITs during dividends as I don't like how bids disappear on ex date. But I don't mind trading ex-div shares with non-dividend paying ones (pretty much just WDC, WRT and LLC, although GPT and MGR pays quarterly). But I do trade them if the spread is big enough. CQR is a short at the moment but it's yielding 7%+ so I am waiting to see which long I'd put on.

MRM-MIO is a good pair although MIO is a bit of a takeover target in my books.


----------



## skc

Trade #14 opened. Long TSE @ $1.84. Short UGL @ $12.5. Size 10%.


----------



## skc

skc said:


> Trade #7 - IRE-SMX. I wrote on the IRE thread how it is a bit overvalued although historically well loved. IRE fell below support at $6.6 following the AGM so that should offer resistance even if it is to move further north. SMX on the other hand is imo a good value IT stock that's been caught up in the general sell down. If recent lows hold there is little resistance until $5.40. Profit target ~6-8%.




Trade #7 closed. Sold SMX @ $5.12 Covered IRE @ $6.16. Profit = 5.85%.


----------



## Gringotts Bank

Very nicely played sk.


----------



## skc

Eod. A new format!




It's always easy taking profits, but the management of these losing pairs are equally important. ALZ/WDC has hit the time limit, but I am going to hold for a little bit longer - I expect a spike up on ALZ announcing its dividend amount (assuming it's as per expectation) - which should happen this week. 



Gringotts Bank said:


> Very nicely played sk.




Thanks.


----------



## skc

Chart for today.




Trade #14 TSE/UGL. Both companies are in the mining services space although they both have more steady, less exciting infrastructure services arms. UGL has bounced nicely off a recent low and is now sitting around 62% retracement level - so a potential holding area. TSE is in a hard downtrend and has been hitting new lows despite ongoing share buyback. If the market holds up, however, a retest of $1.94 (and potential $2) The ratio chart doesn't show a lot of crossing of the MA, but the divergence is substantial enough to warrant a trade. 

Full convergence is over 10%, but I will only aim for half. I also won't hesitate cutting the pair if TSE can't hold its recent low.


----------



## skc

Trade #2 Closed. Sold ALZ @ $2.55. Covered WDC @ $9.32. P&L = -0.25%. First loss  

Trade #15 Opened. Buy CPB @ $53.25, Short WOR @ $25.97. Size = 15% of account.


----------



## notting

skc said:


> Chart for today.
> 
> View attachment 47488
> 
> TSE is in a hard downtrend and has been hitting new lows despite ongoing share buyback. If the market holds up, however,



Wish I'd seen this earlier would have shorted UGL and waited to buy TSE.
L RIO and S BHP paid today. I think that makes 3 out of 4 from the original post.   S HVN v L JBH still holding hands on their way to Hell.


----------



## skc

Trade #15 CPB/WOR. This is a sort-of re-entry of an earlier CPB/MND trade. CPB has support at $52-$54, while WOR is reaching resistance at $26.3. Full mean reversion at 6.5% away. So target is a meaningful chunk of that.

Certain stocks have certain labels in my head. CPB is always "Great company but too expensive", while WOR is "No idea why it deserves PE 16.5x". This meant that I've rarely if ever went long on WOR, even though it has as much up's as there are down's. 




EOD




Not a great deal of movement P&L wise. NWH/ASL is reaching expiry so will aim to wriggle out of it over the next day or two. CPA announced a 3.2c dividend which was more than I expected - but the market seems disappointed.



notting said:


> S HVN v L JBH still holding hands on their way to Hell.




Lol. I think they are actually biting each other's head off on their way to hell.


----------



## skc

skc said:


> Added another 2.5%. NWH @ $3.06 and ASL @ $3.30.
> 
> Average Long NWH @ $3.08, Short ASL @ $3.325.




Position Closed. Sold NWH @ $3.01. Covered ASL @ $3.32. P&L = -2.12%


----------



## skc

Trade #16 opened. Long PTM @ $3.88. Short IFL @ $5.98. Size = 12.5%.


----------



## kid hustlr

Great thread SKC!

You seem to have an excellent understanding of how these companies operate, do you use this company knowledge in deciding your trades or do you base your decisions solely on the charts/correlation/S+R etc?


----------



## skc

kid hustlr said:


> Great thread SKC!
> 
> You seem to have an excellent understanding of how these companies operate, do you use this company knowledge in deciding your trades or do you base your decisions solely on the charts/correlation/S+R etc?




Thanks. 

I definitely incorporate company knowledge into my trading. You can argue that, what's company fundamental has to do with anything when I am holding only a couple of weeks... but I think over time and over many trades, any small edge can accumulate into something meaningful. 

What I haven't posted here are trades that I didn't take despite a signal being triggered. Sometimes I miss out on those profits, other times I avoid the losses. Here's one example. On 21 May the program signalled long MYR short GUD. We all know that discretionary retail is in the mother of all dog houses. I also know that MYR typically gives a quarterly update around that time. Long MYR is a clear avoid regardless what the correlation / support-resistance said. This pair has diverged ~20% since the trigger was given without ever being in profit.


----------



## skc

Trade #17 Opened. Long IOF @ $2.67. Short CQR @ $3.47. Size = 12.5%.


----------



## skc

Charts and EOD.

Long PTM short IFL - Both decent businesses in wealth management, with IFL having more of a focus on advisors while PTM is close to a pure fund manager. Thanks to the volatile market, many businesses in the industry are struggling. IFL has been range-bounded btw $5 and $6.4 for almost 12 months, and it's hard to see it cracking above it. PTM is also ranging between $3.40 and $4, although back in early May they went as high as $4.40. Change from May high is ~5% for IFL and -12.5% for PTM. Profit target ~4.5% based on mean reversion.



Long IOF short CQR - Office REIT vs Retail REIT, both going ex-div for ~3.5% with IOF giving a special dividend. Not the best entry on either leg. Had $2.65 / $3.5 and hessitated to pull the trigger on both counts. IOF is 5% off year high while CQR is setting new 52wk highs. With all the retail doom and gloom, CQR (and other retail REITs) are surprisingly resilient. Although the market is asking 7.5% yield from them, as opposed to office and industrial REITs which yield closer to 5-6.5%. Profit target ~4.5%. Will hold this pass ex-div date (25/6) if need be.







Closed 11 trades with a 9-2 win-loss. 6 open trades at pretty much breakeven. 

Happy to be out of NWH-ASL with minimal damage. Some downgrades coming through with the construction sector (look at SWL) and NWH earns about 50% of revenue in civil construction. 

SEK/CRZ ratio is hitting 6-month low - I just don't know what's keeping CRZ at 52wk high in this market. None the less the trade is ready to be scratched. 

TSE has broken below again - hopefully there'd be a short bounce to $1.82-$1.84 which coinsides with UGL falling to allow for a good exit... or UGL launches a takeover offer for TSE @ $3.

Good fall on WOR today. One more day and we can call it a trade.


----------



## skc

skc said:


> Trade #11 CPA/WRT. I have traded both CPA and WRT before so the same "lean-on ex-div REIT" strategy applies here. WRT looks poised to move down from recent highs but CPA's chart isn't looking too bullish either. Both closing on the low today so the trade's profit will depend on the speed of fall of each share. Full profit potential is ~4.5%.




Position closed. Sold CPA @ $0.995. Covered WRT @ $2.71. P&L = 2.56%.


----------



## skc

skc said:


> Trade #15 CPB/WOR. This is a sort-of re-entry of an earlier CPB/MND trade. CPB has support at $52-$54, while WOR is reaching resistance at $26.3. Full mean reversion at 6.5% away. So target is a meaningful chunk of that.
> 
> Certain stocks have certain labels in my head. CPB is always "Great company but too expensive", while WOR is "No idea why it deserves PE 16.5x". This meant that I've rarely if ever went long on WOR, even though it has as much up's as there are down's.




Trade closed. Sold CPB @ $51.81. Covered WOR @ $24.37. P&L = 3.5%. 

I have no problem taking small profits - it did 60% of the work in 2 days + it's a re-entry trade. It all adds up.


----------



## skc

skc said:


> Charts for the day.
> 
> Trade #10 SEK/CRZ. Seek and Carsales are really two departments of the old newspaper "rivers of gold" and this pair had good correlation and has been a good performer. CRZ is getting close to all-time high at $5.87, seemingly unaffected by the recent correction, while SEK is off 15% since May but sitting on a decent support ~$6.4. Both companies trade on similar PE multiple. Full mean reversion ~9% but anything above 6% will do.




Trade closed. Sold SEK @ $6.29. Covered CRZ @ $5.98. P&L = -7.5%.

Had a mental stop for SEK @ $6.3 - it broke down and reached backup there offering a close. Didn't pay enough attention to the CRZ dip this morning or could have got better prices.


----------



## notting

Big Spread L AGO  1.97  S FMG 4.91


----------



## skc

End of week 3. 14 closed trades, 3 open. P&L = +3.6%. I've included in the P&L a "approximate funding charge" which calculates the CFD funding cost for the closed positions using a 4% spread. It is a small amount for each individual trade but over many trades they do add up. Overall performance has been as good as can be expected, but it wouldn't surprise me (it would frustrate me, however) if the trading goes flat for the next 50 trades.




3 exits today all pretty mediocre, especially SEK/CRZ. Due to the staggered open of the ASX, I found that there is actually slight advantage to trade shares in the same opening group. There's a good 7 minutes between the open of CRZ and SEK, and we know that indicative opening prices can change a lot especially on a day like today. I wasn't able to capitalise on the opening 2 minute CRZ spike down, because I didn't want to bear carrying a naked SEK long. 



notting said:


> Big Spread L AGO  1.97  S FMG 4.91




This used to be a good pair but FMG/AGO has been one way traffic for a long time. But as you said the spread is wide enough for a quick scalp.


----------



## skc

skc said:


> Long IOF short CQR - Office REIT vs Retail REIT, both going ex-div for ~3.5% with IOF giving a special dividend. Not the best entry on either leg. Had $2.65 / $3.5 and hessitated to pull the trigger on both counts. IOF is 5% off year high while CQR is setting new 52wk highs. With all the retail doom and gloom, CQR (and other retail REITs) are surprisingly resilient. Although the market is asking 7.5% yield from them, as opposed to office and industrial REITs which yield closer to 5-6.5%. Profit target ~4.5%. Will hold this pass ex-div date (25/6) if need be.




Closed the IOF long @ $2.65. CQR is not shaking off the 13c dividend for some reason but it will probably happen later in the day. Waiting for a fill around the low $3.30 mark. Actually shorted a handful @ $3.4 for a quick "someone forgot it's ex-div" directional trade.


----------



## skc

skc said:


> Closed the IOF long @ $2.65. CQR is not shaking off the 13c dividend for some reason but it will probably happen later in the day. Waiting for a fill around the low $3.30 mark. Actually shorted a handful @ $3.4 for a quick "someone forgot it's ex-div" directional trade.




Covered CQR short @ $3.31. P&L = 3.86%.


----------



## skc

EOD

15 closed trade + 2 open trades at small loss. There aren't many signals I like at the moment. I took >60 trades in May but only ~20 trades in June. I guess it averages out to the usually 30-40 trades per month. The dividend season means most REIT and infrastructure stocks are not traded... at the same time I've pretty much stopped trading media and retail stocks.


----------



## nulla nulla

skc said:


> Closed the IOF long @ $2.65. CQR is not shaking off the 13c dividend for some reason but it will probably happen later in the day. Waiting for a fill around the low $3.30 mark. Actually shorted a handful @ $3.4 for a quick "someone forgot it's ex-div" directional trade.




You did well to close a long at $2.65 in IOF at open today. I believe I was sitting at the front of the sell queue at $2.65 and my parcel was only barely touched getting 994 shares away. You must have lodged your sell at a lower price and cut in front. Curse you  Mind you with the div/special div combo of $0.097c I can afford to wait.


----------



## skc

nulla nulla said:


> You did well to close a long at $2.65 in IOF at open today. I believe I was sitting at the front of the sell queue at $2.65 and my parcel was only barely touched getting 994 shares away. You must have lodged your sell at a lower price and cut in front. Curse you  Mind you with the div/special div combo of $0.097c I can afford to wait.




Lol. I placed my order at $2.64 almost an hour before open so you can't blame me for cutting in last second. On hindsight I should have sold AND reverse for a quick trade... 

Playing the open is a great game - plenty of opportunities to make or lose money.


----------



## skc

skc said:


> Trade #14 TSE/UGL. Both companies are in the mining services space although they both have more steady, less exciting infrastructure services arms. UGL has bounced nicely off a recent low and is now sitting around 62% retracement level - so a potential holding area. TSE is in a hard downtrend and has been hitting new lows despite ongoing share buyback. If the market holds up, however, a retest of $1.94 (and potential $2) The ratio chart doesn't show a lot of crossing of the MA, but the divergence is substantial enough to warrant a trade.
> 
> Full convergence is over 10%, but I will only aim for half. I also won't hesitate cutting the pair if TSE can't hold its recent low.




Trade #14 Closed. Sold TSE @ $1.76, covered UGL @ $12.18. P&L = -1.8%.

TSE has been a weak stock and I don't like going long a weak stock against a realtively steady stock like UGL... as I said if TSE falls below recent lows (which was $1.81 at time of entry) then I'd cut this trade. It has gone well below that and the recent small bounce gives me a good enough reason to take the trade off.


----------



## skc

Trade #18 opened. Long BLY @ $2.835. Short ASL @ $3.275. Size 10%.


----------



## skc

Trade #18. Long BLY / Short ASL. These two companies are basically in the same drilling business, BLY however tends to experience larger movements. BLY is sitting at $2.80 support, while ASL is ranging between $3 to $3.40. Full mean reversion ~7%, profit target is a good portion of that.




Trade #19. Long GPT / Short WRT. Two REITs that didn't go ex-div on Monday. Took me a while to work the entries and got $3.225 / $2.84. This is the 3rd time I've shorted WRT and usually this means I should stop doing it soon (i.e. it's going up for a reason unknown to me). Profit target is ~3.5%.


----------



## skc

EOD




16 closed trades. 3 open trades basically at breakeven.

Looking at the open P&L it's obvious to see that the shorts have made a lot more money than the longs. That's the sort of market we are in I suppose. Commission is running at ~15% of P&L which is very good - it could average up to 20-23% over time.


----------



## notting

skc said:


> . This is the 3rd time I've shorted WRT and usually this means I should stop doing it soon (i.e. it's going up for a reason unknown to me).5[/ATTACH]




My suspicion is that people are looking for reliable dividend in a large blue chip with fairly reliable earnings contracted for the short to medium term even if things go nuts and hence are heading in to this one. 
It's only fully dependent on old world retail, nothing to be concerned about there! Short away, I say and have started to.


----------



## skc

Trade #20 Long GWA @ $1.995. Short ABC @ $3.11. Size 10%.



notting said:


> My suspicion is that people are looking for reliable dividend in a large blue chip with fairly reliable earnings contracted for the short to medium term even if things go nuts and hence are heading in to this one.
> It's only fully dependent on old world retail, nothing to be concerned about there! Short away, I say and have started to.




That may be right to some extent as most REITs are close to 52wk high... and there'a probably a slight premium being put on the Westfield brand...


----------



## skc

Trade #21 opened. Long SUN @ $7.89. Short IAG @ $3.49. Size 15%.


----------



## skc

Long GWA/Short ABC - Not the perfect match in terms of activities but has performed well in the past as a pairs trade. GWA is a housing products supplier while ABC is in cement, concrete and masonry which have wider applications. The housing market is down and new builts are falling and that is reflected in GWA's share price. GWA provided a trading update in early April forecasting a profit fall, but maintaining a dividend at ~9% which should provide some support for the share price.  The takeover of ALS (basically in the same game as GWA) has generated some interest in GWA as well.

On the GWA chart, recent lows need to hold to mount a challenge towards $2.1. The ABC chart is looking strong but resistance ahead at $3.20. This will be a cautious position and breach of these levels will see the trade closed pretty quickly. Profit target ~4-5%.




Long SUN/Short IAG - IAG put on 8% in 3 days with SUN moving ~2.5%. Profit target ~4%.




EOD




Not a lot going on except didn't expect BLY to be so weak on a day where many mining services enjoyed small bounces. But the trade is still young.


----------



## notting

Got slammed on BLD long!  Profit downgrade on building.  Two of em in a couple of months can be catastrophic.  Took a loss which could have been on the fact!  Meaning it will now recover but not prepaired to be on it in this environment.  Increased the short on JBH in the hope of making something back now that it's ex on big dividend.

Thinking that this pair may be a bit disfunctional given JHX has a tendency to move with stronger home building market in the US and weaker AU agains US $$.  Whilst Boral moves with local AU home building market sentiment.  
Just my thoughts, don't know them intimatly feel free to dissagree.:frown:


----------



## skc

notting said:


> Got slammed on BLD long!  Profit downgrade on building.  Two of em in a couple of months can be catastrophic.  Took a loss which could have been on the fact!  Meaning it will now recover but not prepaired to be on it in this environment.  Increased the short on JBH in the hope of making something back now that it's ex on big dividend.
> 
> Thinking that this pair may be a bit disfunctional given JHX has a tendency to move with stronger home building market in the US and weaker AU agains US $$.  Whilst Boral moves with local AU home building market sentiment.
> Just my thoughts, don't know them intimatly feel free to dissagree.:frown:




I did say this pair is cursed for me so I have been avoiding it like a plague. BLD is weak for a reason, but JHX has been irrationally strong. It shaked off the dividend like nothing happened. Personally I think JHX is a fundamental short, but I've rarely put on a fundamental short position. JHX / ABC makes a good pair though.

I know nothing about your risk management approach to your pairs but make sure you have something...


----------



## notting

BKN and BLD might also be smarter?
Have been building a short on ABC too against BKN/BLD  not going too well!!, right now.
It's really hard to see them JHX&ABC going too much further even if the market goes up, their playing like defensives, which their not!
Merkels comments seemed pretty amazing, perhaps that will help create a tank like never seen before, although Club Med Euro are getting good a pulling rabbits out of the other 'hat not labeled Euro bonds.'

Market still seems to be waiting for something special given it hasn't collapsed after her - 'drop your expectations' declaration.


----------



## skc

Trade #22 Long IOF @ $2.685. Short GMG @ $3.745. Size 15%.

Pretty amazing all REIT's have recovered their div so quickly...




notting said:


> BKN and BLD might also be smarter?
> Have been building a short on ABC too against BKN/BLD  not going too well!!, right now.
> It's really hard to see them JHX&ABC going too much further even if the market goes up, their playing like defensives, which their not!
> Merkels comments seemed pretty amazing, perhaps that will help create a tank like never seen before, although Club Med Euro are getting good a pulling rabbits out of the other 'hat not labeled Euro bonds.'
> 
> Market still seems to be waiting for something special given it hasn't collapsed after her - 'drop your expectations' declaration.




BKN is oversold from my 2-minute fundamental analysis, while BLD is still overvalued. I wouldn't long BLD anytime soon because of cap raising risk (see my rant on the BLD thread).


----------



## skc

skc said:


> Long SUN/Short IAG - IAG put on 8% in 3 days with SUN moving ~2.5%. Profit target ~4%.




Trade closed. Sold SUN @ $7.95. Covered IAG @ $3.42. Profit = 2.8%. Over half of the work done in a day is usually my take profit. Depending on the market IAG probably has more to fall FWIW.


----------



## skc

skc said:


> Trade #16 opened. Long PTM @ $3.88. Short IFL @ $5.98. Size = 12.5%.




Closed. Sold PTM @ $3.82. Covered IFL @ $5.755. Profit = 2.22%.

This one probably a little more legs in it, but I actually layered down after the initial trade so it has reached my target in my own holding. I thought I'd just close it here as well as I won't be following it closely anymore.


----------



## skc

Trade #23. Long WOR @ $24.32. Short MND @ $21.66. Size 12.5%.


----------



## skc

Trade #24. Long AIO @ $4.19. Short QRN @ $3.44. Size = 10% of account.

Trade #25. Long CQR @ $3.25. Short CFX @ $1.95. Size 5% (trying to build another 5-10%).


----------



## skc

EOD.




I don't have enough time to post on the 4 new trades today, but they are all stocks that I've already traded in this journal. Big intraday reversal on several REITs today suggests to me that an immediate high has been had for the sector. WRT and GMG in particular have found new yearly high and reversed sharply. Shame that I couldn't build a larger position with CQR/CFX when CFX had it's early morning run.

P&L is slightly improved despite the $ spent on commission entering 4 trades today. In this table the closing commission are recorded and booked against P&L at the time of the trade opening.


----------



## skc

skc said:


> Trade #24. Long AIO @ $4.19. Short QRN @ $3.44. Size = 10% of account.




Trade Closed. Sold AIO @ $4.25. Covered QRN @ $3.38. P&L = 3.2%.

Met my quick take profit rule. AIO hasn't the strongest chart and I actually semi regreted taking this trade yesterday. So happy to get it dusted.


----------



## skc

skc said:


> Trade #23. Long WOR @ $24.32. Short MND @ $21.66. Size 12.5%.




Trade closed. Sold WOR @ $24.93. Covered MND @ $21.633. P&L = 2.6%.

I left a sell order in there for WOR at a price that I didn't think was far enough away... then of course the lunch time spike took that order out so I had to scramble to cover my MND. A profitable but wasted trade.

And can I have my AIO back at $4.25? It's only 4% higher


----------



## skc

skc said:


> Trade #25. Long CQR @ $3.25. Short CFX @ $1.95. Size 5% (trying to build another 5-10%).




Added another 5%. Long CQR @ $3.28. Short CFX @ $1.955.

Trade #26 opened. Long TEL @ $1.8575. Short SGT @ $2.545. Size = 10%.


----------



## skc

skc said:


> Long GWA/Short ABC - Not the perfect match in terms of activities but has performed well in the past as a pairs trade. GWA is a housing products supplier while ABC is in cement, concrete and masonry which have wider applications. The housing market is down and new builts are falling and that is reflected in GWA's share price. GWA provided a trading update in early April forecasting a profit fall, but maintaining a dividend at ~9% which should provide some support for the share price.  The takeover of ALS (basically in the same game as GWA) has generated some interest in GWA as well.
> 
> On the GWA chart, recent lows need to hold to mount a challenge towards $2.1. The ABC chart is looking strong but resistance ahead at $3.20. This will be a cautious position and breach of these levels will see the trade closed pretty quickly. Profit target ~4-5%.




Trade closed. Sold GWA @ $2.075, covered ABC @ $3.195. Profit = 1.3%.

Another one of those accidents. ABC looked weak and illiquid in the morning so I put GWA at what I thought was a decent distance away. I am not unhappy about this one, however, as the BLD trading update yesterday scared me that GWA might follow suit.


----------



## skc

New trade #27 opened. Long PTM @ $3.855. Short IFL @ $6.025. Size = 12.5%.

Basically the re-openning of trade #16 but with better entry.


----------



## skc

EOW. 21 trades closed. 6 trades open. 22 wins and 5 losses. Account up 5.6% (+2% in the past week).




On a day like today where the market reversed 80 points on news, pairs trading will more often than not make good money. Those stocks that have been weak tend to bounce more than those stocks that had been strong. AIO and WOR were good examples. With a bit of day-trading skill (which I lack), one can recognise a running day, close the short first and put a trail on the long so pick up a couple more percent. And if your short leg runs up first, you can simply wait for the long leg to catch up.

I was a bit distracted today with a large trade under a different strategy so I made the mistake of cutting serveral profits short. But it was worth it 

BTW from trade #28 onwards, position size will be based on a capital of $105k (since the profit has now reached >$5k). This allows the return to be compounded at 5% intervals. The compounding will be wind back if the account equity falls back to the last level.

Today's trade

Long TEL / Short SGT. Long NZ and short Singapore. TEL seems to have Telstra-like status in NZ and has gone up strongly despite the weak market. SGT has been a bit more up and down. SGT is going ex-div (9c) on 1 Aug so I won't hold this trade for much past early July. Both shares have primary listing overseas so the market depth on the ASX is pretty much meaningless - there are market makers / arbitrager (or whatever they are) who make both stock tick along with thier corresponding main board. Profit target 4%+.


----------



## Sutekh

Thanks for updating your journal skc.  

You mention pairs trading on highly volatile days like today, so I was wondering if you are using real time data or relying on the delayed data?  

Do you find there is much slippage between when a pair trade opportunity arrives, because it is 20min late? (or more, depending on the length of your pairs list)  Especially around the market open or market-turning news, such as today?

Anyway, approximately a 6% return on your capital for June; very impressive!


----------



## skc

Sutekh said:


> Thanks for updating your journal skc.
> 
> You mention pairs trading on highly volatile days like today, so I was wondering if you are using real time data or relying on the delayed data?
> 
> Do you find there is much slippage between when a pair trade opportunity arrives, because it is 20min late? (or more, depending on the length of your pairs list)  Especially around the market open or market-turning news, such as today?
> 
> Anyway, approximately a 6% return on your capital for June; very impressive!




Hi Sutekh,

I eat my lunch in front of my 3 computer screens most days. I hope this answered your question 

BTW I don't know any CFD provider who let you trade with delayed data?!


----------



## Sutekh

skc said:


> I eat my lunch in front of my 3 computer screens most days.




Haha fair call 

CFD providers - I haven't really started looking at them yet, still paper pair trading!


----------



## Sutekh

Ah, my brain was so slow when I asked about data, I meant to clarify about the data feed you were using in PTF; was it the delayed data or the IQ Feed (I'm guessing it's IQ Feed?)


----------



## skc

Sutekh said:


> Ah, my brain was so slow when I asked about data, I meant to clarify about the data feed you were using in PTF; was it the delayed data or the IQ Feed (I'm guessing it's IQ Feed?)




I see. The data feed for ASX is delayed on the PTF. There is no IQ feed for the the software on ASX prices.

I get around that by doing preparation work. Look at the pairs that are close to entry/exit levels and I monitor those in real time with a Webiress feed into a spreadsheet.


----------



## skc

skc said:


> New trade #27 opened. Long PTM @ $3.855. Short IFL @ $6.025. Size = 12.5%.
> 
> Basically the re-openning of trade #16 but with better entry.




Covered IFL @ $6.045. Sold half of PTM @ $3.97. Looking for above $4 for the remaining PTM long.


----------



## skc

skc said:


> Long TEL / Short SGT. Long NZ and short Singapore. TEL seems to have Telstra-like status in NZ and has gone up strongly despite the weak market. SGT has been a bit more up and down. SGT is going ex-div (9c) on 1 Aug so I won't hold this trade for much past early July. Both shares have primary listing overseas so the market depth on the ASX is pretty much meaningless - there are market makers / arbitrager (or whatever they are) who make both stock tick along with thier corresponding main board. Profit target 4%+.




Trade closed. Sold TEL @ $1.925. Covered SGT @ $2.53. P&L = 4.22%.


----------



## skc

Trade #28 opened. Long CPU @ $7.43. Short IRE @ $6.64. Size 10%.


----------



## skc

skc said:


> Covered IFL @ $6.045. Sold half of PTM @ $3.97. Looking for above $4 for the remaining PTM long.




Going off to lunch so just closed rest of PTM @ $3.99.

So overall PTM closed at $3.98. P&L = 2.91%.


----------



## skc

Trade #29. Long FWD @ $11.93. Short UGL @ $12.71. Size 8%.


----------



## skc

skc said:


> Added another 5%. Long CQR @ $3.28. Short CFX @ $1.955.




Closed trade. Sold CQR @ $3.38. Covered CFX @ $1.95. Profit = 3.65%.

Missed profit target by a tick... but only had the opportunity to take the closing auction price.

New trade opened.

Trade #30. Long ENV @ $0.775, short SKI @ $1.535. Size 10% of account.

Will probably build another 5% if divergence widens.


----------



## skc

Trade #28. Long CPU / Short IRE. Both companies are stock market activity levels - CPU benefits from capital raising and corporate events, while IRE from trading volumes. Fundamentally both stocks have similar place in my mind - former market darlings priced for growth that are now being re-rated. On the charts, IRE has enjoyed a 10% bounce from recent lows right into resistance zone in $6.6-$6.8. CPU is only up ~2% and if it manages to get back above $7.6 it can potentially retest $8.20. Profit target ~6-7%.




Trade #29. Long FWD / Short UGL. FWD is leveraged to the mining boom with a good portion of its business in the manufactured building space for mining developments and had a remarkable run from the bottom of the GFC. Because of this leverage it will likely run harder if the market stays in risk-on mode. FWD is threatening resistance at $12.1 and if broken offers a potential ~$12.5. UGL is also at a sloping resistance and has retraced ~50% of the recent downleg. Profit target ~4%.




Trade #30. Long ENV / Short SKI. Gas vs electricity distributor. The utilities / infrastructure sector makes good pairs trading as they tend to have lower risk of company-specific shocks. The main fundamental factor I look is the dividend yield (and the ex-dividend date). ENV enjoys a higher yield, and the ex-div dates are both far enough away for it to not matter much yet. ENV is hitting lower bounds of a 5-month channel between 76 and 81c. SKI's chart is a bit scary for a short as if it breaks $1.54 there might be a 10% run in it - but I do intend to fade the break and build the position further if it happens. Hopefully the resistance will hold SKI back while ENV rotates back towards the top of the channel. Profit target ~5%.


----------



## skc

EOD. 




24 closed trades with 20 wins. 

TEL/SGT was a good albeit early close - there was another 1.5% in it if I just walked off for a cup of coffee. CQR/CFX was right on target but I didn't get a fill before the closing auction. PTM/IFL have enjoyed 2 wins which cumulated to a 5.1% gain - so sometimes taking profit ahead of target offer opportunties to re-enter a trade that the system says is still on.

6 open trades with 5 of them at breakeven while BLY/ASL is down. Average age of the positions is only <3 days so let's see what transpires...


----------



## skc

skc said:


> Trade #19. Long GPT / Short WRT. Two REITs that didn't go ex-div on Monday. Took me a while to work the entries and got $3.225 / $2.84. This is the 3rd time I've shorted WRT and usually this means I should stop doing it soon (i.e. it's going up for a reason unknown to me). Profit target is ~3.5%.




Position closed. Sold GPT @ $3.315. Covered WRT @ $2.87. Profit = 1.73%.

After a few days of directionless floating the divergence reduced and that is pretty much the convergence ratio plus half the spread.

New trade #31 opened. Long SGP @ $3.12. Short CQR @ $3.41. Size 12.5%


----------



## nulla nulla

I like the sgp long trade at $3.12. I exited at $3.17 and re-entered at $3.12 in the smf a/c. Dont know enough about cqr (the other half of your pair) to comment on that one. But patience in sgp should see a return to $3.17+ imo. Good luck.


----------



## skc

Yesterday's picture.






nulla nulla said:


> I like the sgp long trade at $3.12. I exited at $3.17 and re-entered at $3.12 in the smf a/c. Dont know enough about cqr (the other half of your pair) to comment on that one. But patience in sgp should see a return to $3.17+ imo. Good luck.




CQR is the old Macquarie Countrywide. It's managed by Charter Hall. It moves pretty much inline with other retail REITs.


----------



## skc

Trade #32 opened. Long STO @ $10.94. Short OSH @ $6.77. Size = 12.5%

Trade #33 opened. Long MIN @ $8.88. Short CPB @ $55.48. Size = 10%.

Trade #34 opened. Long CSL @ $38.4. Short RHC @ $22.6. Size 15%.


----------



## skc

Trade #35. Long BOQ @ $6.70. Short BEN @ $7.70. Size 15%.


----------



## skc

Trade #36 opened. Long AGO @ $2.10. Short MGX @ $1.005. Size 10%.


----------



## SilverRanger

In queue for long DXS, short GPT, long MRM and NWH atm 
Wish I have more capital to open more trades!


----------



## skc

SilverRanger said:


> In queue for long DXS, short GPT, long MRM and NWH atm
> Wish I have more capital to open more trades!




Yup. I am pushing the account pretty hard at the moment. 

DXS is lagging all REITs at the moment and you might get better run for your money with short GMG.


----------



## skc

Trade #37 opened. Long FGE @ $4.425. Short NWH @ $3.24. Size 7.5%.

Had this open during the day but forgot to include it...


----------



## skc

Charts...

STO/OSH - Normally I avoid any stock that has recent fundamental news and STO last week announced a cost blowout (which they denied) on their LNG project which caused the share price to fall sharply. But the chart suggests that there's good buying below $10.50 plus it's always a takeover target. The OSH chart is right on resistance at $6.80 and I can see a possible retracement back into $6.4-6.5. The STO/OSH ratio is at 6 month low. 

Full convergence up to 8%, but profit target ~5% depending on price action.




MIN/CPB - A trending ratio chart suggests poor historical performance. MIN was a strong mining service stock until March and has been in a down trend since. Only now the chart is showing some consolidation at the lower levels but it's a mere 6% off recent low - many stocks in the sector of decent quality has bounced 10-20%. CPB had a much later start (early May) to the downtrend which was prompted by the profit report. The good thing about pairing with CPB is that it is off-cycle wrt reporting so any nasty pre-report guidance change is avoided.

Profit target ~6%+




CSL/RHC - Two of the strongest stocks on the ASX with defensive qualities. CSL recently touched $40 but was rejected - it will most likely visit there again. RHC is also making 2nd attempt at new high at $22.8, but it has pretty much been channelling higher since March. Bottom of the channel is ~$22. 

Profit target ~3.5%, but will look to close the legs at around $40 / $22 mark.


----------



## skc

BOQ/BEN - Two small regional banks both beginning with "B". BOQ is hitting resistance at $6.8, the same resistance that BEN cleared back at $7.4. So all things being normal, either BOQ can spike up or BEN can retrace towards the breakout. Profit target ~4%.




AGO/MGX - Small iron ore miners both hit hard by the down turn. MGX had a very nice bounce of late (up 15% from the bottom) while AGO has lagged a bit (only up 9%). Full convergence ~10% but only looking for ~5% as both pairs can be volatile. This pair should move into profit quickly if the market falls tomorrow.




FGE/NWH - Two smaller mining services stock that have decent fundamentals if the mining boom doesn't disappear overnight. NWH is up 18% from the recent low, FGE is up only 7%. If the market stays in risk-on mode, FGE can possibly find $5 again, while NWH is looking at $3.6. So with good luck and timing there'd be a profitable time to exit the pair from now till they get there.

Full convergence is a massive 13%. Profit target ~6-7%. Position size kept small as FGE can be thin at times.


----------



## skc

EOD

Plenty of trades but not too much movement on the P&L. Good convergence from BLY/ASL (finally) - I like to see it move into profit by the end of the week or it's a scratch candidate.

Having 12 pairs open is about the limit for pairs trading - you start to get too busy working multiple orders and you start to run out of physical screen space to see all the prices and market depths. From a margin requirement perspective, however, it is not too bad. Total leg size is ~270% of account value. Assuming an average margin requirement of 20% it takes 54% of account to hold these positions - so there's no worry of margin call or anything like that.


----------



## sinner

skc said:


> Charts...




Interested in how/whether you size depending on the slope of the ratio average you've got there.

e.g. full size when slope is 0/flat, reduced size inversely proportional to slope type of thing.

I size based on dispersion, but my spreads are sloped a lot flatter generally. The ones you posted look not much less trendy than an underlying security itself. 

Here is another short-term one I encountered recently, can't remember where exactly sorry. 
X=StockA * StockB (the X is up to you, maybe want to beta weight it)
Y=X-AVG(X,3)
Z=PercentRank(Y,252) 

Short the ratio above Z=0.5 and long the ratio below Z=0.5, or use the Z value as input parameter into position sizing algorithms (100% long at Z=0, 100% short at Z=1, flat at Z=0.5).


----------



## skc

sinner said:


> Interested in how/whether you size depending on the slope of the ratio average you've got there.
> 
> e.g. full size when slope is 0/flat, reduced size inversely proportional to slope type of thing.
> 
> I size based on dispersion, but my spreads are sloped a lot flatter generally. The ones you posted look not much less trendy than an underlying security itself.




The size is based mostly on liquidity and volatility (and sector). I put larger size on the more reliable sectors like REITs and smaller size on volatile pairs like iron ores. FWD and FGE both have relatively shallow market depth so size is kept small so my trading doesn't influence the depth too much, plus it's safer in case of adverse events.

The size variation in this portfolio is a little bit tighter... In my own trading the position sizes range from 5% to 20%.

Your guess of slope of the MA is probably a smart idea that I haven't really thought about. I will keep an eye on it to see if it has a role in trade performance.


----------



## skc

skc said:


> Trade #18 opened. Long BLY @ $2.835. Short ASL @ $3.275. Size 10%.




Trade closed. Sold BLY @ $3.08. Covered ASL @ $3.51. Profit = 1.47%.


----------



## skc

Trade #38. Long DXS @ $0.915. Short GPT @ $3.35. Size 15%.


----------



## nulla nulla

How is trade 31 going? Did you close it out our are you still riding the roller coaster?


----------



## skc

New trade #39 opened. Long ILU @ $11.63. Short MDL @ $5.205. Size = 10%.



nulla nulla said:


> How is trade 31 going? Did you close it out our are you still riding the roller coaster?




Still open. It's not really much of a rollar coaster. The ratio has only been moving in ~2% range.


----------



## skc

EOD 




A poorly closed trade in BLY/ASL even though that it was a win. I tend to close pairs early if the pair has gone offside by a fair bit. BLY/ASL was down ~8% at one stage... it's as much psychological as anything else as I look for the relief of avoiding a large loss. Something I need to work on.


----------



## SilverRanger

skc said:


> EOD
> 
> View attachment 47768
> 
> 
> A poorly closed trade in BLY/ASL even though that it was a win. I tend to close pairs early if the pair has gone offside by a fair bit. BLY/ASL was down ~8% at one stage... it's as much psychological as anything else as I look for the relief of avoiding a large loss. Something I need to work on.




Well, I know exactly how you feel cuz I closed it off yesterday too, though my excuse was to free up the margin for new trades


----------



## skc

skc said:


> Trade #29. Long FWD / Short UGL. FWD is leveraged to the mining boom with a good portion of its business in the manufactured building space for mining developments and had a remarkable run from the bottom of the GFC. Because of this leverage it will likely run harder if the market stays in risk-on mode. FWD is threatening resistance at $12.1 and if broken offers a potential ~$12.5. UGL is also at a sloping resistance and has retraced ~50% of the recent downleg. Profit target ~4%.




Trade closed. Sold FWD @ $12.20. Covered UGL @ $12.815. P&L = 1.44%.

Just scratched this trade - liquidity has been poor and limited upside (target has moved to only 2.5%). I spent too much time watch this flicking 100 shares at a time when there are more important things to do (like watching paint dry)...



SilverRanger said:


> Well, I know exactly how you feel cuz I closed it off yesterday too, though my excuse was to free up the margin for new trades




Yes I had to really resist hard on closing that trade 2 days ago. Having this journal actually helped. Feels like I am less inclined to make random actions when the record is on public display...


----------



## skc

skc said:


> New trade #39 opened. Long ILU @ $11.63. Short MDL @ $5.205. Size = 10%.




Trade closed. Sold ILU @ $11.62. Covered MDL @ $4.995. Profit = 3.95%.

The target was ~6% so 2/3 of the way in one day. MDL is quite a thin and tricky stock and there was only a few thousand shares on the ask for exit before the spread jumps anyother 3%. ILU looking like it's headed towards a strong close.


----------



## skc

New trade #40. Long PPT @ $22.82. Short IFL @ $6.08. Size = 12.5%.


----------



## skc

EOW. Account up 6.99%, up 1.4% for the week. 28 closed trades vs 12 open trades at small profits. 




Have a nice weekend.


----------



## skc

skc said:


> Trade #28. Long CPU / Short IRE. Both companies are stock market activity levels - CPU benefits from capital raising and corporate events, while IRE from trading volumes. Fundamentally both stocks have similar place in my mind - former market darlings priced for growth that are now being re-rated. On the charts, IRE has enjoyed a 10% bounce from recent lows right into resistance zone in $6.6-$6.8. CPU is only up ~2% and if it manages to get back above $7.6 it can potentially retest $8.20. Profit target ~6-7%.




Trade closed. Sold CPU @ $7.36. Covered IRE @ $6.425. P&L = 2.3%.

I am going to have an interrupted week trading wise so just closing a few trades that are slow to get going. CPU failed to break $7.6 resistance so not a lot going on here.



skc said:


> Trade closed. Sold ILU @ $11.62. Covered MDL @ $4.995. Profit = 3.95%.
> 
> The target was ~6% so 2/3 of the way in one day. MDL is quite a thin and tricky stock and there was only a few thousand shares on the ask for exit before the spread jumps anyother 3%. ILU looking like it's headed towards a strong close.




Dodge a bullet here. ILU with a poor update and share price fell 20%. If this trade was open the MDL short would have coushioned the blow as it fell ~8%. The P&L would have been -6-8% which is not disasterous.


----------



## skc

skc said:


> New trade #40. Long PPT @ $22.82. Short IFL @ $6.08. Size = 12.5%.




Trade closed. Sold PPT @ $22.76. Covered IFL @ $5.90. Profit = 2.7%.

Full profit target was ~4%... 2/3 of the work in one day.


----------



## skc

skc said:


> New trade #31 opened. Long SGP @ $3.12. Short CQR @ $3.41. Size 12.5%




Trade closed. Sold SGP @ $3.13. Covered CQR @ $3.305. P&L = 3.4%.


----------



## skc

EOD




3 closed trades today to get the total number of open positions to a easier managable level. I was very tempted to close IOF/GMG on Friday given how long it's been open, but missed the opportunity so have to wait and see if the profit comes back. MGX seems to be trying to hold onto $1 and it's a key level to watch over time. NWH reverted from recent strong run so a better timing / additional layer would have been profitable.


----------



## skc

Trade #41 opened. Long PTM @ $3.88. Short IAG @ $3.56. Size 7.5%.

Analyst downgrade causing PTM to fall 5% in a flattish market. I am not sure if the selling is done yet so will look to increase the position if there are further falls on PTM.


----------



## skc

skc said:


> Trade #41 opened. Long PTM @ $3.88. Short IAG @ $3.56. Size 7.5%.
> 
> Analyst downgrade causing PTM to fall 5% in a flattish market. I am not sure if the selling is done yet so will look to increase the position if there are further falls on PTM.




Got a little bit more. The line now reads: Long PTM @ $3.86. Short IAG @ $3.545. Size 10%.


----------



## skc

skc said:


> Got a little bit more. The line now reads: Long PTM @ $3.86. Short IAG @ $3.545. Size 10%.




Trade #41 closed. Sold PTM @ $3.8. Covered IAG @ $3.50. P&L = -0.26%.

Lol nothing beat a profit downgrade 1 hour after your entry. PTM announces 10% lower profit after the share price fallen 7%, and there I was thinking it was just a broker downgrade related flow event. I didn't know how to take the news so exit seems like the safest course of action. PTM EPS is ~22c and fundamentally I can't see why it should that support at $3.80+ share price. A more normal PE of ~12-14 suggests a range ~$2.6-$3.1.



skc said:


> Trade #33 opened. Long MIN @ $8.88. Short CPB @ $55.48. Size = 10%.




Trade #33 closed. Sold MIN @ $8.855. Covered CPB @ $54.05. P&L = 2.3%. 

I had a breakeven stop loss in mind for MIN and can't afford to hold it long while it goes to test recent lows for the 3rd time.


----------



## skc

skc said:


> Trade #30. Long ENV / Short SKI. Gas vs electricity distributor. The utilities / infrastructure sector makes good pairs trading as they tend to have lower risk of company-specific shocks. The main fundamental factor I look is the dividend yield (and the ex-dividend date). ENV enjoys a higher yield, and the ex-div dates are both far enough away for it to not matter much yet. ENV is hitting lower bounds of a 5-month channel between 76 and 81c. SKI's chart is a bit scary for a short as if it breaks $1.54 there might be a 10% run in it - but I do intend to fade the break and build the position further if it happens. Hopefully the resistance will hold SKI back while ENV rotates back towards the top of the channel. Profit target ~5%.




Trade closed. Sold ENV @ $0.795. Covered SKI @ $1.54. P&L = 2.25%.

There was a chance to layer in but I didn't capitalise on it. The divergence has diminished since the trade opened and there's only a tick left - that's not worth chasing as I need to be away from the screens tomorrow.


----------



## skc

EOD




34 closed trades vs 7 open trades at small loss. 

This portfolio has been lucky - it dodged ILU by a day, and PTM's profit downgrade didn't really affect the share price too much. But I am pleased to be out of the trade with very minimal impact - the market can be savage against profit downgrades.


----------



## SilverRanger

skc said:


> EOD
> 
> View attachment 47828
> 
> 
> 34 closed trades vs 7 open trades at small loss.
> 
> This portfolio has been lucky - it dodged ILU by a day, and PTM's profit downgrade didn't really affect the share price too much. But I am pleased to be out of the trade with very minimal impact - the market can be savage against profit downgrades.




Only did short LLC vs long MGR today, which is kind of a reverse trade of long SGP vs short MGR earlier. 

Otherwise I have both long DXS vs short GPT and long MRM vs short NWH in heavier loss than your pairs


----------



## skc

skc said:


> Charts...
> 
> STO/OSH - Normally I avoid any stock that has recent fundamental news and STO last week announced a cost blowout (which they denied) on their LNG project which caused the share price to fall sharply. But the chart suggests that there's good buying below $10.50 plus it's always a takeover target. The OSH chart is right on resistance at $6.80 and I can see a possible retracement back into $6.4-6.5. The STO/OSH ratio is at 6 month low.
> 
> Full convergence up to 8%, but profit target ~5% depending on price action.




Trade closed. Sold STO @ $10.5. Covered OSH @ $6.36. P&L = 2.03%.

I had a mental note to close the trade if STO falls below $10.50 again (although on hindsight it looks like it is supported) so trade closed to protect downside risk.



SilverRanger said:


> Only did short LLC vs long MGR today, which is kind of a reverse trade of long SGP vs short MGR earlier.
> 
> Otherwise I have both long DXS vs short GPT and long MRM vs short NWH in heavier loss than your pairs




I think DXS/GPT "should" comeback, although DXS has been weak for a while. Don't know much about MRM but my FGE/NWH is not going awesome either... the liquidity of FGE is pretty poor and it's probably off my trade list from now on.


----------



## skc

skc said:


> FGE/NWH - Two smaller mining services stock that have decent fundamentals if the mining boom doesn't disappear overnight. NWH is up 18% from the recent low, FGE is up only 7%. If the market stays in risk-on mode, FGE can possibly find $5 again, while NWH is looking at $3.6. So with good luck and timing there'd be a profitable time to exit the pair from now till they get there.
> 
> Full convergence is a massive 13%. Profit target ~6-7%. Position size kept small as FGE can be thin at times.
> 
> View attachment 47752




Trade closed. Sold FGE @ $4.275. Covered NWH @ $3.135. P&L = -0.15%.

FGE is too illiquid so I just close the trade given the opportunity.


----------



## skc

skc said:


> Trade #38. Long DXS @ $0.915. Short GPT @ $3.35. Size 15%.




Trade closed. Sold DXS @ $0.93. Covered GPT @ $3.31.


----------



## skc

EOD. Account plodding on the spot.


----------



## skc

skc said:


> AGO/MGX - Small iron ore miners both hit hard by the down turn. MGX had a very nice bounce of late (up 15% from the bottom) while AGO has lagged a bit (only up 9%). Full convergence ~10% but only looking for ~5% as both pairs can be volatile. This pair should move into profit quickly if the market falls tomorrow.




Trade closed. Sold AGO @ $1.9125. Covered MGX @ $0.945. P&L = -2.96%.

I watched FMG fall all day and thought that other iron ores would be dragged down along so I sold a fair portion o fit in the morning. MGX also released its quarterly which I wasn't expecting - evidently the quarterly was reasonably positive and it's held up well considering the market. AGO is now making new lows so time to let the trade go. 



skc said:


> Trade #22 Long IOF @ $2.685. Short GMG @ $3.745. Size 15%.




Trade closed. Sold IOF @ $2.735. Covered GMG @ $3.775. P&L = 1.38%.

The trade has reach its expiray. Not a great trade and certainly not good exits. I've got signal to short GMG against many REITs but I was tied up in this trade with IOF not really doing a lot. 

I am in the process of moving trading account, so it's a reasonably place to end this journal. I will report the close of the 2 remaining trades and do some post-journal analysis.


----------



## CanOz

I truly admire you success SKC. I wish i had the desire to trade this way. Well done, great thread too!

You're gettin it done!

CanOz


----------



## skc

EOD. Still plodding along.






CanOz said:


> I truly admire you success SKC. I wish i had the desire to trade this way. Well done, great thread too!
> 
> You're gettin it done!
> 
> CanOz




Thanks Can. I wish I have the desire to trade futures short term where you can walk away whenever. For me to have zero open trades and take a 1 week holiday, I need to stop taking trades two week beforehand.

And good luck with your quest. May the force be with you.


----------



## fingl

hi do you adjust and normalize you each position size across your portfolio?
atr is not really a good predictor of futures p/l. The variation is alot and adjust the position size might not be useful.


----------



## skc

fingl said:


> hi do you adjust and normalize you each position size across your portfolio?
> atr is not really a good predictor of futures p/l. The variation is alot and adjust the position size might not be useful.




Fingl, 

As I said I adjust my positions based on volatility and liquidity. If a pair can go through large gyrations I tend to keep the position size small to keep the risk low. I don't have hard mathematical formula to guide position sizing - it is more intuition + knowing how the particular stock tend to behave.

I can't answer re: ATR specifically but I wouldn't think it's a predictor of future profits anyway. You might use ATR (of the ratio) as a guide to position sizing. E.g. ATR of the ratio is 4% per week and your average holding time is 2 weeks. You might say that a 10% change is ratio is about as bad as you would cop it, and size your position accordingly. But it wouldn't be perfect as with most things in life.


----------



## Tails

SKC,

A great thread that I have read back to front on numerous occasions. I have followed your journey during the past 6 odd weeks and have learned a lot from it. Thanks for sharing your trades during this time period and the rationale behind them.


----------



## skc

Sorry I've been busy on a number of fronts and it's time to wrap up this thread. I will exit the two remaining pairs using the closing price today.

Trade #34 closed. Sold CSL @ $39.66. Covered RHC @ $24.01. P&L = -2.96%.
Trade #35 closed. Sold BOQ @ $6.81. Covered BEN @ $7.98. P&L = -1.99%.

This allows me to do some overview of results and analysis and wrap the journal up in the next few posts.



Tails said:


> SKC,
> 
> A great thread that I have read back to front on numerous occasions. I have followed your journey during the past 6 odd weeks and have learned a lot from it. Thanks for sharing your trades during this time period and the rationale behind them.




Thanks for your kind words and welcome to the forum .


----------



## skc

End of Journal.




41 trades in 6 weeks and net profit of 7.55%. 32 wins vs 9 loss for a win% of 78%. Avg win is slightly larger than average loss and that's much better than what my own trading has been. One large loss would blow this ratio out since the absolute number of losses tend to be small. Total commission paid $1570 which was 20% of P&L.

Overall it was an efficient period of trading. No single large loss and good win ratio. Not all periods will be like this, however.


----------



## skc

This series of charts are all pretty self-explanatory. They look at P&L a number of different ways. 

The "P&L by date" shows the account value based on daily closing prices. It is more volatile than the "P&L by trade" curve which tallied the P&L only after the trade is closed. Notice all the dips that can be seen on "P&L by date" which illustrated how some pairs do diverge a fair bit before converging. On the P&L you will also notice that there were 19 wins in a row from Trade #15 to #33, followed by 4 straight losses. I do find that these runs occur more often than the statistics suggest (With 78% win rate, 19 wins in a row has a 0.9% probability of occuring, while 4 losses in a row has a 0.2%) - and I suspect it has something to do with psychology but that theory is untested.

The key takeaway here is accumulation of small wins at a high accuracy while avoiding major holes where you can.


----------



## skc

The next series of charts explore the trades in more detail.

Ratio % change vs trade size
This attemps to show how well/not well the position sizing has worked. Ideally, large ratio % change should be confined to the lower half of the charts where position sizes are small. Too many dots on the top left corner means that you are not reducing position size for the more volatile pairs.

Trade P&L vs Days open
This shows that the majority of the good easy wins come within 10 days, and the statistical edge is a lot less at 10+ days with win% falling below 50%.

Cumulative P&L at today's price
To produce the red line on this chart, I plug in today's closing share price as the exit price for all the trades. It is purely an academic exercise to show that pairs trading money are made thanks to the volatility of the stock. You don't need to hold and let profit run - as chances are much of the convergence / mean reversion don't last long.

Performance by exit type
I've categorised all 41 trades by their exit type. Target met, early profit taken, time-based stop (usually holding >2 weeks), chart stop (where I had a mental price-based stop based on support/resistance), scratched (trades that shouldn't have taken) and event (e.g. the PTM profit guidance). Note again that most profits are in the first two columns. The rest of the categories are not about profit, but risk control. Get one event wrong and you will pay for it over the next 40 trades.


----------



## skc

So, I hope people have enjoyed my musing over the last 6 weeks or so. Remember there are many ways to pairs trade and what I've shown in the journal is definitely not the only way or the most profitable way. Take what is useful and discard what isn't to you, and share your pairs trading here.


----------



## Sutekh

skc said:


> So, I hope people have enjoyed my musing over the last 6 weeks or so. Remember there are many ways to pairs trade and what I've shown in the journal is definitely not the only way or the most profitable way. Take what is useful and discard what isn't to you, and share your pairs trading here.




Wow!  Thanks again for taking the time to update your journal skc, especially with the detailed analysis of the trades.  I think it's a very valuable exercise.  If you continue with pairs trading best of luck!


----------



## spec

skc said:


> So, I hope people have enjoyed my musing over the last 6 weeks or so. Remember there are many ways to pairs trade and what I've shown in the journal is definitely not the only way or the most profitable way. Take what is useful and discard what isn't to you, and share your pairs trading here.




Awesome results !!!
 Did you perform backtesting in order to choose your universe of pairs. Can you share your criteria (profit per trade, % win etc. ) with us ?

Thanks again


----------



## skc

spec said:


> Did you perform backtesting in order to choose your universe of pairs. Can you share your criteria (profit per trade, % win etc. ) with us ?
> 
> Thanks again




When I first started my pairs list was derived solely from backtesting. There wasn't a fixed criteria but I picked out the top ones in each sector as long as they are say >$300 per trade (for $10000 trade size) and >70% win%. It is probably a good idea to do that if you are just starting out.

But over time I start to rely more on knowing about the companies. As long as the companies are fundamentally correlated I will assess the trade on its own merit without necessarily thinking too much about how well they'd backtest.


----------



## fingl

skc said:


> As I said I adjust my positions based on volatility and liquidity. If a pair can go through large gyrations I tend to keep the position size small to keep the risk low. I don't have hard mathematical formula to guide position sizing - it is more intuition + knowing how the particular stock tend to behave.




skc from your chart you put up you did a good job on tuning to future volatility. Do you measure or use the 100 ma 
to guide the gyration amount? And knowing how the stk behave is referring to how the stk behave on funde news are purely on how the price behave?


----------



## skc

fingl said:


> skc from your chart you put up you did a good job on tuning to future volatility. Do you measure or use the 100 ma
> to guide the gyration amount? And knowing how the stk behave is referring to how the stk behave on funde news are purely on how the price behave?




Just purely on knowing how the price behave. How often do you expect to see a 5% daily move? Most days, once a week, few times a month or once in a blue moon? 

Sometimes a stock will surprise you by putting in a large move, but by and large past ranges are good guides to the future.


----------



## fingl

skc,

On the exit chart for chart base exit the red column is negative 10%. Does this mean those trades using the chart base exit return is 10% less compare to normal exit? What does PTM mean? 

How much improvement on your trades return for those trades using discretionary exit? Suppose discretionary exit improve your return using other tools would not mean you are suit for discretionary chart trading? Why don't you have a thread talking about your transition from number selection trading to more intuitive trading about the difficulties, pitfalls and your strength? Did a study on how news affect the price and the result is not much different. The number of times for favoring news improve price compare to unfavoring news is about same with favoring news a little more




skc said:


> View attachment 47958
> 
> 
> The next series of charts explore the trades in more detail.
> 
> Ratio % change vs trade size
> This attemps to show how well/not well the position sizing has worked. Ideally, large ratio % change should be confined to the lower half of the charts where position sizes are small. Too many dots on the top left corner means that you are not reducing position size for the more volatile pairs.
> 
> Trade P&L vs Days open
> This shows that the majority of the good easy wins come within 10 days, and the statistical edge is a lot less at 10+ days with win% falling below 50%.
> 
> Cumulative P&L at today's price
> To produce the red line on this chart, I plug in today's closing share price as the exit price for all the trades. It is purely an academic exercise to show that pairs trading money are made thanks to the volatility of the stock. You don't need to hold and let profit run - as chances are much of the convergence / mean reversion don't last long.
> 
> Performance by exit type
> I've categorised all 41 trades by their exit type. Target met, early profit taken, time-based stop (usually holding >2 weeks), chart stop (where I had a mental price-based stop based on support/resistance), scratched (trades that shouldn't have taken) and event (e.g. the PTM profit guidance). Note again that most profits are in the first two columns. The rest of the categories are not about profit, but risk control. Get one event wrong and you will pay for it over the next 40 trades.


----------



## skc

fingl said:


> skc,
> 
> On the exit chart for chart base exit the red column is negative 10%. Does this mean those trades using the chart base exit return is 10% less compare to normal exit? What does PTM mean?




The red% columns are % of the total P&L for the account. So for the account having made $7500, "target" accounted for ~70% of that (or $5250), while "chart stop" accounted for -10% of that (that is, a loss of ~$750). The red% columns add to 100%.

PTM was the stock I was long which released an earning guidence unexpectedly. 



fingl said:


> How much improvement on your trades return for those trades using discretionary exit?




This is not something I have a hard figure on. But I know my own trading overall is more profitable than the system (with whatever current parameters I have) - mostly because of better entries and the rest due to better exits. I also regularly re-enter after taking early profits, or I switch one side of the pair etc. Plus cutting some pairs allow me to move on and open other new pairs. So any quantification is inexact anyway. 

May be optimising the system parameters will render my discretionary interference pointless... but I am in the process of increasing my total profits by expanding my trade size, rather than optimising the system. It's a much easier way.



fingl said:


> Suppose discretionary exit improve your return using other tools would that not mean you are suit for discretionary chart trading?




May be but that hasn't been the case. I do take some directional trades but without nearly the same profiability  as my pairs trading. The skills are some what transferable but the trading parameters will be very different.

For example, AAA has fallen to support while BBB is rising to resistance and the signal asked me to long AAA and short BBB. That's decent trade considering the set up. As a pair this trade can be profitable with AAA drifting around support while BBB falling sharply, or it can have AAA bouncing off support strongly and BBB being held back by the resistance. I don't know which scenario will play out so going long AAA or going short BBB alone will have very different reward / risk profile. 

The other reason is directional trade requies fixed price-based stops - often a directional trade mis-behave for a few days, stopping you out in the process, before it gets going again. May be it's just a case of me being bad at stop placements. But imo pairs trading is far more forgiving as is has a more flexible risk management approach that aren't as rigid in terms of price behaviour. 



fingl said:


> Why don't you have a thread talking about your transition from number selection trading to more intuitive trading about the difficulties, pitfalls and your strength? Did a study on how news affect the price and the result is not much different. The number of times for favoring news improve price compare to unfavoring news is about same with favoring news a little more




I think most people will struggle to articulate those succinctly without being a professional writer. Tacit knowledge is difficult to express.


----------



## edman79

Hi SKC, 
I entered Long BLY short FGE on friday. Thinking BLY would have some support at $2.40

1. Can you give me reasons why you would/would not have taken this trade.

2. How would you manage this trade from now - currently down %7.7

These are the questions that reglarly arise when I take a bad trade - should I have taken it/how do I avoid it in the future and what to do with it once it turns bad.

Thanks.


----------



## skc

edman79 said:


> Hi SKC,
> I entered Long BLY short FGE on friday. Thinking BLY would have some support at $2.40
> 
> 1. Can you give me reasons why you would/would not have taken this trade.
> 
> 2. How would you manage this trade from now - currently down %7.7
> 
> These are the questions that reglarly arise when I take a bad trade - should I have taken it/how do I avoid it in the future and what to do with it once it turns bad.
> 
> Thanks.




1. Looking at the ratio chart alone it is a trade that I would have taken as well. Looking at a BLY chart, you can see $2.60 is a key level. A long of BLY on Friday would also seem sensible - the market was looking respectable and I would have expected a retest of at least $2.60. The short FGE on Friday also doesn't look too bad. So it is completely sensible to have taken the trade.

2. You manage this trade same as you would any other trade. Observe your stops ($ loss, time based or other) like you normally would. Also note that they are reporting in 2 weeks time - so decide for yourself whether holding over reporting times is part of your strategy. 

BLY is not a small stock but it often behaves like one... it can move >5% daily in either direction with plenty of ease. And FGE is a bit thin and 2-3% daily moves are also nothing to write home about. So with the BLY/FGE pair, a 7.7% open loss should not be unexpected, as much as it suks. You manage that by sizing your position accordingly. I would have had no more than 10% of the account per side on this pair, so the absolute loss relative to account should really be <1%. That is, it should not be something you need to worry about in the whole scheme of things.

Having said that I am very surprised at the weakness showed by BLY in the last 2 day considering what the overall market has done... may be they were dragged down by the CPB AGM comments that drilling activities by small explorers are expected to fall.


----------



## edman79

skc said:


> Observe your stops ($ loss, time based or other) like you normally would.




Thanks for the advice. 
What have you found to be good stops when a trade just doesnt want to come back?
From extensive back testing I am yet to find a $ or time based stop that improves the system. So it seems any absolute stop might be better for the mind than the wallet.


----------



## skc

edman79 said:


> Thanks for the advice.
> What have you found to be good stops when a trade just doesnt want to come back?
> From extensive back testing I am yet to find a $ or time based stop that improves the system. So it seems any absolute stop might be better for the mind than the wallet.




Absolute $ stop is an absolute must have. It is for the wallet as much as for the mind. Imagine you have long BNB short MQG and decide not to close it... Time based stop depends on your own parameters and probably various depending on the pair. But the longer you hold, the higher the chance that you will run into some event/news that you are trying to avoid.

To be honest, even if the stop is only for the mind it may still work out better for the wallet. It allows you to move on from a poor trade and take the next 100 trades. A bit like breaking up with a lousy girlfriend...

P.S. Not advice. Just opinions


----------



## edman79

I had a lousy girlfriend once, so I married her... ha ha what does that say about my trading?
I guess my point is that although I havent seen a BNB chart even BNB probably offered an exit signal on PTF. Stocks almost never trade straight up or down and once the bad news came it would have been too late. Just some thoughts... dont stress skc I wont sue you if any of your "opinions" are detrimental to my trading


----------



## SilverRanger

God knows what happened to BLY today, plunging 11% for no apparent reason!


----------



## skc

SilverRanger said:


> God knows what happened to BLY today, plunging 11% for no apparent reason!




Yup. Friday was tough to watch for BLY/FGE (or BLY/anything). There was a pretty big and desperate seller that just took all the bids available. Reverse speeding ticket today with the expected answer and prompted at least a short term reversal.

It all depends on whether the seller had finished offloading.


----------



## notting

Now I think I'll start inching into longing JHX 7.60 and shorting BLD 3.50


----------



## skc

notting said:


> Now I think I'll start inching into longing JHX 7.60 and shorting BLD 3.50




BLD reporting 22 August. They've already provided guidance recently so one shouldn't expect too many surprises. 

But as we know with the stock market - don't be surprised by surprises...


----------



## notting

Yes! Trading the suprise is most profitable!
e.g. 'Oh that is rediculously cheap I have to buy it.'  "Go short"
The self contrarian 90% winning club.


----------



## SilverRanger

notting said:


> Yes! Trading the suprise is most profitable!




Only if you get the direction right, just take DOW and UGL for example this month...

Putting myself on holiday mode til the reporting season is over...


----------



## SilverRanger

skc said:


> Yup. Friday was tough to watch for BLY/FGE (or BLY/anything). There was a pretty big and desperate seller that just took all the bids available. Reverse speeding ticket today with the expected answer and prompted at least a short term reversal.
> 
> It all depends on whether the seller had finished offloading.




Glad it all ended well for those brave hearts who fought on...


----------



## skc

SilverRanger said:


> Only if you get the direction right, just take DOW and UGL for example this month...
> 
> Putting myself on holiday mode til the reporting season is over...




Definitely. 8-10% moves seem to be the standard on Day 0. The pairs trading edge is too thin to withstand too many of these. Read the report and just trade in the direction of the report and you can get a pretty decent 3-5% move which is probably as good as a pairs trade.

Although I am not actually on holiday - just sidestepping them the best I can.



SilverRanger said:


> Glad it all ended well for those brave hearts who fought on...




Brave when it worked out. Foolish when it didn't. If I held I really wouldn't be sure that I'd hang in there. The selling was just so aggressive.


----------



## SilverRanger

skc said:


> Brave when it worked out. Foolish when it didn't. If I held I really wouldn't be sure that I'd hang in there. The selling was just so aggressive.




Well, I was in it and I can tell you it wasn't an easy decision to make. Although it was helpful that I only entered half the normal position size initially (knowing it's BLY, that seems logical), so there's more room to take losses in absolute terms.


----------



## fingl

skc,

What do you do when the stk gap not one stk but both in unflavor of your trade direction? 

And about news how do you differentiate the level of news significant that would have impact on the trade ?


----------



## skc

fingl said:


> skc,
> 
> What do you do when the stk gap not one stk but both in unflavor of your trade direction?
> 
> And about news how do you differentiate the level of news significant that would have impact on the trade ?




When both stock gap on you in the wrong direction, there's not much you can do but cry... ... while sticking to our existing trading plan (hopefully a profitable one) and think about the next 100 trades.

Re News:

If I can give you useful answer in this post on how to assess all news quickly and accurately all the time - I'd be a trillionaire. The only thing useful I can say is - avoid stepping on news the best you can, and get out if you don't know how to interpret the news.


----------



## fingl

skc said:


> When both stock gap on you in the wrong direction, there's not much you can do but cry... ... while sticking to our existing trading plan (hopefully a profitable one) and think about the next 100 trades.
> 
> Re News:
> 
> If I can give you useful answer in this post on how to assess all news quickly and accurately all the time - I'd be a trillionaire. The only thing useful I can say is - avoid stepping on news the best you can, and get out if you don't know how to interpret the news.




skc, what about try to buy or sell more on gap? may be riskier


----------



## skc

fingl said:


> skc, what about try to buy or sell more on gap? may be riskier




It is not something I do as a routine, but if that is your plan, and that it still confers to your risk limits, and that you know the stock in questions tend to close its gaps... then sure why not.


----------



## SilverRanger

Opened a new trade today while waiting for the reporting season ends: long IGR, short SLR, IGR is currently under all-script takeover by SLR, offering 6.28 IGR for 1 SLR share. 

IGR currently trades at 0.445, while the implied value of the takeover is 0.466 (SLR currently trades at 2.93). There's some 4.8% profit to be milked if the deal completes successfully.

IGR board intends to unanimously recommend the offer and is currently waiting for independent expert's report. 

The deal is expected to be finalised by December, but my target exit will probably be much earlier than that.


----------



## skc

SilverRanger said:


> Opened a new trade today while waiting for the reporting season ends: long IGR, short SLR, IGR is currently under all-script takeover by SLR, offering 6.28 IGR for 1 SLR share.
> 
> IGR currently trades at 0.445, while the implied value of the takeover is 0.466 (SLR currently trades at 2.93). There's some 4.8% profit to be milked if the deal completes successfully.
> 
> IGR board intends to unanimously recommend the offer and is currently waiting for independent expert's report.
> 
> The deal is expected to be finalised by December, but my target exit will probably be much earlier than that.




Traded this on the open on the first day. Managed about 5%.

See recent ALD / SBM on how long it takes the prices to converge.


----------



## SilverRanger

skc said:


> Traded this on the open on the first day. Managed about 5%.
> 
> See recent ALD / SBM on how long it takes the prices to converge.




Good idea...

Just spent some time plotting the "premium" (implied/market price) for ALD and IGR since day 1 of the announcement.

Obviously using EOD data alone doesn't show the full dynamics, but the week 1 performance are quite different for the two, which is surprising since ALD/SBM has board and independent expert's recommendation right from the start. That would have been a much better opportunity than IGR/SLR.

I guess for IGR the premium will most likely sit in the current range until something big, e.g. independent expert's report or (ideally) a superior offer! In the meantime I should be comfortably sitting on my 4.8%...


----------



## fingl

Guys would you avoid trading stks giving dividend?


----------



## notting

Hmmm sell BHP 32.88  buy RIO  52.26
I just don't know.:bloated:


----------



## skc

fingl said:


> Guys would you avoid trading stks giving dividend?




You mean avoid holding during ex-div periods? Not necessarily but you need to consider extra dimensions like franking credits and the fact that PTF will give false entry/exit signals on share price movements due to dividends.



notting said:


> Hmmm sell BHP 32.88  buy RIO  52.26
> I just don't know.:bloated:




Dunno. RIO already ex-div so is the signal actually valid?


----------



## notting

skc said:


> Dunno. RIO already ex-div so is the signal actually valid?




Dividends accounted for. 
BHP is showing more strength due to diversification and having not paid dividend.  That has played out for days and it's well overvalued relatively to RIO having paid etc. given the 97% correlation.

Never take too much notice of the stupid Pair Trade Finder.  I have it set up on two different computers with exactly the same preferences and it gives completely different percentages from the mean and signal entries.  

You also cannot back it up properly with images and data kept on different discs in case of a crash.  It does not recover and you have to reinstall, it will not pick up your pairs data after reinstalling, all data has to be manually entered again manually and it gives you totally different signals and percentages from the mean etc.  If your not on top of your game you will have no idea where all your open trades truely lie, well not without alot of work!

Pair Trade Finder is a peace of crap. 
The guy selling it is a lazy good for nothing dick who does not respond to serious issues.


----------



## skc

notting said:


> Pair Trade Finder is a peace of crap.




Wanted to say something different, but can't really disagree.


----------



## sinner

notting said:


> Pair Trade Finder is a peace of crap.
> The guy selling it is a lazy good for nothing dick who does not respond to serious issues.




Hmmm, I always assumed it was at least alright software, but if what you say is true I should write a solid client and sell it for ...how much does that dude sell it for? per copy...


----------



## notting

skc said:


> Wanted to say something different, but can't really disagree.




Still OK for analysing spreads and so on as you would know.


----------



## notting

sinner said:


> Hmmm, I always assumed it was at least alright software, but if what you say is true I should write a solid client and sell it for ...how much does that dude sell it for? per copy...




I think I went in pretending to be US based and picked it up for around 350.00 free delayed data from Yahoo.
That would be great sinner!


----------



## skc

sinner said:


> Hmmm, I always assumed it was at least alright software, but if what you say is true I should write a solid client and sell it for ...how much does that dude sell it for? per copy...




His pricing changes regularly like a penny stock. I think it's been free (on open an IG market account) to $899. I paid at the lower end of that range. The website now says $49 per month with free data (not sure if that meant free yahoo or live data).

If you do write something I'd be quite interested.


----------



## SilverRanger

Closing IGR/SLR after a nice spike today. Time to get back to real business!


----------



## edman79

notting said:


> You also cannot back it up properly with images and data kept on different discs in case of a crash.  It does not recover and you have to reinstall, it will not pick up your pairs data after reinstalling, all data has to be manually entered again manually and it gives you totally different signals and percentages from the mean etc.  If your not on top of your game you will have no idea where all your open trades truely lie, well not without alot of work!




Hi Notting,
Are you backing up using SQL Server Management Studio. I do a backup nightly and restore to the same computer if I have a problem or restore to a laptop if I'm going away. I dont have a problem restoring it and only have to manually add pairs if I'm looking for new pairs. 

Let me know if you need more info.


----------



## fingl

skc, what gives you the confidence to use discretionary exit on your trading when you do not know whether discretionary may outperform? You mention you use to choose those good stk with good figures or curve in your initial trading. How many min number of yrs of "good" curve before you include them for trading?


----------



## fingl

skc said:


> You mean avoid holding during ex-div periods? Not necessarily but you need to consider extra dimensions like franking credits and the fact that PTF will give false entry/exit signals on share price movements due to dividends.




skc, referring to avoid shortsell during exdiv. The price would reflect the deduction of div amount but is true signal right? due to the price has digest the div. The signal may turn out to be profit or loss. Should those signals due to deduction of div be avoided? Between skc how do you determine a appropriate good hedge for franking credit trade?


----------



## notting

Sell BOQ 7.55 buy BEN 7.62


----------



## skc

fingl said:


> skc, what gives you the confidence to use discretionary exit on your trading when you do not know whether discretionary may outperform? You mention you use to choose those good stk with good figures or curve in your initial trading. How many min number of yrs of "good" curve before you include them for trading?




I actually do know that my discrectionary exit out performs. I record my own exits against system signal exits and I beat it quite handsomely. Now what I don't know is whether it means my system parameters should be better optimised. 

My hold timeframe is 1-2 weeks... how many years of good curve do you think I should use?



fingl said:


> skc, referring to avoid shortsell during exdiv. The price would reflect the deduction of div amount but is true signal right? due to the price has digest the div. The signal may turn out to be profit or loss. Should those signals due to deduction of div be avoided? Between skc how do you determine a appropriate good hedge for franking credit trade?




Yes. Avoid false signals due to dividend... surely you knew that already.


----------



## SilverRanger

NWH went into trading halt today just as I was in the queue at 2.22, did I dodge a bullet or miss a free trip to Europe? Sounds like it's the former since FMG is deferring a few projects...


----------



## skc

SilverRanger said:


> NWH went into trading halt today just as I was in the queue at 2.22, did I dodge a bullet or miss a free trip to Europe? Sounds like it's the former since FMG is deferring a few projects...




Well you are luckier than me. I actually opened NWH yesterday but managed to scramble out of it this morning at a medium loss. I was too slow in making the connection between FMG's announcement and NWH's contracts.

Lesson learned and probably avoided a bigger hit anyway.


----------



## SilverRanger

skc said:


> Well you are luckier than me. I actually opened NWH yesterday but managed to scramble out of it this morning at a medium loss. I was too slow in making the connection between FMG's announcement and NWH's contracts.
> 
> Lesson learned and probably avoided a bigger hit anyway.




http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01325981

See page 9 on the 'key projects" in 2012, Herb Elliott Port and Solomon Firetail are on the list!

A good lesson indeed to know about the companies you trade on, and a big "phew" for me...


----------



## skc

SilverRanger said:


> http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01325981
> 
> See page 9 on the 'key projects" in 2012, Herb Elliott Port and Solomon Firetail are on the list!
> 
> A good lesson indeed to know about the companies you trade on, and a big "phew" for me...




Can't expect to know them all by heart. But I saw FMG's announcement and thought "that's another hit to the sector and I wonder who's contract got canned".... then I saw the price action of NWH after open and made the connection.

Too slow. Would have got out on the open


----------



## SilverRanger

skc said:


> Can't expect to know them all by heart. But I saw FMG's announcement and thought "that's another hit to the sector and I wonder who's contract got canned".... then I saw the price action of NWH after open and made the connection.
> 
> Too slow. Would have got out on the open




What I'm thinking now is to construct some kind of mapping between companies...basically for each company I trade on, come up with a list of :

Companies it owns or is owned by 
Companies it has a JV with
Major customers/contractors

Hopefully that will help in coming up with the connections and take advantage of them...


----------



## peter2

Another relationship problem that hit the fan recently was BLY - IMD. 

I agree that a little basic FA info might be valuable sometimes.


----------



## skc

peter2 said:


> Another relationship problem that hit the fan recently was BLY - IMD.
> 
> I agree that a little basic FA info might be valuable sometimes.




If one didn't hold over the reporting dates there was no substantial damage.


----------



## fingl

skc said:


> View attachment 47958
> 
> Performance by exit type
> I've categorised all 41 trades by their exit type. Target met, early profit taken, time-based stop (usually holding >2 weeks), chart stop (where I had a mental price-based stop based on support/resistance), scratched (trades that shouldn't have taken) and event (e.g. the PTM profit guidance). Note again that most profits are in the first two columns. The rest of the categories are not about profit, but risk control. Get one event wrong and you will pay for it over the next 40 trades.




skc, your target met is referring to your discretionary target and not the system exit target?


----------



## notting

edman79 said:


> Hi Notting,
> Are you backing up using SQL Server Management Studio. I do a backup nightly and restore to the same computer if I have a problem or restore to a laptop if I'm going away. I dont have a problem restoring it and only have to manually add pairs if I'm looking for new pairs.
> 
> Let me know if you need more info.




I have backed up successfully if data is kept on same HD as program and SQL. But that's no way to manage a PC unless its dedicated. Does not solve the BS signals and % from the mean discrepancies running identical set ups on different PCs.

PS Buy QBE 13.15 sell IAG 4.39 Looks like Santa!


----------



## SilverRanger

notting said:


> I have backed up successfully if data is kept on same HD as program and SQL. But that's no way to manage a PC unless its dedicated. Does not solve the BS signals and % from the mean discrepancies running identical set ups on different PCs.
> 
> PS Buy QBE 13.15 sell IAG 4.39 Looks like Santa!




The real santa for the last two weeks has got to be MCR/PAN, the catch is that your timing needed to be right to milk from both the 10% MCR fall last week and the 12% jump from PAN today, while stayed out of the bs before hand. How many managed that? Not many I think...


----------



## skc

SilverRanger said:


> The real santa for the last two weeks has got to be MCR/PAN, the catch is that your timing needed to be right to milk from both the 10% MCR fall last week and the 12% jump from PAN today, while stayed out of the bs before hand. How many managed that? Not many I think...




Or ARI/BSL yesterday, APN/FXJ today...

These all look good on hindsight but with large volatility expected, position size would have been smaller.


----------



## notting

skc said:


> Or ARI/BSL yesterday,




Been Christmas all year on that one!

and a very hairy Christmas at that!!!

Glad the the consortium did not make a pitch at the end of April!!
What a joke the offer is!
Should be treated as an act of WAR!


----------



## SilverRanger

New trade for today: Long FXJ@0.40, short SWM @1.30. 
The historic low of 0.4 seems to be a good short term support for FXJ and god knows what happened to SWM today so I decided to pull the trigger. Need to monitor SWM closely as it might turn into another APN.


----------



## skc

SilverRanger said:


> New trade for today: Long FXJ@0.40, short SWM @1.30.
> The historic low of 0.4 seems to be a good short term support for FXJ and god knows what happened to SWM today so I decided to pull the trigger. Need to monitor SWM closely as it might turn into another APN.




All media stocks have fallen so low they are all off my trade list unfortunately.

Rumour / gossip today that Stokes might take SWM private so that probably explains the recent surge.

Most likely ot little substance. Same's been said since FXJ was 80c. But who knows what Gina or Packer or Stokes are thinking...


----------



## notting

Yeah probably want to sell on that rumour.  
He would not want to pay for it and he already has 60% so not too many reasons why he would want to privatise unless he figures he could repack and float again.  
It's already 60% his and he'd lose the tax free status on fully franked dividends which he milks to the hilt.
More likely to do buy backs with other peoples money to increase his steak first if that were the case.
So short swm and long fxj makes sense to me at FXJ@0.40, SWM @1.30.


----------



## McLovin

skc said:


> Rumour / gossip today that Stokes might take SWM private so that probably explains the recent surge.




If that turns out to be the case then it's highly likely it was always the intention, IMO. I think I said at the time, never trust a billionaire to do the right thing by the small shareholder.


----------



## white_goodman

hey quick question, are you able to get some reduced margins for stock pairs trading similar to futures?


----------



## skc

white_goodman said:


> hey quick question, are you able to get some reduced margins for stock pairs trading similar to futures?




Short answer is not that I am aware of.

With CFDs on bigger stocks, the margin required is pretty low. If you run into margin constraints you are probably trading too big for the account size.


----------



## white_goodman

skc said:


> Short answer is not that I am aware of.
> 
> With CFDs on bigger stocks, the margin required is pretty low. If you run into margin constraints you are probably trading too big for the account size.




i guess il stick to spreading futures, i tried pairs trading via my IB, but the capital requirements was too much compared to potential profit even with 2x leverage

i havent read much of the thread but are you primarily trading convergence? or divergence? or jsut trying to capture dividends 'risk free'


----------



## skc

white_goodman said:


> i guess il stick to spreading futures, i tried pairs trading via my IB, but the capital requirements was too much compared to potential profit even with 2x leverage
> 
> i havent read much of the thread but are you primarily trading convergence? or divergence? or jsut trying to capture dividends 'risk free'




No IB's leverage is not fantastic for pairs trading and the short universe is too small. I used CFD as a result.

It's mostly about trading convergence.


----------



## notting

Short ASL 1.875  Long NWH 1.72  Both ex, Seat belts for this one. 
More nervous about the short on ASL as it's a runner! 
Long both may be better but NWH usually gets the job done after  a lag.


----------



## notting

notting said:


> Short ASL 1.875  Long NWH 1.72  Both ex, Seat belts for this one.
> More nervous about the short on ASL as it's a runner!
> Long both may be better but NWH usually gets the job done after  a lag.




Whoops ASL should read 2.87 Sorry.


----------



## skc

notting said:


> Short ASL 1.875  Long NWH 1.72  Both ex, Seat belts for this one.
> More nervous about the short on ASL as it's a runner!
> Long both may be better but NWH usually gets the job done after  a lag.




NWH under a lot of pressure in the last 2 days. I traded this last Friday and picked up the dividend on Monday essentially for free.

The sub holder notice last Friday showed that UBS has ~15m shares owned/borrowed (so they can short)? Looking at the volume they are pretty much there already so a short term low might have been printed... 

Normally I would have traded this as well, but just lacking a bit of focus this week so I will leave the fun stuff to you .


----------



## SilverRanger

skc said:


> NWH under a lot of pressure in the last 2 days. I traded this last Friday and picked up the dividend on Monday essentially for free.
> 
> The sub holder notice last Friday showed that UBS has ~15m shares owned/borrowed (so they can short)? Looking at the volume they are pretty much there already so a short term low might have been printed...
> 
> Normally I would have traded this as well, but just lacking a bit of focus this week so I will leave the fun stuff to you .




I'm in it too, short AAX and long NWH


----------



## SilverRanger

SilverRanger said:


> New trade for today: Long FXJ@0.40, short SWM @1.30.
> The historic low of 0.4 seems to be a good short term support for FXJ and god knows what happened to SWM today so I decided to pull the trigger. Need to monitor SWM closely as it might turn into another APN.




Closing this one today at break even (maybe down a few bucks after financing costs). Probably won't be opening new trades til all the AGMs are over.


----------



## notting

Yeah, we,re going to build a Casino without slot machines.
Yeah, it's not an ecomic no brainer, so it pays to have the vision and the 51% control.
Yeah, we only want to increase our steak in EGP to 25% as insurance in case we can't go ahead.
Yeah, hear me everybody!!!


----------



## SilverRanger

Adding two new trades today:

Long BLY @ 1.435 /short ASL @ 2.86, hopefully it's just another small cap moment of BLY
Long HVN @ 1.89 /short DJS @ 2.67, HVN is going ex-div in 2 days, good chance to trade the pair and pick up some franking credits along the way


----------



## SilverRanger

SilverRanger said:


> Adding two new trades today:
> 
> Long BLY @ 1.435 /short ASL @ 2.86, hopefully it's just another small cap moment of BLY
> Long HVN @ 1.89 /short DJS @ 2.67, HVN is going ex-div in 2 days, good chance to trade the pair and pick up some franking credits along the way




Big mistake on HVN, it has already gone ex-div!


----------



## notting

Have noticed quite a big increase in foot traffic at our major shopping centres lately.
I'd be taking the money in DJs and sitting on HVN till it's up, if we get a cut on cup day, it would perform you'd imagine.
Also know some fundy’s who have been wearing out their rulers over the retail sector just recently and presently!!


----------



## SilverRanger

notting said:


> Have noticed quite a big increase in foot traffic at our major shopping centres lately.
> I'd be taking the money in DJs and sitting on HVN till it's up, if we get a cut on cup day, it would perform you'd imagine.
> Also know some fundy’s who have been wearing out their rulers over the retail sector just recently and presently!!




I'm leaving the pair til I get proper close signal as I don't have problems trading with ex-div signals anyway. On the bright side, BLY is doing me proud


----------



## notting

Yeah their both EX  so it's not really a problem.
Personally I prefer to trade in the ex space on the positive side because stocks that pay a half reasonable dividend tend to fall harder than the payout. I get interested when they are in that space on a up trend or below when bottoming.


----------



## skc

How are all the pairs trader going?

I find myself having increasingly narrow scope to trade.

I used to trade heaps of mining services stock, but every one of them are downgrade risks and positions have to be kept so small (if at all) to account for the wild swings.

Similiarly, I rarely ever trade media, retail and iron ores. Gold and nickels have been doing big ranges. Even the energy sector are dominated by news as opposed to just new-less divergences.

I sticking mostly to the boring REITs and utilities. It makes trading less profitable, although with the benefit of a smoother equity curve...


----------



## edman79

skc said:


> How are all the pairs trader going?
> 
> I find myself having increasingly narrow scope to trade.
> 
> I used to trade heaps of mining services stock, but every one of them are downgrade risks and positions have to be kept so small (if at all) to account for the wild swings.
> 
> Similiarly, I rarely ever trade media, retail and iron ores. Gold and nickels have been doing big ranges. Even the energy sector are dominated by news as opposed to just new-less divergences.
> 
> I sticking mostly to the boring REITs and utilities. It makes trading less profitable, although with the benefit of a smoother equity curve...




Hi SKC,
Couldnt agree more. I have been hurt trying to jump in on ASL,ALQ,BKN and BLY lately. Although if I had held onto most of the trades I could have taken a better exit. On the positive side consumer discretionary has been good to me. The dip in the market after the US elections was good. Just need another bout of volatility, where will it come from...?


----------



## skc

Help needed please. My PTF (v3.04) is crashing and basically un-useable. Something somewhere is corrupt. I've emailed support for help but I thought I'd look for help here in parallel.

Basically I get this error message anytime I start up the program. 




The software actually runs a little bit longer in the background after this message comes up. But eventually it is forced shut. I've removed all the pairs from the PTF home screen but that didn't solve anything. I've also tried to remove and re-install PTF but I get the same error. In fact, it didn't seem like I remove PTF completely as the program opens as per usual after the re-install (I expected it to ask for my name/email/product-key etc).

I am running Win7 Home Premium (64-bit) and for some reason SQLEXPR32.

Do I clean install of PTF or SQL or both? If so any instructions?

Any help will be greatly appreciated. :1zhelp:


----------



## Gringotts Bank

skc said:


> Help needed please. My PTF (v3.04) is crashing and basically un-useable. Something somewhere is corrupt. I've emailed support for help but I thought I'd look for help here in parallel.
> 
> Basically I get this error message anytime I start up the program.
> 
> View attachment 49938
> 
> 
> The software actually runs a little bit longer in the background after this message comes up. But eventually it is forced shut. I've removed all the pairs from the PTF home screen but that didn't solve anything. I've also tried to remove and re-install PTF but I get the same error. In fact, it didn't seem like I remove PTF completely as the program opens as per usual after the re-install (I expected it to ask for my name/email/product-key etc).
> 
> I am running Win7 Home Premium (64-bit) and for some reason SQLEXPR32.
> 
> Do I clean install of PTF or SQL or both? If so any instructions?
> 
> Any help will be greatly appreciated. :1zhelp:




I remember emailing the PTF guy a few times for help.  Once he's got your moola, he stops all correspondence.  Classy guy.

btw skc, I haven't forgotten about your question on the 'homework' thread.  Just figuring out a way to say it in a way that's not going to get shot down!  Are you open to the idea of thoughts affecting outcomes?


----------



## notting

skc said:


> Help needed please. My PTF (v3.04) is crashing and basically un-useable. Something somewhere is corrupt. I've emailed support for help but I thought I'd look for help here in parallel.
> 
> Basically I get this error message anytime I start up the program.
> 
> The software actually runs a little bit longer in the background after this message comes up. But eventually it is forced shut. I've removed all the pairs from the PTF home screen but that didn't solve anything. I've also tried to remove and re-install PTF but I get the same error. In fact, it didn't seem like I remove PTF completely as the program opens as per usual after the re-install (I expected it to ask for my name/email/product-key etc).
> 
> I am running Win7 Home Premium (64-bit) and for some reason SQLEXPR32.
> 
> Do I clean install of PTF or SQL or both? If so any instructions?
> 
> Any help will be greatly appreciated. :1zhelp:




Uninstall it and reinstall it. Hopefully you made a note of the key when u first installed.
If not contact dick head, you will need it, he should respond to that because he knows u can sue him if he does not respond.
You will also need to have kept a download of the original installation package because u cannot install from the site under the same email address. 
 Use a different email address to capture download (of the trial) again if u did not keep original download. 
Keep the package!
It will work when u put the license in even though it's the trial, do that when prompted to, and use your original email address that you gave to buy the prgram to register with the key.
If that doesn't work uninstall again, uninstall the SQL program. 
Reinstall SQL then PTF.
Pain in the butt.


----------



## notting

Forgot to mention - SQL marriage with PTF is the likely issue.
If you just do the SQL thing PTF will still not work so you will need to do both.
Hopefully you saved your pairs to an XL spread sheet so you can joyfully manually put them all back in when you are back up and running!  Unfortunatly it's the only way.


----------



## skc

notting said:


> Uninstall it and reinstall it. Hopefully you made a note of the key when u first installed.
> If not contact dick head, you will need it, he should respond to that because he knows u can sue him if he does not respond.
> You will also need to have kept a download of the original installation package because u cannot install from the site under the same email address.
> Use a different email address to capture download (of the trial) again if u did not keep original download.
> Keep the package!
> It will work when u put the license in even though it's the trial, do that when prompted to, and use your original email address that you gave to buy the prgram to register with the key.
> If that doesn't work uninstall again, uninstall the SQL program.
> Reinstall SQL then PTF.
> Pain in the butt.




Thanks Notting. I know that's what I need to try but just thought there may be better instructions out there. 

It's been a while since I last tried to contact the programmer and I realise he's been a bit slack with responding to others. But my interactions with him have mostly been positive in the past - so let's not call names...


----------



## edman79

I have had no problems communicating with Jarred in the past although I havent tried in a year or so.

SKC if you get SQL Server Management Studio (should be free) you can connect to your SQL server and check the database for problems. You can also take a backup to install again later if you can fix the problem. It really depends how computer savvy you are and how deep you want to go...


----------



## notting

In the past I tried contacting him after the data became  currupt.
Got no response.
I had to use the above work around with fake email, just to be able to rebuild from scratch even with the life long license.
Hence the name DH!

PS Also got no response from Richard on a reliable way to back up all the work you put in to help you set it up again if corruption or computer issues force you to re install


----------



## skc

Got a response from Jarad yesterday. Nothing new just confirming that I best remove SQL as well as PTF to do a clean re-install. So not sure why you guys experienced slow response time.

I was way overdue for a refreash of the database anyway so while it is time consuming to reload all the pairs, it gives me a chance to jig the system parameters and pairs list a bit. I had plenty of old codes and delisted stuff that probably didn't help the running of the program.


----------



## fiftyeight

hey guys.

just got through the thread, I was switching comps and some was on my phone but I think I got it all. How is pairs trading atm? Threadhas gone a bit quiet, PT mentioned a while back about high frequency trading, has this had an impact or is it something else? or hopefully its business as usual and you are to busy to post?


----------



## skc

fiftyeight said:


> hey guys.
> 
> just got through the thread, I was switching comps and some was on my phone but I think I got it all. How is pairs trading atm? Threadhas gone a bit quiet, PT mentioned a while back about high frequency trading, has this had an impact or is it something else? or hopefully its business as usual and you are to busy to post?




Still pairs trading. Some sectors are worse for trading than before but overall performance is pretty much as expected. Just getting way too busy to post to no one in particular...


----------



## fiftyeight

Great to hear SKC

Well after a few false starts on ASF I think this might be the go for me. I actually have not even started paper trading anything yet as I was waiting to find something I really liked.

I have a few more things I need to sort out, any pairs specific books you can recommend? Then Ill get pairtradefinder and have a crack.

Fiftyeight


----------



## SilverRanger

Hi skc, nice to see you around 

Lately AREITs, utilities and stables are the only sectors I'm trading at the moment, completely given up on resource, mining services and media...

On the other hand, pair trading HK stocks seem to work a lot better for me nowadays. If only they can bring down the brokerage costs and I'm all in!


----------



## edman79

SilverRanger said:


> Hi skc, nice to see you around
> 
> Lately AREITs, utilities and stables are the only sectors I'm trading at the moment, completely given up on resource, mining services and media...
> 
> On the other hand, pair trading HK stocks seem to work a lot better for me nowadays. If only they can bring down the brokerage costs and I'm all in!




SilverRanger,

Are you pair trading HK stocks? I looked into them and they backtest well, but at ~0.2 - 0.25% commission it seems almost impossible to pair trade. ~1% per pair trade(round trip) commission costs would put me out of the picture. What is your expectancy on the HK markets? or are you getting a good commission somewhere?

Ed.


----------



## SilverRanger

edman79 said:


> SilverRanger,
> 
> Are you pair trading HK stocks? I looked into them and they backtest well, but at ~0.2 - 0.25% commission it seems almost impossible to pair trade. ~1% per pair trade(round trip) commission costs would put me out of the picture. What is your expectancy on the HK markets? or are you getting a good commission somewhere?
> 
> Ed.




Unfortunately I don't have access to cheaper commission rate for HK stocks, but I think the pair variety and potential returns more than offset the cost.

In March & April I'm averaging 2% per trade, so still positive after commission, traded pairs include financials, properties (HK or mainland), retail, utilities, export, aviation.... Plenty of opportunities everyday!


----------



## VSntchr

When signals are set off because of massive drops, eg. FWD and FGE today setting off (FWD/WOR) and (FGE/MIN), are you guys avoiding such trades?


----------



## skc

VSntchr said:


> When signals are set off because of massive drops, eg. FWD and FGE today setting off (FWD/WOR) and (FGE/MIN), are you guys avoiding such trades?




Yes. It usually takes quite a few days/weeks for the price action of a massive drop to settle down. There's often a bounce, but you are just chancing it rather than having any real quantitative edge.

If you have a view that particular stock is oversold / undervalued than just trade that view.

Having said that, the sector is simply looking for the next downgrade - so a longer term pair where you long an already downgraded stock and short yet-to-downgrade stock, may pay off. But that will have a very different risk profile to the usual statistics based trade again.


----------



## VSntchr

skc said:


> Yes. It usually takes quite a few days/weeks for the price action of a massive drop to settle down. There's often a bounce, but you are just chancing it rather than having any real quantitative edge.
> 
> If you have a view that particular stock is oversold / undervalued than just trade that view.
> 
> Having said that, the sector is simply looking for the next downgrade - so a longer term pair where you long an already downgraded stock and short yet-to-downgrade stock, may pay off. But that will have a very different risk profile to the usual statistics based trade again.




Thanks for confirming.

Have just started kicking things into gear this week (not real money yet), looking forward to posting some trades as I get going.


----------



## VSntchr

Ive decided my account size and based on the fact that at any one time I may have 10+ trades open I realise that going long and short stock is going to be to capital demanding.

Ive read through the thread and have seen mention of margin requirements but I am assuming its through the use of CFD's rather than simply 'margin' which only offers ~2x...

Just wondering what the best way is to get started with CFDs? I know of IGmarkets and CMCmarkets...but have no idea how the process works with regard to accounts and trading...do they just provide the CFD products and then I use IB to place trades? or do they provide the whole kit-n-kaboodle? I plan to spend a few days sussing out both the sites but if anyone could give me a headstart that would be great..


----------



## skc

VSntchr said:


> Ive decided my account size and based on the fact that at any one time I may have 10+ trades open I realise that going long and short stock is going to be to capital demanding.
> 
> Ive read through the thread and have seen mention of margin requirements but I am assuming its through the use of CFD's rather than simply 'margin' which only offers ~2x...
> 
> Just wondering what the best way is to get started with CFDs? I know of IGmarkets and CMCmarkets...but have no idea how the process works with regard to accounts and trading...do they just provide the CFD products and then I use IB to place trades? or do they provide the whole kit-n-kaboodle? I plan to spend a few days sussing out both the sites but if anyone could give me a headstart that would be great..




CFD provider is like a broker and you do everything on their platform. IG has a web-based platform that's simple albeit a bit slow. They also has a 2week demo that you can familiarise before placing real trades.

Read up on the difference between DMA and Market-maker CFDs.

Also make sure you position size probably.


----------



## VSntchr

skc said:


> CFD provider is like a broker and you do everything on their platform. IG has a web-based platform that's simple albeit a bit slow. They also has a 2week demo that you can familiarise before placing real trades.
> 
> Read up on the difference between DMA and Market-maker CFDs.
> 
> Also make sure you position size probably.




Thank you again kind sir. My debt to you grows larger by the day


----------



## VSntchr

This one popped up today:
Long WRT
Short WDC
My initial thoughts were that WDC has been holding up due to its international exposure which investors are obviously favouring with the skippy losing value lately...thus my conclusion is that the divergence is news based/fundamental and have left the trade alone. 

Same reasoning for Long CFX, Short WDC/CQR  which both triggered today too...


----------



## VSntchr

Have spent the last week playing with parameters and backtesting in order to gain a deeper understanding of which settings will affect certain outputs - and in what magnitude, and what settings are relevant to my strategy.

Has been intensive and I am super tired having spent many hours doing this whilst still working full time among other things - but its also been fun and I have learnt ALOT!

Have been paper trading some pairs based on the trigger signals and my own discretion filters. So far doing nicely, but the number of trades is not signficant.

Once I get going I plan to post most trades in here (rather than a new thread), so people can follow the journey/critique/join in and post their own.


----------



## CanOz

Is there any reason you guys don't trade US stocks? There must be a pile of pair trading opportunities in the massive US equity markets?

CanOz


----------



## skc

CanOz said:


> Is there any reason you guys don't trade US stocks? There must be a pile of pair trading opportunities in the massive US equity markets?
> 
> CanOz




3 reasons:

1. You got to know your stocks well. When are they reporting, what the analysts are saying, how $AUD will affect them etc etc. The massive US equities market means massive amount of knowledge needed. Sure there are people out there who pairs trade the statistics alone... but I filter my trades with heaps of discretion and fundamentals knowledge, which would take years to gain in a new market.

2. You need to be in front of the screen all day to manage your trades in terms of entries/exits as well as any unexpected news etc. The time difference makes it difficult for those based in Australia to manage their positions.

3. Anecdotally, I read that the margin on pairs trading is somewhat thinner over the US - possibly due to the fact that there are more bots running arbs or something like that. 

So it's certainly possible but not something I am contemplating at this moment.



VSntchr said:


> This one popped up today:
> Long WRT
> Short WDC
> My initial thoughts were that WDC has been holding up due to its international exposure which investors are obviously favouring with the skippy losing value lately...thus my conclusion is that the divergence is news based/fundamental and have left the trade alone.
> 
> Same reasoning for Long CFX, Short WDC/CQR  which both triggered today too...




Yes. Very good discipline being shown here. Plus the fact that WDC had AGM coming up on 28 May which was probably within the hold period of the pair. So it was a trade that I avoided as well.


----------



## CanOz

> 3 reasons:
> 
> 1. You got to know your stocks well. When are they reporting, what the analysts are saying, how $AUD will affect them etc etc. The massive US equities market means massive amount of knowledge needed. Sure there are people out there who pairs trade the statistics alone... but I filter my trades with heaps of discretion and fundamentals knowledge, which would take years to gain in a new market.
> 
> 2. You need to be in front of the screen all day to manage your trades in terms of entries/exits as well as any unexpected news etc. The time difference makes it difficult for those based in Australia to manage their positions.
> 
> 3. Anecdotally, I read that the margin on pairs trading is somewhat thinner over the US - possibly due to the fact that there are more bots running arbs or something like that.




Yes i can see, after reading the entire thread, that even with an intimate knowledge of the issues you can still suffer losses that wipe out all the prior work. 

I've been researching statistical arbitrage a little over the last week and pairs trading looked like something that i could possibly consider as a strategy to trade. 

As with any trading strategy there are many challenges and I agree with you that the trades are best watched closely so you can intervene quickly if necessary. So that leaves ASX stocks, LSE, and German stocks as an option for me due to time zones and trading times. Then you must have access to a supply of stocks to borrow and short. That means going through the list and comparing them to IBs short-able issues list, even then they may not have inventory. I cannot open a CFD account due to my residency. IB has CFDs but to my knowledge they are quite illiquid...will investigate UK CFDs through IB though.

News and research on the sectors and issues needs to be considered. One would need fast access to the history and news. TTN should be able to be configured for this, it does have a portfolio function as well.

Then there is the issue that many exchanges are already being "Arbed" by algorithms designed to do this systematically all day long.

I've actually downloaded two spread trading applications as a trial, one of them is Pair Trade Finder, and the other is an add on for NT that although an interesting consideration for stocks, is mostly suited to futures. Pair Trade Finder is extremely easy to use, very impressed with its capabilities and user interface...certainly one of the easiest to learn, trading software apps i have come across.

So it looks like there is still allot of research to left to do even before i can consider putting together a trading plan. Then it needs to be paper traded for a month or to become familiar with the research, software and executing the trades, recording the results. I'm particularly impressed with your trade analysis and statistics, I've not seen anything as thorough in my 8 years of trading, seriously outstanding work.:bowdown:

This type of strategy sort of suits my desire to step away from intra-day trading as its more closely related to a 2-10 day swing trade, entered intra-day. I still have the time to be at my desk, but just not wanting to stare into a DOM all day.

I have enormous amounts of respect for your hard work, discipline and tenacity SKC. What you've done here should not be underestimated. I hope your Stat Arb opportunities continue to provide you with the income and lifestyle that we all strive for. Well done...!:thankyou:

CanOz


----------



## skc

CanOz said:


> I have enormous amounts of respect for your hard work, discipline and tenacity SKC. What you've done here should not be underestimated. I hope your Stat Arb opportunities continue to provide you with the income and lifestyle that we all strive for. Well done...!




Thanks for the kind words, CanOz.

With IB you can add a column called "Shortable" which shows you if something is, well, "shortable". This is easier than looking up a list all the time. But IB may not give you enough leverage to hold all the pairs. If you trade an account and size your positions at 15% of capital per trade, you can probably only hold 5-6 pairs. Probably enough for a start but you will want more down the track. 

Not that I am trying to talk you out of pairs trading... but your 3 month trial of day trading futures is simply not long enough. I've had periods of drawdown longer than that trading pairs - and that's after I've been trading it for 3 years.

Anyhow, good luck with the research and feel free to ask any questions here.


----------



## CanOz

skc said:


> Thanks for the kind words, CanOz.
> 
> With IB you can add a column called "Shortable" which shows you if something is, well, "shortable". This is easier than looking up a list all the time. But IB may not give you enough leverage to hold all the pairs. If you trade an account and size your positions at 15% of capital per trade, you can probably only hold 5-6 pairs. Probably enough for a start but you will want more down the track.
> 
> Not that I am trying to talk you out of pairs trading... but your 3 month trial of day trading futures is simply not long enough. I've had periods of drawdown longer than that trading pairs - and that's after I've been trading it for 3 years.
> 
> Anyhow, good luck with the research and feel free to ask any questions here.




Yeah, i know that's true...i was tired and frustrated, a few family issues and just needed a break. Its a good thing actually because since the day after i threw in the towel i have had more connectivity issues and have resorted to using IB for Gold and Crude, which i continue to watch through the day. I don't think I'll try the intra-day trading live again until i can get a leased line. There's a guy moving here from overseas soon, he's a Prop trader and setting up an office nearby. I may be able to rent the office with him, learn a few things and have a decent connection. 

I'm still paper trading a few ideas on EOD futures. Trading a few patterns on US Stocks, even considering trading one of Nick's new systems. 

We've got the summer doldrums coming up and I'll be traveling anyway, so time to think and reflect, plan and come back full swing in the Autumn (err your Spring).

In the meantime I'm going to study for my CMT designation, so lots to keep me busy. Maybe Pairs trading would be too busy!

Cheers,



CanOz


----------



## Huskar

VSntchr said:


> Have spent the last week playing with parameters and backtesting in order to gain a deeper understanding of which settings will affect certain outputs - and in what magnitude, and what settings are relevant to my strategy.
> 
> Has been intensive and I am super tired having spent many hours doing this whilst still working full time among other things - but its also been fun and I have learnt ALOT!
> 
> Have been paper trading some pairs based on the trigger signals and my own discretion filters. So far doing nicely, but the number of trades is not signficant.
> 
> Once I get going I plan to post most trades in here (rather than a new thread), so people can follow the journey/critique/join in and post their own.




Great to hear VS I will watch with interest.

I started trying to take the journey myself but the day job got in the way...

All the best!


----------



## VSntchr

Huskar said:


> Great to hear VS I will watch with interest.
> 
> I started trying to take the journey myself but the day job got in the way...
> 
> All the best!




Cheers.
I can definitely see the issue with the day job, I'm taking it easy at first to try and figure out the logistics of my situation and what I can handle.


Starting today, woohoo!
#1 LONG PMV $6.84
   SHORT PBG $0.75
Leg Size 20%, which is high...but I have only started with a small balance to test. If I had increased balance to full account this would have been 10%.

Horrible trade execution - but being the first trade I'm not going to punish myself too harshly just yet. Had another trade (diff strategy) to try and manage on the open aswell which left me a tad stretched.


----------



## VSntchr

VSntchr said:


> Cheers.
> I can definitely see the issue with the day job, I'm taking it easy at first to try and figure out the logistics of my situation and what I can handle.
> 
> 
> Starting today, woohoo!
> #1 LONG PMV $6.84
> SHORT PBG $0.75




#1 CLOSED
SOLD PMV $6.85 (0.14% profit)
COVERED PBG $0.71 (5.3% profit)
Commision: 0.10%

Happy to take a good profit after only 1 day.
Perhaps BBG's ann. helped drag PBG down which has been a bit more resilient than the other retailers of late. Had I executed the trade better I could have achieved ~3% more...


----------



## skc

VSntchr said:


> #1 CLOSED
> SOLD PMV $6.85 (0.14% profit)
> COVERED PBG $0.71 (5.3% profit)
> Commision: 0.10%
> 
> Happy to take a good profit after only 1 day.
> Perhaps BBG's ann. helped drag PBG down which has been a bit more resilient than the other retailers of late. Had I executed the trade better I could have achieved ~3% more...




Great stuff.


----------



## DJG

Could someone please guide me to a respected website/books that can offer an introduction along with further information on pairs trading. I prefer a website that doesn't try to sell me a system.

Anything on the internet I've found either only briefly touches on it just enough so I want to know more or try's to sell me something. - I'll go back to whatever page I was up to and keep reading on this thread also. Just wore on me a bit though at the start regarding the magic system that tells you when to buy and sell.


----------



## Huskar

VSntchr said:


> #1 CLOSED
> SOLD PMV $6.85 (0.14% profit)
> COVERED PBG $0.71 (5.3% profit)
> Commision: 0.10%
> 
> Happy to take a good profit after only 1 day.
> Perhaps BBG's ann. helped drag PBG down which has been a bit more resilient than the other retailers of late. Had I executed the trade better I could have achieved ~3% more...




I echo SKC's .

Out of interest did you go with CFDs? IG? Had you used CFDs before - if not are you finding it easy to use?


----------



## VSntchr

Cheers fellas,
Yeah Ive gone with CFD's for both legs at the moment. I am still setting up an IB account but so far IGmarkets has been good via their DMA platform. I think the biggest challenge for me is going to be to remain strictly disciplined with position sizing, CFD's have amazing leverage but this is very dangerous...to counter this risk I have a big printout above my screen *"MAX 20% ACCOUNT"* referring to max leg size 

I haven't used CFD's before but I spent a week using the demo account to get used to the platform - although the demo was in market maker (need to have an account over $2k to access DMA). Probably should have spent another week playing around as my inexpereience showed up with horrible execution in that first trade - but theres not better lessons learnt than in real time...


----------



## CanOz

VSntchr said:


> Cheers fellas,
> Yeah Ive gone with CFD's for both legs at the moment. I am still setting up an IB account but so far IGmarkets has been good via their DMA platform. I think the biggest challenge for me is going to be to remain strictly disciplined with position sizing, CFD's have amazing leverage but this is very dangerous...to counter this risk I have a big printout above my screen *"MAX 20% ACCOUNT"* referring to max leg size
> 
> I haven't used CFD's before but I spent a week using the demo account to get used to the platform - although the demo was in market maker (need to have an account over $2k to access DMA). Probably should have spent another week playing around as my inexpereience showed up with horrible execution in that first trade - but theres not better lessons learnt than in real time...




Well done VS, looking forward to some more pairs trades!


----------



## skc

VSntchr said:


> Cheers fellas,
> Yeah Ive gone with CFD's for both legs at the moment. I am still setting up an IB account but so far IGmarkets has been good via their DMA platform. I think the biggest challenge for me is going to be to remain strictly disciplined with position sizing, CFD's have amazing leverage but this is very dangerous...to counter this risk I have a big printout above my screen *"MAX 20% ACCOUNT"* referring to max leg size




In IG's platform there's a function to limit max size per ticket. Set it to something like 25% of your account. That was you can't go bigger than that without clicking a few more screens, plus you won't fat finger a trade with an extra zero or two.


----------



## VSntchr

Had a trigger (CQR/ALZ) that I was happy with this morning until I did a bit of quick research and found this wrt to ALZ - "Information has been made available to a select number of parties that have expressed an interest in the whole or parts of the Group". Takeover for my short?? - no thanks


----------



## skc

VSntchr said:


> Had a trigger (CQR/ALZ) that I was happy with this morning until I did a bit of quick research and found this wrt to ALZ - "Information has been made available to a select number of parties that have expressed an interest in the whole or parts of the Group". Takeover for my short?? - no thanks




ALZ takeover first came up Dec last year. GPT was the potential buyer with Mirvac also expressing an interset. Both have walked away from the deal although there's still words about some private company looking at ALZ's residential assets. 

It's off my short list for now but the immediate danger of a takeover is probably not that high.


----------



## VSntchr

skc said:


> ALZ takeover first came up Dec last year. GPT was the potential buyer with Mirvac also expressing an interset. Both have walked away from the deal although there's still words about some private company looking at ALZ's residential assets.
> 
> It's off my short list for now but the immediate danger of a takeover is probably not that high.




Yeah, I was almost trying to convince myself to take the trade based on my thoughts that the probability is quite low...but I decided to be stringent and not test my luck so early on..

#2 Long IOF $2.97
    Short WRT $3.02

IOF is going ex div towards the end of the month so this may have some support to the price. WRT is where I would expect to make the gain on this trade given the current environment. I have considered that WRT has strong support at $3.00 - I thought about waiting for $3.00 to break but I have virtually no tech/a skills so decided to ignore that part of my analysis.


----------



## DJG

DJG said:


> Could someone please guide me to a respected website/books that can offer an introduction along with further information on pairs trading. I prefer a website that doesn't try to sell me a system.
> 
> Anything on the internet I've found either only briefly touches on it just enough so I want to know more or try's to sell me something. - I'll go back to whatever page I was up to and keep reading on this thread also. Just wore on me a bit though at the start regarding the magic system that tells you when to buy and sell.




Could anyone give me a hand with the above questions, more so in regard to website's whilst I wait to purchase a few books I've lined up.

Thanks,


----------



## DJG

Also, any chance anybody has a basic and/or already developed pairs trading spreadsheet they're using?
I'm waiting for PTF to get back to me regarding an error with the trial installation. I'd also prefer to use Excel after identifying a potential setup in PTF.


----------



## skc

DJG said:


> Could anyone give me a hand with the above questions, more so in regard to website's whilst I wait to purchase a few books I've lined up.
> 
> Thanks,




I think contents in this thread and trade examples are about as good as you can find anywhere else.

There are probably some academic / research papers on pairs and statistics that you can google for, if you are interested in that.



DJG said:


> Also, any chance anybody has a basic and/or already developed pairs trading spreadsheet they're using?
> I'm waiting for PTF to get back to me regarding an error with the trial installation. I'd also prefer to use Excel after identifying a potential setup in PTF.




What do you mean by pairs trading spreadsheet? One that calculates what PTF calculate? Or just one that record your trades?

For one that record trades, you can consider mirroring the one I used for my trade journal (around June 2012 in this thread).


----------



## edman79

skc said:


> I think contents in this thread and trade examples are about as good as you can find anywhere else.
> 
> There are probably some academic / research papers on pairs and statistics that you can google for, if you are interested in that.
> 
> 
> 
> What do you mean by pairs trading spreadsheet? One that calculates what PTF calculate? Or just one that record your trades?
> 
> For one that record trades, you can consider mirroring the one I used for my trade journal (around June 2012 in this thread).





Ha Ha SKC you beat me to the punch, I was just writing a reply when I saw you had already replied.
For the record I was going to say all the information you need is contained in this thread. There have been 2 real time trading journals that I have witnessed with a third in progress now.

If you need an excel spreadsheet just copy the one SKC did a few months back.


----------



## DJG

Thanks guys.

I've been working through this journal and as mentioned, found it very helpful!
I like piecing together everybody's views and deciding upon my own.

In regard to the spread sheet. - I'll take a look at your trade log SKC.
However, I was mainly after something that gave me the correlation, etc that may help with making a decision.

Thanks again


----------



## edman79

DJG said:


> Thanks guys.
> 
> I've been working through this journal and as mentioned, found it very helpful!
> I like piecing together everybody's views and deciding upon my own.
> 
> In regard to the spread sheet. - I'll take a look at your trade log SKC.
> However, I was mainly after something that gave me the correlation, etc that may help with making a decision.
> 
> Thanks again




writing this reply for the 2nd time because my browser closed 
You can recreate all the maths for PTF in Excel but you have to store all the historical data. I have done it once for my own piece of mind but its very cumbersome. You could write your own program to do what PTF does but then why not use PTF? It gives you the entry signals and you can manage the trade from there however you see fit (see skc journal).

I agree that you have to take what you want from the thread and "decide on your own view", as with all trading.


----------



## DJG

edman79 said:


> writing this reply for the 2nd time because my browser closed
> You can recreate all the maths for PTF in Excel but you have to store all the historical data. I have done it once for my own piece of mind but its very cumbersome. You could write your own program to do what PTF does but then why not use PTF? It gives you the entry signals and you can manage the trade from there however you see fit (see skc journal).
> 
> I agree that you have to take what you want from the thread and "decide on your own view", as with all trading.




Most likely I will use PTF, just waiting for them to email me back in regard to an error in installing the trial version.
Thought I'd see what could be done anyway.

Yeap, definitely taking bits and pieces, re-arrange and eventually stick together to which ever way I see fit.


----------



## CanOz

DJG said:


> Most likely I will use PTF, just waiting for them to email me back in regard to an error in installing the trial version.
> Thought I'd see what could be done anyway.
> 
> Yeap, definitely taking bits and pieces, re-arrange and eventually stick together to which ever way I see fit.




What was the error Dan ?


----------



## DJG

CanOz said:


> What was the error Dan ?



In bed at the moment but when I'm in front of the computer tomorrow I can let you know.
I think it might have to do with the creation of the folder or locating the SQL..I even used the walk through guide and still managed to stuff it up


----------



## VSntchr

While we are on the topic of PTF I'd like to vent my anger with the program. 
I'm still on the trial and my pairs are only 2 weeks old so I hope this doesn't continually occur - but I have mutiple signals going off that seem to be caused by missing data. I.e. a few days of missing prices causes a massive change in the price levels when data resumes (assuming the prices have moved) which causes the SD to jump...its dangerous because if your not closely checking the dates/price data you could enter a trade erroneously..
-End rant..

Back to trading: Had a few signals go off last night with IOF as the long and a few other REITS as the short, so hopefully my IOF/WRT will see some green shortly 

In the que for two more trades today, will post if I enter.


----------



## VSntchr

VSntchr said:


> In the que for two more trades today, will post if I enter.




Trade #3
Long  IFL @ $7.45 (only partially filled, but not planning to reach up in this market..will be patient)
Short IAG @ $5.44


----------



## DJG

I've noticed a few people don't know how many pairs are out there, yet more experienced individuals such as SKC knows a few more than others. When I get a chance and some spare time. I'm going to go back through this thread and get absolutely every single pair that anyone has mentioned and put them into a spreadsheet or Microsoft Word document.
Then I'll upload it here and we can discuss which one's should be removed and/or added to it. Eventually we should get a decent database of possible pair setups. - Hopefully this might increase some of the more green traders (such as myself) winning statistics as they pick up more trades (reverse could be true).

I can divide the pairs into groups (noticed some don't like trading REIT's for example - Such as 'Financials', 'Mining', 'Media' etc.
Some might be cross-sector so I could make a separate group called 'Cross-Sector' or something along those lines.

I reckon this might open everybody's horizon's a bit more and realise just how many pairs are out there.

The layout will be something like this:



If this sounds good to everybody, I'll try allocate some time for it.


----------



## fiftyeight

+1

Sounds like a great idea




DJG said:


> I've noticed a few people don't know how many pairs are out there, yet more experienced individuals such as SKC knows a few more than others. When I get a chance and some spare time. I'm going to go back through this thread and get absolutely every single pair that anyone has mentioned and put them into a spreadsheet or Microsoft Word document.
> Then I'll upload it here and we can discuss which one's should be removed and/or added to it. Eventually we should get a decent database of possible pair setups. - Hopefully this might increase some of the more green traders (such as myself) winning statistics as they pick up more trades (reverse could be true).
> 
> I can divide the pairs into groups (noticed some don't like trading REIT's for example - Such as 'Financials', 'Mining', 'Media' etc.
> Some might be cross-sector so I could make a separate group called 'Cross-Sector' or something along those lines.
> 
> I reckon this might open everybody's horizon's a bit more and realise just how many pairs are out there.
> 
> The layout will be something like this:
> View attachment 52691
> 
> 
> If this sounds good to everybody, I'll try allocate some time for it.


----------



## CanOz

Errr guys, i believe this is SKC's bread and butter here, he makes his living from trading ASX pairs... i wouldn't be asking too much of him


----------



## DJG

CanOz said:


> Errr guys, i believe this is SKC's bread and butter here, he makes his living from trading ASX pairs... i wouldn't be asking too much of him




Is this in regard to me whipping up a spreadsheet with possible pairs to be traded or something else?
If by any way it's chopping up SKC, then I'd prefer not to cut in on him, especially as mentioned if he earns his living doing pair trading...?


----------



## CanOz

DJG said:


> Is this in regard to me whipping up a spreadsheet with possible pairs to be traded or something else?
> If by any way it's chopping up SKC, then I'd prefer not to cut in on him, especially as mentioned if he earns his living doing pair trading...?




No, i just mean given that SKC is trading for a living, perhaps one might not expect a "follow my trade" type of scenario from him in terms of involvement...not that i am speaking for him or anything, but it might be good to be a little sensitive towards that...that's all..

CanOz


----------



## fiftyeight

I thought it was more danga was going to go through past posts and some of the more common pairs?

I dont have any software yet so I though it would be good to have a list to chuck into googlefinace and have a play around


----------



## skc

DJG said:


> Is this in regard to me whipping up a spreadsheet with possible pairs to be traded or something else?
> If by any way it's chopping up SKC, then I'd prefer not to cut in on him, especially as mentioned if he earns his living doing pair trading...?




The pairs trading world is big and diverse and there'd always be new entrants from retail to insto players. I don't trade that big in the whole scheme of things and I doubt a few people on a forum starting out is going to "chop" on my or anything. So all the power to DJG (and others) for having a go.

And there's so many ways to skin a fish. Trader A might hold for 30 days looking for mean reversal from 4 standard deviations to 2, while Trade B is day trading looking for discrepencies at the open. It's a big pond and the more the merrier. 



CanOz said:


> No, i just mean given that SKC is trading for a living, perhaps one might not expect a "follow my trade" type of scenario from him in terms of involvement...not that i am speaking for him or anything, but it might be good to be a little sensitive towards that...that's all..




I think DJG is just trying to put together a list of pairs from this thread and that is fine. If I wanted to keep a pair secret then it's my fault for posting it up. A few people have asked me for my database before which is a little bit out of line. 

And I won't be contributing to the list. Not because people will "cut" on me,  but because I think putting the list together yourself is one of the most important foundation to good pairs trading. 

As I have said before, I believe you need to be knowledgable about the stocks you trade - what are the major value drivers? Do analysts love or hate them? Are there upcoming news? Do they have a history of earning shocks? How are their peers doing (even if you are not pairing them up)? What's the typical liquidity and spread? Is the price looking to breakout? OR is the price approaching substantial support / resistance? Combine all these with your PTF signals will give you increased edge.

When I trade a new stock I am unfamiliar with, I put on 1/10 the size I'd normally trade, just so that I get to watch it more intimately and get the feel of how it ticks and moves. It takes time to truely own the list one puts together.

BTW, if I've put a trade on and post it here - people following me will simply help my convergence so it wouldn't hurt at all...


----------



## DJG

Thanks for the clarification SKC. Glad you don't mind.
I suppose it'll be a helpful database for those new traders, simple yet potentially helpful idea anyway.
I'll only put together a list of what is publicly listed on everybody's posts. By all means anybody can tear it to shreds and keep what they want.

I'll in no way be PM'ing or asking for anybody's secret pairs etc, that's just plain insane. Everyone should read SKC's above post, then read it again. Especially the part about knowing the pairs you're trading. It's all good and well for me to put together a list, it doesn't mean you should trade every single one of the pairs. I assume SKC has a decent size database, but I could almost bet with certain he makes the majority of his profits from the same pairs that he knows inside out and back to front so to speak.

Perhaps even the seasoned pairs traders might gain a point or two from the list, a pair they may of overlooked.

Thanks all, will get around to it shortly, might make a start tomorrow.


----------



## DJG

I've made a start on it whilst fitting it in between exam revision.
I've now finished the entire thread also. Still waiting on PTF to respond to my two emails which are weeks late.
Anybody got onto this bloke?
Is there any other system out there doing a similar thing I would much prefer to test and give my money to?

Thanks


----------



## VSntchr

> Still waiting on PTF to respond to my two emails which are weeks late.
> Anybody got onto this bloke?
> Is there any other system out there doing a similar thing I would much prefer to test and give my money to?




Yeah Im waiting on a reply too...pretty frustrating...

Another false signal today with price/date data showing up 6 times for the one day which has thrown the mean calcs out.

Not sure if I can justify the money for such a buggy program with such horrible turnaround (if at all>?) for email....


----------



## skc

VSntchr said:


> Yeah Im waiting on a reply too...pretty frustrating...
> 
> Another false signal today with price/date data showing up 6 times for the one day which has thrown the mean calcs out.
> 
> Not sure if I can justify the money for such a buggy program with such horrible turnaround (if at all>?) for email....




The PTF program doesn't seem to like long weekends. What you need to do is highlight all the pairs and run "Refresh Prices" and that will re-calculate everything and start producing valid signals again.


----------



## DJG

After installing the SQL as guided, I open PTF and I get this:


Waiting on a reply for two emails from PTF.

At least there is a nice business opportunity for those who want to take it, build something similar to PTF, reply to emails and you're already a step ahead


----------



## edman79

DJG said:


> After installing the SQL as guided, I open PTF and I get this:
> View attachment 52764
> 
> Waiting on a reply for two emails from PTF.
> 
> At least there is a nice business opportunity for those who want to take it, build something similar to PTF, reply to emails and you're already a step ahead




Try to create a pairtradefinder database yourself using SQL management studio - you should be able to download it for free if you don't already have it. If this gives you a similar error maybe there is a problem with your sql server install and you can google the error message to fix the problem.

I've found it really helps to be a little proficient in database management when running PTF.


----------



## edman79

edman79 said:


> Try to create a pairtradefinder database yourself using SQL management studio - you should be able to download it for free if you don't already have it. If this gives you a similar error maybe there is a problem with your sql server install and you can google the error message to fix the problem.
> 
> I've found it really helps to be a little proficient in database management when running PTF.




BTW I meant just an empty database name pairtradefinder.


----------



## VSntchr

#3 Long PMV $6.15, Short PBG $0.705

Will post more on todays efforts tonight after work.


----------



## VSntchr

VSntchr said:


> #3 Long PMV $6.15, Short PBG $0.705
> 
> Will post more on todays efforts tonight after work.




So this is my second entry to this pair..and again execution was poor! Having limited time due to a job is a massive factor and Ive learned this quickly. Hopefully it wont render this strategy unviable for me.

Also entered #4 Long PRY $4.98, Short RHC $35.38




> The PTF program doesn't seem to like long weekends. What you need to do is highlight all the pairs and run "Refresh Prices" and that will re-calculate everything and start producing valid signals again.




Thanks for the tip. Not sure if this works though, as the repetitve and missing dates continue to appear on some pairs!!! 



Also closed 2 trades today:
Trade #3


> Long IFL @ $7.45 (only partially filled, but not planning to reach up in this market..will be patient)
> Short IAG @ $5.44



Average price for IFL turned out to be $7.48
Closed at IFL $7.50 (0.27% profit)
IAG $5.37 (1.29% profit)
Commission (0.10%)
Had the signal yesterday but missed it as I was working, would have had a better price for IFL but IAH did fall today too...



> #2 Long IOF $2.97
> Short WRT $3.02




Closed at IOF $2.96 (0.33% loss)
WRT $2.98 (1.32% profit)
commission (0.10%)

Some pretty small winners in there, nothing to write home about (just to ASF).


----------



## skc

edman79 said:


> Try to create a pairtradefinder database yourself using SQL management studio - you should be able to download it for free if you don't already have it. If this gives you a similar error maybe there is a problem with your sql server install and you can google the error message to fix the problem.
> 
> I've found it really helps to be a little proficient in database management when running PTF.




edman, have you any experience with using PTF or SQL with Win8? I am looking at buying a new laptop and was wondering if I should look for one with Win 7 while they are still available.

Thanks


----------



## edman79

skc said:


> edman, have you any experience with using PTF or SQL with Win8? I am looking at buying a new laptop and was wondering if I should look for one with Win 7 while they are still available.
> 
> Thanks




Sorry skc I don't have access to a win 8 PC to test for you. I know it works on xp and win7. I'll test it next time I'm using a win 8 terminal.


----------



## skc

edman79 said:


> Sorry skc I don't have access to a win 8 PC to test for you. I know it works on xp and win7. I'll test it next time I'm using a win 8 terminal.




I am using Win7 64-bit as well and it runs fine. But the PTF install guide hasn't been updated for Win8 hence the question.

It would be great if you get then chance to test it - thanks. Although I will be buying a laptop before end of the financial year so I may test it before you


----------



## VSntchr

Posting from phone so will update later but closed PMV at 6.30 for 2.4% profit and PBG @ 0.705 breakeven. Again commission at 0.1%


----------



## VSntchr

Beginning to think that working full time is making this just too hard!

PMV making me look like a goose, closing at $6.58 while PBG moved up only slightly 

I also missed an exit on my PRY/RHC trade...and missed an entry on another that I hope I can get into on Monday (perhaps at better prices..)


----------



## skc

VSntchr said:


> Beginning to think that working full time is making this just too hard!
> 
> PMV making me look like a goose, closing at $6.58 while PBG moved up only slightly
> 
> I also missed an exit on my PRY/RHC trade...and missed an entry on another that I hope I can get into on Monday (perhaps at better prices..)




Even if you are sitting in front of the screen full time doesn't guarantee you'd have the patience/skill/luck to get the best price. 

Missed the PRY trade this morning myself  -and I never left my chair


----------



## DJG

Whilst I wait for PTF to reply to my email, I've found that Incredible Charts can input a price ratio indicator.
I've compared RIO and BHP.
I don't know if it's in line with PTF software though so could someone please upload a chart to compare.
	

		
			
		

		
	




I'm not saying I would take a trade in this, just need to make sure I'm on the right page with a chart I can at least look at to gauge what is going on.


Thanks guys


----------



## sinner

Hello ASF pairs traders,

I spotted this article today on the TurnKey Analyst blog (which summarises lots of recent finance research) titled "Pairs Trading Kicks Butt!". Since the academic strategy proposed is quite interesting, but also quite different to what people are doing on ASF (including me), I thought I would share it for your potential benefit.

http://turnkeyanalyst.com/2013/06/pairs-trading-kicks-butt/

Interesting to note the chart of rolling excess returns and how they narrowed considerably as hedge funds started employing the strategy.


----------



## VSntchr

Going nuts today.

Had to do a complete re-install like SKC had a few pages back...

But now I can't get it going again...it won't let me create a new databse - error msg below:


----------



## DJG

I'm in the same boat. Post #1391


----------



## VSntchr

DJG said:


> I'm in the same boat. Post #1391




Okay I found the fix.

Just uninstall SQL. Then delete absolutely every folder you can find that relates to SQL...there was only like 2 more that I could find after the uninstall.

Then follow the re-install process as per the guide.

Im back in action at last!


----------



## VSntchr

Exited the PRY @ 4.87/RHC @ 30.04 trade this morning for slight profits.

Entered Long AIO @ $4.71, Short TOL @ $4.97...already slightly underwater


----------



## skc

VSntchr said:


> Entered Long AIO @ $4.71, Short TOL @ $4.97...already slightly underwater




I like the look of this trade.



sinner said:


> Hello ASF pairs traders,
> 
> I spotted this article today on the TurnKey Analyst blog (which summarises lots of recent finance research) titled "Pairs Trading Kicks Butt!". Since the academic strategy proposed is quite interesting, but also quite different to what people are doing on ASF (including me), I thought I would share it for your potential benefit.
> 
> http://turnkeyanalyst.com/2013/06/pairs-trading-kicks-butt/
> 
> Interesting to note the chart of rolling excess returns and how they narrowed considerably as hedge funds started employing the strategy.




Thanks Sinner. There are many ways to skin the cat. My brand of pairs trading is really pairs scalping. I am pretty much arbitraging noise. It works well up to a certain size which I am no where near reaching.

What this paper proposed seemed much longer term (6 month holding period vs my typical hold of <2 weeks). I guess the bigger your size, the longer you need to hold. In fact their entries / exits will probably create enough noise to generate signals for my trades. To hold that long you are really banking that there's some fundamental mis-pricing going on. You are also exposed to more random and scheduled events which would change the return profile and equity curve a fair bit.

That's the advantage of a small-time trader I guess.


----------



## VSntchr

Opened:
Long CQR $3.89 / Short GPT $3.80

CQR is ex div on the 25th while GPT operates a different schedule so it should have a bit of support/buying pressure leading into that. On the flip side, I am pretty much restricted to exiting the trade before that date so there is a bit of extra pressure for this one to converge relatively quickly.


----------



## skc

VSntchr said:


> Opened:
> Long CQR $3.89 / Short GPT $3.80
> 
> CQR is ex div on the 25th while GPT operates a different schedule so it should have a bit of support/buying pressure leading into that. On the flip side,* I am pretty much restricted to exiting the trade before that date *so there is a bit of extra pressure for this one to converge relatively quickly.




Why?


----------



## VSntchr

skc said:


> Why?




I was thinking that without receiving franking credits when the stock goes ex-div it puts me at a disadvantage. I don't see it as a massive disadvantage but its there. Also once it goes ex-div it could potentially fall further in the current environment given the way it appears foreign money is getting yanked from this sector..


----------



## skc

VSntchr said:


> I was thinking that without receiving franking credits when the stock goes ex-div it puts me at a disadvantage. I don't see it as a massive disadvantage but its there. Also once it goes ex-div it could potentially fall further in the current environment given the way it appears foreign money is getting yanked from this sector..




CQR dividends, like all other REITs, are unfranked.

And the beauty of pairs trading (esp when you are trading small), is that it it goes ex and falls further than it should, you can always choose to NOT exit at that price and wait/hope for further convergence.

If you come into profit that you are happy to take by all means take it, but I wouldn't impose an absolute deadline either.


----------



## VSntchr

skc said:


> CQR dividends, like all other REITs, are unfranked.
> 
> And the beauty of pairs trading (esp when you are trading small), is that it it goes ex and falls further than it should, you can always choose to NOT exit at that price and wait/hope for further convergence.
> 
> If you come into profit that you are happy to take by all means take it, but I wouldn't impose an absolute deadline either.




Ahhh, poor form on my half not even checking that - I'm too used to holding companies which are 100% FF.

Thanks for the tip


----------



## DJG

Still haven't fixed mine, I did rush through trying to do it, so will need to give it another crack sometime soon after exams. - suspect you didn't get an email reply?

I've tried to setup a similar price ratio etc on Incredible Charts (see post above #1402) - any chance your charts look similar when it comes to the price ratio part?
I can send an update version of the chart and/or another pair.

Thanks,


----------



## VSntchr

Update the chart and ill screen shot mine to show.


SKC Do you have any policies on what you do if you get a fill on one leg, then the other leg takes off before you can get in? Happened to me today on CHC/GMG...got into GMG short then CHC started flying... 



As for my AIO/TOL trade, TOL is being a real jackass this week!!...just keeps rising !


----------



## skc

VSntchr said:


> SKC Do you have any policies on what you do if you get a fill on one leg, then the other leg takes off before you can get in? Happened to me today on CHC/GMG...got into GMG short then CHC started flying...




Lol had a long CHC from yesterday 

No set policies but there are several potential approaches.

1. Scrap the trade.
2. Trade the short as a directional trade with a stop, while sitting in bid waiting for the long to be hit.
3. Chase the long.
4. Find an alternate long 



VSntchr said:


> As for my AIO/TOL trade, TOL is being a real jackass this week!!...just keeps rising !




TOL got upgraded by Credit Swiss today so a pretty decent jump. I still think it's a good earning downgrade candidate. The AIO/TOL trade only widened by 1.5% today which is actually much better than some of my other trades...


----------



## DJG

VSntchr said:


> Update the chart and ill screen shot mine to show.




Had another look at it. It shows the % deviation from the mean on the price ratio.
I don't think I can add an indicator to show the amount (standard deviations) from the mean.

This may have to do for now on a paper trade


----------



## VSntchr

> No set policies but there are several potential approaches.
> 
> 1. Scrap the trade.
> 2. Trade the short as a directional trade with a stop, while sitting in bid waiting for the long to be hit.
> 3. Chase the long.
> 4. Find an alternate long



Thanks! Yeah I actually went for what you describe as 2. I was waiting for the long but decided that I was happy enough to take the profits from the GMG short and call it a day. If I had have had more time I may have continued the trade and picked up CHC but I was happy to take the ~$160 and call it quits on that one.




> TOL got upgraded by Credit Swiss today so a pretty decent jump. I still think it's a good earning downgrade candidate. The AIO/TOL trade only widened by 1.5% today which is actually much better than some of my other trades...



Damn you Swiss bastards  lol


----------



## VSntchr

New trade:
Long SIP @ 0.755
Short RMD @ 5.12

These aren't perfectly fundamentally correlated so SKC might avoid such a trade, but statistically they show ~80% correlation. I have taken a small leg size of 6% and felt I got a pretty good entry so am happy to see how this one goes. I think SIP is not bad as a longer term story and the share buy-back seems to be providing decent support longer term also...


----------



## VSntchr

VSntchr said:


> Opened:
> Long CQR $3.89 / Short GPT $3.80
> 
> CQR is ex div on the 25th while GPT operates a different schedule so it should have a bit of support/buying pressure leading into that. On the flip side, I am pretty much restricted to exiting the trade before that date so there is a bit of extra pressure for this one to converge relatively quickly.




Closed this yesterday - 
CQR $3.97   +2.06%
GPT $3.78   +0.53%
Commission   -0.10%


----------



## Vixs

VS are you happy with executing your trade ideas with CFDs?

Any issues you are encountering that you don't think you would be if you were trading larger positions directly?

Any advantages? (Besides the comm. being pretty damn reasonable imo)


----------



## VSntchr

Vixs said:


> VS are you happy with executing your trade ideas with CFDs?
> 
> Any issues you are encountering that you don't think you would be if you were trading larger positions directly?
> 
> Any advantages? (Besides the comm. being pretty damn reasonable imo)




Advantages are pretty obvious in the increased position sizes for your available capital and cheaper brokerage than the major Aussie brokers..although you could use IB and get it 0.02% cheaper..which would add up over time.

Disadvantages are that I cant use DMA on my android phone, other than that I havent really come by any other issues.


----------



## skc

VSntchr said:


> New trade:
> Long SIP @ 0.755
> Short RMD @ 5.12
> 
> These aren't perfectly fundamentally correlated so SKC might avoid such a trade, but statistically they show ~80% correlation. I have taken a small leg size of 6% and felt I got a pretty good entry so am happy to see how this one goes. I think SIP is not bad as a longer term story and the share buy-back seems to be providing decent support longer term also...




You are right. Not a pair on my list and probably not a trade I'd take in this market.

SIP/API used to be the perfect pair but API is getting a bit too thin these days.


----------



## VSntchr

Actually made a profitable ALZ/CPA trade yesterday - but as I didnt get on here to post I won't bother logging it after time.
Currently have 2 open positions, both showing signficant losses 
AIO/TOL and SIP/RMD


----------



## skc

VSntchr said:


> Actually made a profitable ALZ/CPA trade yesterday - but as I didnt get on here to post I won't bother logging it after time.
> Currently have 2 open positions, both showing signficant losses
> AIO/TOL and SIP/RMD




I was going to tell you that AIO had a scheduled analyst site visit and there was always a chance that they'd provide a market update which could go either way.

Luckily for you the update simply re-affirmed profit expectations. 

Now enjoy the mean reversion.


----------



## VSntchr

skc said:


> I was going to tell you that AIO had a scheduled analyst site visit and there was always a chance that they'd provide a market update which could go either way.
> 
> Luckily for you the update simply re-affirmed profit expectations.
> 
> Now enjoy the mean reversion.




I am a lucky boy indeed.
I am out at AIO - $4.81 (1.35% profit) and TOL $5.16 (3.18% loss) after commision.
Probably should have let it run its course over the next few days...but was happy to get out of the big loss. That reflects my inexperience but we'll see what happens.

I really need to get a good news feed setup and some better access to analyst info etc. Thats my next step.


----------



## skc

skc said:


> TOL got upgraded by Credit Swiss today so a pretty decent jump. I still think it's a good earning downgrade candidate. The AIO/TOL trade only widened by 1.5% today which is actually much better than some of my other trades...




Well... TOL had a trading update with EBIT re-affirmed and seems to be quite well received...


----------



## Boggo

skc said:


> Well... TOL had a trading update with EBIT re-affirmed and seems to be quite well received...




Seems like it was well received over a week ago skc .
https://www.aussiestockforums.com/f...t=1616&page=12&p=780739&viewfull=1#post780739


----------



## VSntchr

Long CDI short ALZ is currently burning me HARD!

Had a few other good trades the past week and am doing okay on LONG BPT SHORT DLS...


----------



## skc

VSntchr said:


> Long CDI short ALZ is currently burning me HARD!
> 
> Had a few other good trades the past week and am doing okay on LONG BPT SHORT DLS...




Make of it what you will. It's not the first time this rumour's been around.



> Beach Energy’s: move to beef up its already bulging balance sheet has caught the attention of some investors who could see the oil and gas player making a move on smaller rivals *Drillsearch or Senex Energy*. The $1.4 billion Beach is topping up a $150 million debt facility through ANZ and CBA, increasing the loan to $320 million on three- and five-year terms. It comes as the company already had $343 million cash on its balance sheet at December 31 and received another $US190 million cash upfront from a deal with Chevron in February, reports The Australian Financial Review.


----------



## VSntchr

skc said:


> Make of it what you will. It's not the first time this rumour's been around.




THanks for the info, however I got out about 10 minutes ago for decent profit so no need for me to interpret (for this trade at least : ).

BPT 1.135 sold 1.18
DLS 1.05 covered 1.045

Only a 6% leg size however :bad:


----------



## skc

VSntchr said:


> Only a 6% leg size however :bad:




That sounds about right for this pair


----------



## coolcup

VSntchr said:


> Long CDI short ALZ is currently burning me HARD!
> 
> Had a few other good trades the past week and am doing okay on LONG BPT SHORT DLS...




What was the thinking behind this? ALZ is driven more by resi sentiment (corporate activity is just noise since GPT walked away) whereas CDI is simply an owner / manager of income producing assets?


----------



## VSntchr

coolcup said:


> What was the thinking behind this? ALZ is driven more by resi sentiment (corporate activity is just noise since GPT walked away) whereas CDI is simply an owner / manager of income producing assets?




Yes but those income producing assets are property nonetheless... I see your point in that the fundamental correlation isn't perfect - but my intention isn't to find _perfect_ fundamental correlations, rather just _strong_ ones.

Statistical correlation at the time of trade was ~70%. 
Only 4 days old so plenty of time to let it mean revert...we'l see what the rest of the week brings.


----------



## coolcup

VSntchr said:


> Yes but those income producing assets are property nonetheless... I see your point in that the fundamental correlation isn't perfect - but my intention isn't to find _perfect_ fundamental correlations, rather just _strong_ ones.
> 
> Statistical correlation at the time of trade was ~70%.
> Only 4 days old so plenty of time to let it mean revert...we'l see what the rest of the week brings.




Ok cool. I had not actually crunched any numbers on the correlation, I was just thinking business model wise - although ALZ and CDI both have similar investment portfolios (office and industrial properties), ALZ's price is generally much more driven by sentiment towards residential (which CDI does not have exposure to).

Both companies have large shareholders (>50%) which lower liquidity so perhaps some of the correlation was due to their jagged trading patterns as a result of insufficient liquidity? Hope it turns around for you all the same!


----------



## ginger27

Has anyone had any luck contacting support at PTF?  I tried via the website and by email with no luck. Thx in advance.


----------



## havaiana

Just wanted to delve a little bit deeper into this post from this thread https://www.aussiestockforums.com/forums/showthread.php?t=27234&p=789085&viewfull=1#post789085



skc said:


> A mean reversion strategy on outright share may be completely valid, but you wouldn't trigger it based on divergence away from the *mean of a pair's ratio*. If you are simply looking at divergence from mean with the stock itself - then really that's just trading off Bollingar bands or moving average etc. Otherwise you can trade a stock divergence from a sector's mean. But without hedging the resulting equity curve would be very different I'd imagine.
> 
> On odd occasions I do use signals from pairs trading to take outright trades, but the position sizing, stop placement etc will be completely different.
> 
> Anyway, if you have questions on equity pairs probably best to ask them on the pairs trading thread to keep it all together.




I don't know much about trading shares let alone pair trading them so I'm probably making a lot of wrong assumptions here.

I would assume that most of the pair trade divergence would usually be from one of the stocks diverging from the other rather than both diverging from each other?
I would also assume that the one that reverts back to the mean more is usually the one that has diverted most?
If not disregard rest of post!

So in theory if you just took that one side, obviously using relevant position sizing to outright trading, maybe the profits could be more than if you traded it as a pair. Because you would be targeting the more profitable side plus also improving significantly commission to profit ratio. I know this doesn't take into consideration the advantage of a smooth equity curve on compounded returns and there will still be more exposure oiutright regardless of reduction of position size, but I'm just thinking.

Reason I'm thinking about this is not because I think trading outright would be better but because using pair trading concepts could be a better way for outright traders to trade. For example the divergence of a pair would be a more relevant and less lagging indicator than using bollinger bands or a moving average for an outright trader.

I think most outright traders are usually watching the divergence of other markets when deciding whether or not to take a trade anyway, but the concepts used in pair trading could be a better way to do that or at least value-add to it rather than just eyeballing the other instruments.


----------



## skc

havaiana said:


> I would assume that most of the pair trade divergence would usually be from one of the stocks diverging from the other rather than both diverging from each other?
> I would also assume that the one that reverts back to the mean more is usually the one that has diverted most?
> If not disregard rest of post!




I like your thinking and I don't have a quantitative answer to your question. But I'd still maintain that the short answer is no - that taking outright position in the leg that has "diverted" will not be more profitable. 

Divergence is a move away from something... in pairs you are looking at ratio of a pair. It is not the share price that has diverted, it is the ratio of the two prices that have diverted relative to their historical ratio. Take a pair A and B, a significant divergence may be a result of: 1). Stock A jumping 5% ;2). Stock B falling 5%; or 3). Stock A up 2.5% AND stock B down 2.5%. 

You are saying that you'd just short stock A in the first situation. But in reality, the profit in case 1) could easily come from Stock B doing catch up and moving back up 5%. I don't know if there's any statistical significance (i.e. edge) to shorting Stock A whenever it jumps 5%, but pairs trading tells me that there IS an edge shorting the ratio of A/B when it diverges from the mean. If you want to trade outright, you need to establish that directional edge of shorting A... and that edge may or may not actually exist.

Every now and again you may find a situation where one stock in a sector has vastly outperformed relatively to all other stocks in the sector. So stock A is up 5% while stock B, C, D, E, F and G have all been flat. In this case it is less likely for the whole sector playing catchup to this one stock. But I'd say, if you see such a scenario, chances are there's something more fundamental driving the share price of that one outlier stock that you may be unaware of. Again, it may be an edge that you can explore and verify, but it is not an edge that comes from the pairs trading strategy itself.

One of the key benefits of pairs trading is that one can rely on the statistical edge and the market neutrality to put on larger positions and essentially pretty wide stops. That's what produces the high win% albeit with the occasional large $ loss. If you are trading outright the "diverted" stock, where do you place your stop? You really have to pick the bottom or top when you put in a tight stop (and you'd get stop out more often than not), or you left yourself exposed to market delta with a wide stop. This will of course flow on to position sizing and absolute $ profits (BTW, where do you take profit?). So I would think that, even if raw statistics show that shorting A whenever it jumps 5% may have say a 2% edge (over what timeframe?) while pairing A with B has only 1.5% edge (with a clear take profit target at mean reversion), the absolute profit from putting on the pair will probably be much higher than just shorting A. 

So in summary, without a clearly defined edge and trading system parameters (sizing and exit strategy etc), I certainly can't conclude that outright mean reversion trading in equities will produce a better outcome than hedged pairs.


----------



## havaiana

Understood, thanks for the detailed answer


----------



## edman79

havaiana said:


> I would assume that most of the pair trade divergence would usually be from one of the stocks diverging from the other rather than both diverging from each other?
> I would also assume that the one that reverts back to the mean more is usually the one that has diverted most?




I have wondered the same thing.
There are a variety of other factors to consider. Stocks don't fall at the same rate as they rise so you have to consider if it is the short side or the long side you are taking.

It will generally be the stock with the higher beta that moves the most. Does that mean that you will only trade the high beta stocks? For arguments sake, lets say you paired FMG vs RIO. You would be taking the FMG side most of the time and Id imagine your stop would be hit fairly often.

I tried to take note of the "Primary Mover" at one point but found if it is a good pair it makes little difference which side moved first.

When I run a check of my last years results I found although I have profited overall from both sides it seems like the long side of the trade has been much more profitable. Even when I check the stats since march where the market has moved sideways the long side seems to have doubled the short side in profits. Maybe there is something to be checked there?


----------



## skc

edman79 said:


> When I run a check of my last years results I found although I have profited overall from both sides it seems like the long side of the trade has been much more profitable. Even when I check the stats since march where the market has moved sideways the long side seems to have doubled the short side in profits. Maybe there is something to be checked there?




Since Aug last year, the long leg was responsible for >90% of the total profits. That's understandable considering the overall market is up ~20% since that time.

What I don't know is whether the profit from those longs was due to the long leg diverging (i.e. falling) or the long leg playing catch up to the short leg that has spiked. If it's the first case then outright long may have been quite profitable, but if it's the second case, you'd be shorting the spike and generate very little profit. 



havaiana said:


> Understood, thanks for the detailed answer




Remember my answer is far from definitive as I don't have the data to back up what I've said. Yet that's exactly how a trader needs to evolve and develop new strategies and approaches - by looking at the market with a curious mind, identifying potential edges and verifying them.


----------



## kefa

hi all,

i'm curious to know what brokers people are using for pairs trading aussie stocks? 

currently interactive brokers are not offering margin accounts so for the time being i can't use them. in any case it would be good to have a back up and the list of shortable stocks on IB whilst good is not extensive. i guess the only other choice is going with a cfd broker. i was having a look at fp markets which interesting charge 8bps and no minimum amount per trade if you have at least $50k deposited with them. anybody using them or can recommend another cfd broker?


----------



## SilverRanger

kefa said:


> hi all,
> 
> i'm curious to know what brokers people are using for pairs trading aussie stocks?
> 
> currently interactive brokers are not offering margin accounts so for the time being i can't use them. in any case it would be good to have a back up and the list of shortable stocks on IB whilst good is not extensive. i guess the only other choice is going with a cfd broker. i was having a look at fp markets which interesting charge 8bps and no minimum amount per trade if you have at least $50k deposited with them. anybody using them or can recommend another cfd broker?




I'm using FP Markets atm, pretty good platform (Iress) and 8 bps are the positives, but they recently stopped paying interest on shorts and started charging stock borrowing fees, so I'm planning to switch. 

Oh, and one more annoying thing with them is that you must close your current position before entering the reverse trade, this happens quite often to me and it's just extra effort for nothing, and worse still, you can't do that in market close!


----------



## kefa

SilverRanger said:


> I'm using FP Markets atm, pretty good platform (Iress) and 8 bps are the positives, but they recently stopped paying interest on shorts and started charging stock borrowing fees, so I'm planning to switch.




Double whammy thats got to suck. Who are you planning on switching to? 



SilverRanger said:


> Oh, and one more annoying thing with them is that you must close your current position before entering the reverse trade, this happens quite often to me and it's just extra effort for nothing, and worse still, you can't do that in market close!




Do you mean you can't have both open buy and sell orders on the same stock?


----------



## SilverRanger

kefa said:


> Double whammy thats got to suck. Who are you planning on switching to?



Currently looking at IG Markets and Saxo Capital Markets, I've been with IG previously and will give Saxo a try before settling on one.



kefa said:


> Do you mean you can't have both open buy and sell orders on the same stock?



It means being net long 500 shares before and getting to net short 500 shares by putting a 1000 share sell order. Sometimes the exit of a pair trade was so good that it warrants going for the reverse trade. FP doesn't allow that.


----------



## skc

SilverRanger said:


> Currently looking at IG Markets and Saxo Capital Markets, I've been with IG previously and will give Saxo a try before settling on one.




I think IG is charging borrow cost these days as well. They also don't pay interest on funds.



SilverRanger said:


> It means being net long 500 shares before and getting to net short 500 shares by putting a 1000 share sell order. Sometimes the exit of a pair trade was so good that it warrants going for the reverse trade. FP doesn't allow that.




In this case wouldn't you need to sell 500 and separately short sell 500. May be it's due to short sell reporting requirement?

What about the other way? If you are holding 500 shares short, can you long 1000 to reverse?


----------



## SilverRanger

skc said:


> I think IG is charging borrow cost these days as well. They also don't pay interest on funds.



That's interesting to know, does the borrowing fee apply to all stocks or specific ones? 



skc said:


> In this case wouldn't you need to sell 500 and separately short sell 500. May be it's due to short sell reporting requirement?



Yes that's what I would need to do, but it wouldn't be possible during market close (I can only put the first trade on, not the second), and definitely not as nice as just 1 trade.



skc said:


> What about the other way? If you are holding 500 shares short, can you long 1000 to reverse?




Good question, I actually don't know since I always open the short leg first. But from memory I never had issues reversing both long and short trades with IG and Saxo said that can be done under their platform.


----------



## kefa

SilverRanger said:


> they recently stopped paying interest on shorts




is this something they have changed explicitly? or have they stopped paying interest because the rba cash rate is so low now? according to the PDS they pay you cash rate - some offset, so if the cash rate is low enough and the offset is high enough you can end up paying them interest to short. but in theory it doesn't matter for pairs trading since you have both a long and short position you should always be paying 2 x offset for funding.


----------



## skc

SilverRanger said:


> That's interesting to know, does the borrowing fee apply to all stocks or specific ones?




Looks like just specific ones.



> BORROWING CHARGES
> 
> If we incur a borrowing charge for opening a hedging position against your short share CFD position, this charge will be passed on to you (with a 0.5% admin fee).
> 
> To determine whether a borrowing charge applies, call our dealers in advance of trading. The borrowing charge (if applicable) will be accounted for in the daily interest adjustment that is applied to your trade. The borrowing charge, and the ability to go short, can be changed at short notice.




http://www.igmarkets.com.au/cfd/guaranteed-prices.html


----------



## spec

Hi All,

I came across an interesting article:
http://blogs.wsj.com/moneybeat/2013...t-correlations-plummet-stock-pickers-rejoice/

it said that correlation is decreasing and the current market is a stock pickers' market (based on fundamentals rather than technicals). Does this imply that fundamentals now play a more important role in pairs trading than before ? is Jared and Johnny Sharp's style of trading (based more on statistics) still working ? any thoughts ?


----------



## skc

spec said:


> Hi All,
> 
> I came across an interesting article:
> http://blogs.wsj.com/moneybeat/2013...t-correlations-plummet-stock-pickers-rejoice/
> 
> it said that correlation is decreasing and the current market is a stock pickers' market (based on fundamentals rather than technicals). Does this imply that fundamentals now play a more important role in pairs trading than before ? is Jared and Johnny Sharp's style of trading (based more on statistics) still working ? any thoughts ?




The article referred to cross-sector correlations, as opposed to inter-sector correlations. It is also unclear what time period they are referring to... Correlation daily or weekly?

I have found pairs to be working just fine (July was my best month yet), although I am not trading in August due to the ASX reporting season.


----------



## SilverRanger

skc said:


> The article referred to cross-sector correlations, as opposed to inter-sector correlations. It is also unclear what time period they are referring to... Correlation daily or weekly?
> 
> I have found pairs to be working just fine (July was my best month yet), although I am not trading in August due to the ASX reporting season.




Yes, July was awesome


----------



## SilverRanger

Just as an update, I've tried "flipping" the position from net short to net long in FP Markets and Saxo, FP didn't allow it but Saxo did, so I'm overall satisfied with Saxo. One more neat little thing with Saxo is that if I modify my queued order from 100 shares to 150 shares, it keeps the first 100 shares in the queue and adds another 50. I think most brokers will just withdraw the entire order and place a new one


----------



## ThingyMajiggy

Ok so I'll ask here instead of the other thread, can anyone tell me what's wrong with trading this strategy if I was to buy/sell the extremes of this spread as a mean-reversion system? I've never spread traded stocks so not sure of the pitfalls, if any. 

I believe you guys are doing this discretionally?


----------



## skc

ThingyMajiggy said:


> Ok so I'll ask here instead of the other thread, can anyone tell me what's wrong with trading this strategy if I was to buy/sell the extremes of this spread as a mean-reversion system? I've never spread traded stocks so not sure of the pitfalls, if any.
> 
> I believe you guys are doing this discretionally?
> 
> View attachment 54285




Sam, BHP/RIO is a decent pair sometimes... in fact the very first trade on this thread by the OP was a long RIO / short BHP example. Although he put it on shortly after the failed takeover and so probably a trade that I'd avoid.

The pitfalls of a BHP/RIO pair is as per usual with a stock pairs. Ratio can blow out on you and you need to have stops and exit strategy. You need to keep an eye on upcoming news and make sure known fundamental factors are not driving the divergence in the pair.

BTW can you explain what you are plotting on the 2nd chart? What's the vertical axis exactly and why are there such large abrupt spikes?


----------



## ThingyMajiggy

skc said:


> Sam, BHP/RIO is a decent pair sometimes... in fact the very first trade on this thread by the OP was a long RIO / short BHP example. Although he put it on shortly after the failed takeover and so probably a trade that I'd avoid.
> 
> The pitfalls of a BHP/RIO pair is as per usual with a stock pairs. Ratio can blow out on you and you need to have stops and exit strategy. You need to keep an eye on upcoming news and make sure known fundamental factors are not driving the divergence in the pair.
> 
> BTW can you explain what you are plotting on the 2nd chart? What's the vertical axis exactly and why are there such large abrupt spikes?




Mm interesting. I coded it all myself from scratch so the vertical axis is my mega-super secret spread formula  I was just curious as to why this wouldn't work, selling/buying the spread at the extremes there, doesn't seem to go much passed 3 or -3 so if you used that as an entry point and hold until it mean reverts back to the middle, in the words of Jeremy Clarkson....what could possibly go wrong?


----------



## skc

ThingyMajiggy said:


> Mm interesting. I coded it all myself from scratch so the vertical axis is my mega-super secret spread formula  I was just curious as to why this wouldn't work, selling/buying the spread at the extremes there, doesn't seem to go much passed 3 or -3 so if you used that as an entry point and hold until it mean reverts back to the middle, in the words of Jeremy Clarkson....what could possibly go wrong?




Without knowing your secret spread indicator... I'd verify 3 things:

1. Make sure it is not an oscillator (by accident or otherwise).
2. Be able to explain why you are getting these massive verticle jumps in the indicator. These seem to happen 2-3 times a year yet as far as I know the BHP/RIO relationship is no where near as volatile.
3. Does it actually make money? You are not buying/selling the "indicator" values but the share prices, so plug in the prices and position size (whatever your rule that that is) and make sure it makes money. It can be a case that the indicator mean-reverts but your positions are in net loss.


----------



## DJG

Do we have a list of pair trading software? 
I know PTF is used a lot in this thread but since we've discovered their customer support is about as useless as you know what, what other options are out there?


----------



## VSntchr

DJG said:


> Do we have a list of pair trading software?
> I know PTF is used a lot in this thread but since we've discovered their customer support is about as useless as you know what, what other options are out there?




I have been in talks with my partner about building something better than PTF. Ive got the requirements shes got the maths and IT. It would be a way off yet - but perhaps in the future.
Im unaware of anything else.


Back to Pairs as of last week after the reporting season break. Starting slow as Im busy lately but had 1 small profit and have another currently in decent profit now. Need some good trades to make up for a few poor directional trades over the last month (short IVC and CCL  )


----------



## DJG

VSntchr said:


> I have been in talks with my partner about building something better than PTF. Ive got the requirements shes got the maths and IT. It would be a way off yet - but perhaps in the future.
> Im unaware of anything else.




There is definitely a serious hole in the market you can fill. Build a decent bit of software, stand good on customer support and you're already ahead.


----------



## skc

DJG said:


> There is definitely a serious hole in the market you can fill. Build a decent bit of software, stand good on customer support and you're already ahead.




I think there are alternatives out there already. Have you done a google search on pairs trading software?

There are 3-4 just on the front page. Many of them are quite sofisicated (e.g. with automation to Interactive Broker's API).

I had a casual look on two of them:
- "Iris" pairs platform doesn't support ASX shares.
- ArbMaker - demo available to have a play. I've downloaded but not yet tested it.


----------



## kefa

how are people going with their pairs these last couple of weeks?

i'm struggling with a few pairs where one leg is rallying very hard with strong momentum. anyone else seeing this?


----------



## skc

kefa said:


> how are people going with their pairs these last couple of weeks?
> 
> i'm struggling with a few pairs where one leg is rallying very hard with strong momentum. anyone else seeing this?




Yes quite a few stocks are going strong with only rare and shallow pullback.

There are a few alternatives to explore.

1. Avoid shorting very strong stocks.
2. Pair very strong stocks only with another equally strong stock.
3. Keep initial position small and layer in if it diverges further.
4. Keep overall position smaller such that there's more room for continued divergence before you hit your loss limit.
5. Take profits earlier on smaller pullback.

There is no single right answer... but the thing you must always remember is adhere to your risk management rules (assuming you have them).


----------



## edman79

SKC - In regards to the lack/reduction in mean reversion in the last couple of months. In your opinion do you think this is a change in market conditions as people are more confident and there is less fear of another crash? Or would you lean towards it being just a reflection of short term strength and low volatility?


----------



## skc

edman79 said:


> SKC - In regards to the lack/reduction in mean reversion in the last couple of months. In your opinion do you think this is a change in market conditions as people are more confident and there is less fear of another crash? Or would you lean towards it being just a reflection of short term strength and low volatility?




Volatility is definitely lower. I am not sure there's a reduction in mean reversion, but it wouldn't surprise me if you told me that statistics showed a reduction in divergence. To maintain an edge one might need to dynamically adjust some of the levers I listed above.

Credit Swiss (I think) published an article recently about the end of the great RORO (Risk-on, risk-off) era where top-down macro factors have driven asset price movements over the last 5 years... if you extend that interpretation into the profitability of pairs trading, then I'd say discretion and understanding of stock fundamentals will become even more important.

And if straight-up pairs trading is proving too tough in the current environment, a supplementary bull market strategy might worth pursuing.


----------



## CanOz

SKC are you suggesting it might be wise to have something like a trend following strategy?


----------



## skc

CanOz said:


> SKC are you suggesting it might be wise to have something like a trend following strategy?




It's always wise to have a trend following strategy in case things start to trend... Esp for a full time trader, having a portfolio of strategies will offer risk diversification + improve smoothness of the equity curve.

My trading account has beaten the market only slightly in the last 4 months, but it included a 15% contribution from non-pairs trading which was pretty much all of the out-performance.


----------



## kefa

skc said:


> There are a few alternatives to explore.
> 
> 1. Avoid shorting very strong stocks.
> 2. Pair very strong stocks only with another equally strong stock.
> 3. Keep initial position small and layer in if it diverges further.
> 4. Keep overall position smaller such that there's more room for continued divergence before you hit your loss limit.
> 5. Take profits earlier on smaller pullback.




Thanks skc. I appreciate your thoughts, all very good points.


----------



## VSntchr

Having a very frustrating day attempting to set up PTF on my new laptop (windows 8).

I can't seem to create a database!!!

I've tried uninstalling and reinstalling three times with no luck. Been using SQL 2012, but then tried to use SQL 2008....which it wont let me install on windows 8...

Anyone got any tips/is anyone running this with windows 8?


----------



## edman79

VSntchr said:


> Having a very frustrating day attempting to set up PTF on my new laptop (windows 8).
> 
> I can't seem to create a database!!!
> 
> I've tried uninstalling and reinstalling three times with no luck. Been using SQL 2012, but then tried to use SQL 2008....which it wont let me install on windows 8...
> 
> Anyone got any tips/is anyone running this with windows 8?




Do you run into any error messages on the way?
Have you tried backing up a database from an install on your previous computer and restoring to win8?
You might need SQL Server management studio (which you can get for free).

BTW I haven't tried on windows 8.


----------



## VSntchr

edman79 said:


> Do you run into any error messages on the way?
> Have you tried backing up a database from an install on your previous computer and restoring to win8?
> You might need SQL Server management studio (which you can get for free).
> 
> BTW I haven't tried on windows 8.




Yes its the error message encountered previously in this thread regarding minimum file size. I Have SQL server management studio..I thought that was essential lol

What version of SQL are you running?


----------



## edman79

VSntchr said:


> Yes its the error message encountered previously in this thread regarding minimum file size. I Have SQL server management studio..I thought that was essential lol
> 
> What version of SQL are you running?




windows 7 
SQL Server 2008 R2
PTF 3.0.4

I cant recall the exact error regarding minimum file size.
If it happened to someone else you could check if/how they overcame the problem...
Can you manually create a database? 
Have you tried restoring a previous installation?


----------



## VSntchr

edman79 said:


> windows 7
> SQL Server 2008 R2
> PTF 3.0.4
> 
> I cant recall the exact error regarding minimum file size.
> If it happened to someone else you could check if/how they overcame the problem...
> Can you manually create a database?
> Have you tried restoring a previous installation?





Thanks for your help, but I'm an IT noob and dont know how to do manual databases.

It was me who had the issue last time, and a simple reinstall fixed it lol...


----------



## VSntchr

FYI this is the error msg.
Ive seen a few people having this problem on other forums but so far no fix is identified. Ive also contacted Jared and am awaiting a reply.


----------



## edman79

VSntchr said:


> View attachment 55410
> 
> 
> FYI this is the error msg.
> Ive seen a few people having this problem on other forums but so far no fix is identified. Ive also contacted Jared and am awaiting a reply.




apparently all new databases must be larger than the size of the model database. In this case the model database is 5Mb and PTF uses the "SIZE = 3072KB" which is smaller than 5Mb. If PTF did not use this "SIZE" variable it would work. 

Info about model database...
http://technet.microsoft.com/en-us/library/ms186388.aspx

Since we cant change the statement in PTF we need to reduce the size of the model database or create/restore our own. You could try to copy the create statement and run that in SqlServerManagementStudio (SSMS) without the size statement. I'll look around and see if you can reduce the size of the model database.


----------



## edman79

uninstall any instance of PTF.

In SSMS go to system databases.
Right click on model database -> properties and check the size. (should be 5Mb)
then
Right click on model database -> tasks -> shrink -> database.
then 
Right click on model database -> properties and check the size, see if its less than 3Mb
if it is 

Then try a fresh install of PTF and see if it works.


----------



## VSntchr

edman79 said:


> uninstall any instance of PTF.
> 
> In SSMS go to system databases.
> Right click on model database -> properties and check the size. (should be 5Mb)
> then
> Right click on model database -> tasks -> shrink -> database.
> then
> Right click on model database -> properties and check the size, see if its less than 3Mb
> if it is
> 
> Then try a fresh install of PTF and see if it works.




 :thankyou:

There goes a whole heap of wasted hours!!!!
Finally thanks to your help I've got it sorted. I realised I didnt have SSMS, I misinterpreted what you meant by that. So by taking your advice and getting SSMS (took a while to install), and then following your instructions - it works perfectly.

I owe you one :cheers:


----------



## DJG

VSntchr said:


> :thankyou:
> 
> There goes a whole heap of wasted hours!!!!
> Finally thanks to your help I've got it sorted. I realised I didnt have SSMS, I misinterpreted what you meant by that. So by taking your advice and getting SSMS (took a while to install), and then following your instructions - it works perfectly.
> 
> I owe you one :cheers:





So to save everyone else (myself included) the confusion, lets recount how you did it. - I never got a reply from their customer service along with many others.

So you downloaded the MySQL Windows 2008 SMSS  thingo?

Then did this?


edman79 said:


> uninstall any instance of PTF.
> 
> In SSMS go to system databases.
> Right click on model database -> properties and check the size. (should be 5Mb)
> then
> Right click on model database -> tasks -> shrink -> database.
> then
> Right click on model database -> properties and check the size, see if its less than 3Mb
> if it is
> 
> Then try a fresh install of PTF and see if it works.




Then reinstalled PTF software and it all went smoothly like any normal installation does?


----------



## spec

skc said:


> Volatility is definitely lower. I am not sure there's a reduction in mean reversion, but it wouldn't surprise me if you told me that statistics showed a reduction in divergence. To maintain an edge one might need to dynamically adjust some of the levers I listed above.
> 
> Credit Swiss (I think) published an article recently about the end of the great RORO (Risk-on, risk-off) era where top-down macro factors have driven asset price movements over the last 5 years... if you extend that interpretation into the profitability of pairs trading, then I'd say discretion and understanding of stock fundamentals will become even more important.
> 
> And if straight-up pairs trading is proving too tough in the current environment, a supplementary bull market strategy might worth pursuing.




Thanks all for a very useful discussion.

In order to increase the chance that the pair will revert, I'm thinking of filtering out sectors that show strong relative strength, and trade only "weaker" sectors. For example (in the US) the consumer discretionary sector is very strong now and we would not trade pairs in this sector. We would trade the weaker Staples or Basic Material sectors instead.

What do you think ?


----------



## VSntchr

DJG said:


> So to save everyone else (myself included) the confusion, lets recount how you did it. - I never got a reply from their customer service along with many others.
> 
> So you downloaded the MySQL Windows 2008 SMSS  thingo?
> 
> Then did this?
> 
> 
> Then reinstalled PTF software and it all went smoothly like any normal installation does?




Didn't have to reinstall PTF after I did the prior step, the SMSS stuff was a lifesaver!!!

Any other questions let me know..but that step pretty much solved everything for me


----------



## VSntchr

Earlier on in this thread PTF (Jared) spoke about pairing the top 100 with ^AXJO.

Does anyone know how to add the index codes to the program?
I've tried ^AXJO, ^XJO, AXJO, XJO...and ive tried for other indicies too, with no luck...

On a lighter note, lots of signals to choose from today


----------



## skc

spec said:


> Thanks all for a very useful discussion.
> 
> In order to increase the chance that the pair will revert, I'm thinking of filtering out sectors that show strong relative strength, and trade only "weaker" sectors. For example (in the US) the consumer discretionary sector is very strong now and we would not trade pairs in this sector. We would trade the weaker Staples or Basic Material sectors instead.
> 
> What do you think ?




I don't know the US sectors so can't comment on them. I also don't know about your trade signal parameters so I can't comment whether your approach makes sense at all.

I haven't taken any sector off the table myself just because they are strong, but if you have traded pairs for some time and is familiar with the sectors you trade and how they behave, there's no reason why you can't take certain sectors out of the regular rotation at your discretion.


----------



## SilverRanger

skc said:


> I don't know the US sectors so can't comment on them. I also don't know about your trade signal parameters so I can't comment whether your approach makes sense at all.
> 
> I haven't taken any sector off the table myself just because they are strong, but if you have traded pairs for some time and is familiar with the sectors you trade and how they behave, there's no reason why you can't take certain sectors out of the regular rotation at your discretion.




That's mostly true for me too except I'm extremely cautious in the mining services sector, who knows who will be the next ASL, WOR or AAX!

- - - Updated - - -



VSntchr said:


> Earlier on in this thread PTF (Jared) spoke about pairing the top 100 with ^AXJO.
> 
> Does anyone know how to add the index codes to the program?
> I've tried ^AXJO, ^XJO, AXJO, XJO...and ive tried for other indicies too, with no luck...
> 
> On a lighter note, lots of signals to choose from today




You can try STW, the ETF instead


----------



## skc

SilverRanger said:


> That's mostly true for me too except I'm extremely cautious in the mining services sector, who knows who will be the next ASL, WOR or AAX!




Or FGE!

Mining services and gold used to be frequently traded by me. But gold is now limited to 10% of position size, while mining services I only long them if they reaffirmed guidance in the last 4 weeks. 

I was thinking about pairing a downgraded stock with a pre-downgrade stock, but I think it's just too much pot luck involved.


----------



## spec

skc said:


> I don't know the US sectors so can't comment on them. I also don't know about your trade signal parameters so I can't comment whether your approach makes sense at all.
> 
> I haven't taken any sector off the table myself just because they are strong, but if you have traded pairs for some time and is familiar with the sectors you trade and how they behave, there's no reason why you can't take certain sectors out of the regular rotation at your discretion.




My REIT pairs behave erratically lately, while Staples pairs continue to behave well, hence the idea above. Just an idea, not implemented yet.

re: mining pairs, haven't had luck with them either. Too much political risks IMO.


----------



## VSntchr

Just wondering if any other pairs traders out there are using hard stops?
If so, are you setting them on the platform when you make your orders or are you writing them elsewhere/taking a mental note of where to sell should the price fall there?

I've been setting at the opening of the trade but had a bad experience today where a stock gapped up and not only did the stop get hit, it actually transacted another 10 ticks above the price ($8 stock). 5 minutes later and the stock was back well down below my stop.

Have others encountered this and if so, do you take it as a cost involved with risk management, or are you taking other routes to prevent it occurring? 


Also: After checking the course-of-sales data, I see that the price IG gave me seems to be wrong - only half of what my order size went through at price they have recorded the sale at....hmmmm?


----------



## skc

VSntchr said:


> Just wondering if any other pairs traders out there are using hard stops?
> If so, are you setting them on the platform when you make your orders or are you writing them elsewhere/taking a mental note of where to sell should the price fall there?
> 
> I've been setting at the opening of the trade but had a bad experience today where a stock gapped up and not only did the stop get hit, it actually transacted another 10 ticks above the price ($8 stock). 5 minutes later and the stock was back well down below my stop.
> 
> Have others encountered this and if so, do you take it as a cost involved with risk management, or are you taking other routes to prevent it occurring?




Why do you want hard stop on one leg only? It sounds like your short leg spiked up but there's no need to cover it if your long leg also went up, for example.

I don't use hard stops but I do use limit orders to catch any profits from random spikes. If you have a mental note on various support/resistance that you want to stick with you'd have to just monitor for yourself.



VSntchr said:


> Also: After checking the course-of-sales data, I see that the price IG gave me seems to be wrong - only half of what my order size went through at price they have recorded the sale at....hmmmm?




What's the stock? They are sort of allowed to do that. Even though you are trading DMA (my guess) your order could still be filled on their own book. And as long as it is at your price there is nothing wrong with it. In fact, had they not provided the liquidity and just throw your position in the market, you'd probably get a worse average fill anyway. So send them a Xmas card and thank them for the extra liquidity.


----------



## VSntchr

skc said:


> Why do you want hard stop on one leg only? It sounds like your short leg spiked up but there's no need to cover it if your long leg also went up, for example.
> 
> I don't use hard stops but I do use limit orders to catch any profits from random spikes. If you have a mental note on various support/resistance that you want to stick with you'd have to just monitor for yourself.
> 
> 
> 
> What's the stock? They are sort of allowed to do that. Even though you are trading DMA (my guess) your order could still be filled on their own book. And as long as it is at your price there is nothing wrong with it. In fact, had they not provided the liquidity and just throw your position in the market, you'd probably get a worse average fill anyway. So send them a Xmas card and thank them for the extra liquidity.




Im setting hard stops on both legs. I think I am going to abandon that idea and stick to the idea of a stop based on overall PnL of the pair....

It was PMV, stop set at 7.90 and filled at 8.00. Then went straight back to ~7.70ish.


----------



## skc

VSntchr said:


> Im setting hard stops on both legs.




Not sure what you aim to achieve by doing that.



VSntchr said:


> I think I am going to abandon that idea and stick to the idea of a stop based on overall PnL of the pair....




That's the only way. Plus some event-based stop. There may be some merits in looking at a chart in isolation and scratch a trade when a major level is breached... but that should still depend on how the pair's P&L is going.



VSntchr said:


> It was PMV, stop set at 7.90 and filled at 8.00. Then went straight back to ~7.70ish.




The depth of PMV can be pretty shallow at the best of times. Your stop once triggered is at IG's discretion to fill. Unfortunately you got filled into a hole...


----------



## VSntchr

Yeah, I understand the IG issue now - sucks, but at least I know now...thanks.

And yeah it was just a maximum loss I was prepared to take on each leg..but the more I think about it the more counter-productive its sounding. Its subject to events pushing both stocks, trend pushing both stocks (which can still be profitable as obviously both pairs don't need to move in your direction), and of course random spikes.

Thanks for your help...I'm going to spend a bit of time refining a few things.


----------



## VSntchr

Long:       IIN    $6.26
Short:      MTU  $6.31

This has been a profitable pair in the past for me and now at -2.5SD it represents a good trade IMO. Will log it here.


----------



## SilverRanger

VSntchr said:


> Long:       IIN    $6.26
> Short:      MTU  $6.31
> 
> This has been a profitable pair in the past for me and now at -2.5SD it represents a good trade IMO. Will log it here.




This pair didn't diverge enough today for me, but yes it does look pretty good. I took on long SGN and short NWS instead at market close, as I looked why SGN fell that bad and found no news


----------



## VSntchr

SilverRanger said:


> This pair didn't diverge enough today for me, but yes it does look pretty good. I took on long SGN and short NWS instead at market close, as I looked why SGN fell that bad and found no news




That one moved nicely for you!

Lots of signals today, hard to keep up..but with DXS, CPA and GPT all with price sensitive ann's, most of it shouldn't be traded.

Still got a few others I'm waiting for - SWM/TEN looks okay...just a bit worried about the TEN leg.


----------



## skc

VSntchr said:


> Long:       IIN    $6.26
> Short:      MTU  $6.31
> 
> This has been a profitable pair in the past for me and now at -2.5SD it represents a good trade IMO. Will log it here.




I shorted TPM instead.



VSntchr said:


> That one moved nicely for you!
> 
> Lots of signals today, hard to keep up..but with DXS, CPA and GPT all with price sensitive ann's, most of it shouldn't be traded.
> 
> Still got a few others I'm waiting for - SWM/TEN looks okay...just a bit worried about the TEN leg.




CPA/DXS/GPT has to be traded with fundamentals as opposed to statistics. So no pairs on these for me.

SGN is too thin for my liking. Also got a few signals to short TEN but I am not sure TEN has run its course from a technical point of view. I will reassess if it can get up to the 32.5/33 mark.

Also passed on AGI/ALL due to liquidity but this pair is usually pretty reliable.


----------



## VSntchr

> I shorted TPM instead.



Yeah, it certainly has had a very strong spurt and could pull back.




> SGN is too thin for my liking.



My position sizing is small so it is on my list, however I didnt enter as Silver did yesterday. I see its on again now, but I'll be waiting for a bit more than whats currently on offer.



> Also got a few signals to short TEN but I am not sure TEN has run its course from a technical point of view. I will reassess if it can get up to the 32.5/33 mark.



I agree.


----------



## SilverRanger

VSntchr said:


> Yeah, it certainly has had a very strong spurt and could pull back.
> 
> 
> 
> My position sizing is small so it is on my list, however I didnt enter as Silver did yesterday. I see its on again now, but I'll be waiting for a bit more than whats currently on offer.
> 
> 
> I agree.




Closed SGN @ 1.46 and NWS @ 19.41 for a quick profit, then turned to long SWM/short CRZ at market close, hope it's as good as my last pair


----------



## VSntchr

SilverRanger said:


> Closed SGN @ 1.46 and NWS @ 19.41 for a quick profit, then turned to long SWM/short CRZ at market close, hope it's as good as my last pair




My system actually showed the SGN/NWS trade going off twice, I was onto it the second time...but it reverted while I was waiting for it to divert a bit more...so never got a cent out of it, well done to you sir.

I was watching SWM all day and almost pulled the trigger on close, however I left it for tomorrow.
Personally I'd be too scared to short CRZ against SWM. I have it pencilled in my head as a stronger stock and would much prefer to be on the reverse end of that trade (when the statistics suggest so of course). But there's not a whole lot of meat behind that, just one of the many mental labels I have on various stocks, anyway - good luck...

I did manage to get an entry into AIO/TOL today...a little down at the moment.


----------



## VSntchr

I've joined in on SWM, except I've gone short TEN @ 32.5. Took me a while to get filled as I was a bit worried at 30.5c so I waited, hopefully its reached a short term technical top around 32.5/33 and will retrace down to ~30c.


----------



## skc

VSntchr said:


> I've joined in on SWM, except I've gone short TEN @ 32.5. Took me a while to get filled as I was a bit worried at 30.5c so I waited, hopefully its reached a short term technical top around 32.5/33 and will retrace down to ~30c.




I took FXJ/TEN at 64.5/34.5. Very small size just to watch it tick. TEN at 35.5 now. This name is up 6 days in a row and over 25%.



VSntchr said:


> I did manage to get an entry into AIO/TOL today...a little down at the moment.




I have the same trade - down 2% but not too worried.



skc said:


> I shorted TPM instead.




The only trade treating me kindly today...


----------



## VSntchr

skc said:


> I took FXJ/TEN at 64.5/34.5. Very small size just to watch it tick. TEN at 35.5 now. This name is up 6 days in a row and over 25%.




Well done, nice entry and hopefully you've picked the top  

It's certainly stopped going up for now, lets see what the afternoon run home brings...


----------



## VSntchr

TEN has come back a bit today, first day in a while it hasn't been in the green!

Just got an entry into Long NWS and Short SGN.

Also looking at shorting HZN but will be patient and careful with this one, tossing up long AUT, KAR or BPT.


----------



## SilverRanger

VSntchr said:


> TEN has come back a bit today, first day in a while it hasn't been in the green!
> 
> Just got an entry into Long NWS and Short SGN.
> 
> Also looking at shorting HZN but will be patient and careful with this one, tossing up long AUT, KAR or BPT.




Yes I saw a few signals related NWS as well, but I would avoid NWS temporarily as it is getting sold off due to the potential/upcoming ASX exchange delisting. I've taken CWN/ALL and ANN/SHL today.


----------



## skc

VSntchr said:


> TEN has come back a bit today, first day in a while it hasn't been in the green!
> 
> Just got an entry into Long NWS and Short SGN.
> 
> Also looking at shorting HZN but will be patient and careful with this one, tossing up long AUT, KAR or BPT.




I was in the queue at 32 to exit TEN and but didn't get a fill (I was may be 30k shares away), but I am not too concerned. With the down move today 31 is a real possibility over the next day or 2. Let's hope my FXJ long holds up in the meantime.

SGN got a bit of write up today by Macquarie who raised the price target by a bit, so I won't be surprised if it heads back above 160+ given how thin it is. 

With HZN possible look to pair it with oilers of comparable sizes... AWE, DLS, SXY etc. I find KAR tricky as it likes to release drilling updates with regularity (which makes it hard to keep up with), while AUT recently released a disappointing update and I think the recent weakness is probably a result of that. 

Having said all that, sometimes these bits of information mean nothing except make you procrastinate and miss an otherwise good valid trade.


----------



## skc

skc said:


> I was in the queue at 32 to exit TEN and but didn't get a fill (I was may be 30k shares away), but I am not too concerned. With the down move today 31 is a real possibility over the next day or 2. Let's hope my FXJ long holds up in the meantime.




Well how's that for precision trading... sold FXJ @ 64.5 and covered TEN @ 31 for a tidy 9% convergence.


----------



## VSntchr

skc said:


> I was in the queue at 32 to exit TEN and but didn't get a fill (I was may be 30k shares away), but I am not too concerned. With the down move today 31 is a real possibility over the next day or 2. Let's hope my FXJ long holds up in the meantime.



Happy days for us 



> SGN got a bit of write up today by Macquarie who raised the price target by a bit, so I won't be surprised if it heads back above 160+ given how thin it is.



Thanks for the tip.



> With HZN possible look to pair it with oilers of comparable sizes... AWE, DLS, SXY etc. I find KAR tricky as it likes to release drilling updates with regularity (which makes it hard to keep up with), while AUT recently released a disappointing update and I think the recent weakness is probably a result of that.
> 
> Having said all that, sometimes these bits of information mean nothing except make you procrastinate and miss an otherwise good valid trade.



Again, thanks. I'm still learning soo much with each week and haven't quite optimised which stocks should go together, I have been including size as a parameter but have not been too tight on the criterion so far..

You make a good point about some stocks (KAR in your example) releasing infomation/updates more regularly than others. Some stocks are very friendly and only release 3 or 4 price sensitive ann's a year


----------



## skc

VSntchr said:


> Again, thanks. I'm still learning soo much with each week and haven't quite optimised which stocks should go together, I have been including size as a parameter but have not been too tight on the criterion so far..




You can't always optimise everything and you need to be dynamic and nimble based on new information that comes to light, as well as understand the overall context of the market and the sector. The longer you trade the better you get on how to pre-empt the market reaction to these information.


----------



## SilverRanger

SilverRanger said:


> Closed SGN @ 1.46 and NWS @ 19.41 for a quick profit, then turned to long SWM/short CRZ at market close, hope it's as good as my last pair




Closing CRZ/SWM today, CRZ looks beaten enough to get on the long side.


----------



## VSntchr

SilverRanger said:


> Closing CRZ/SWM today, CRZ looks beaten enough to get on the long side.




Nice work, CRZ moved very nicely for you.

The last week all my positions are in the red  
Haven't taken any signals this week as I'm at full capacity already lol!


----------



## VSntchr

Big spike on GWA today..

Also BLD is triggering against not only GWA but a few other material stocks...


----------



## skc

VSntchr said:


> Big spike on GWA today..
> 
> Also BLD is triggering against not only GWA but a few other material stocks...




CIMB upgraded GWA today. The move seems a bit over the top however.

I have been trading like an idiot recently...


----------



## VSntchr

skc said:


> CIMB upgraded GWA today. The move seems a bit over the top however.




I really need to get a better source for broker upgrades, seems I am always oblivious!


> I have been trading like an idiot recently...




Your not alone there


----------



## skc

VSntchr said:


> I really need to get a better source for broker upgrades, seems I am always oblivious!




Broker summary... usually comes out around lunch time.
http://finance.ninemsn.com.au/newsc...65/fn-arena-broker-call-headlines-21-jan-2014

Or just sign up to FNArena. Subscription is pretty cheap.


----------



## SilverRanger

Picked long CRZ/short IRE at market close, and left RHC/NHF due to lack of capital (in the middle of moving funds between brokers), hope I get to pick it up again tomorrow.


----------



## SilverRanger

And while still on the topic of analyst upgrade/downgrade,  how do you guys view them generally? As a major news event that exits (or filters if you are already in) your trade? Or as an opportunity as the "fundamentals" have not changed as a result of it? 

So far I tend to see them as the latter, especially if I'm not already in the trade. And if I'm unfortunate enough to be in it when the upgrade/downgrade happens, then it's a matter of "if it hurts enough, get out"


----------



## skc

SilverRanger said:


> And while still on the topic of analyst upgrade/downgrade,  how do you guys view them generally? As a major news event that exits (or filters if you are already in) your trade? Or as an opportunity as the "fundamentals" have not changed as a result of it?
> 
> So far I tend to see them as the latter, especially if I'm not already in the trade. And if I'm unfortunate enough to be in it when the upgrade/downgrade happens, then it's a matter of "if it hurts enough, get out"




Bit of everything really... if I am holding and the upgrade/downgrade is against me, sometimes I cop it, while other times I step aside on that leg and look to re-enter at better spread. If I wasn't holding, I'd look to both trade in the direction of the recommendation change, as well as fade it if it looks to run out of steam.


----------



## SilverRanger

skc said:


> Bit of everything really... if I am holding and the upgrade/downgrade is against me, sometimes I cop it, while other times I step aside on that leg and look to re-enter at better spread. If I wasn't holding, I'd look to both trade in the direction of the recommendation change, as well as fade it if it looks to run out of steam.




Were you in the GWA trade? How did you handle that one?


----------



## VSntchr

SilverRanger said:


> And while still on the topic of analyst upgrade/downgrade,  how do you guys view them generally? As a major news event that exits (or filters if you are already in) your trade? Or as an opportunity as the "fundamentals" have not changed as a result of it?
> "




I think it depends on what the stock is for me. If I am already weary about shorting a stock due to me perceiving it as a strong stock and then an upgrade comes out, I'd probably get out.

If I am not already in, I assess the reaction and act based on that. As for GWA yesterday I felt that 7% rise with no new info (other than a broker thinking its worth more) was a bit overcooked..so I got in. I was actually sitting in the queue for BLD and didnt get a fill so managed to close the GWA position for a profit on the close.

So my answer is really that I don't have a solid procedure for dealing with upgrades/downgrades and assess it on a case by case basis, which hopefully, I will improve at over time.


----------



## VSntchr

SilverRanger said:


> Picked long CRZ/short IRE at market close, and left RHC/NHF due to lack of capital (in the middle of moving funds between brokers), hope I get to pick it up again tomorrow.




The CRZ/IRE is interesting, its not as fundamentally correlated as I would hope for most of my pairs - however this is just how I have tried to tailor my approach. Do you base your pairs more on backtest results/statistical correlation?

I was watching the NHF/RHC trade too...hopefully it stays on until I also have funds ready!


----------



## skc

SilverRanger said:


> Were you in the GWA trade? How did you handle that one?






VSntchr said:


> I think it depends on what the stock is for me. If I am already weary about shorting a stock due to me perceiving it as a strong stock and then an upgrade comes out, I'd probably get out.
> 
> If I am not already in, I assess the reaction and act based on that. As for GWA yesterday I felt that 7% rise with no new info (other than a broker thinking its worth more) was a bit overcooked..so I got in. I was actually sitting in the queue for BLD and didnt get a fill so managed to close the GWA position for a profit on the close.




With GWA I shorted it towards the close as well. It's still reasonably strong today. I've paired that with BLD so it's a bit against me for now.

I was short CSR some days ago when it got an upgrade. I didn't close the trade and I am still paying for it now.



VSntchr said:


> So my answer is really that I don't have a solid procedure for dealing with upgrades/downgrades and assess it on a case by case basis, which hopefully, I will improve at over time.




Overall I see them as more opportunities than risks, and there probably isn't a one size fit all response.


----------



## SilverRanger

VSntchr said:


> The CRZ/IRE is interesting, its not as fundamentally correlated as I would hope for most of my pairs - however this is just how I have tried to tailor my approach. Do you base your pairs more on backtest results/statistical correlation?
> 
> I was watching the NHF/RHC trade too...hopefully it stays on until I also have funds ready!




Missed my NHF/RHC entry this morning, got distracted by the BTT surge that I wanted to fade.

CRZ is on my media list as well as the IT list, but generally I like it more with SEK, FXJ, REA. But yesterday I got a stronger signal with IRE so that made my trade. Hope that was the right choice


----------



## VSntchr

SilverRanger said:


> Missed my NHF/RHC entry this morning, got distracted by the BTT surge that I wanted to fade.




There was actually a couple of moments where the entry was more favourable today. NHF was flat at 2.50 for a bit and RHC went up. Would have had to have been good timing however, I've found RHC a tough one to pairs trade as it can just run away from you while your waiting...it's price seems to be quite irrational from the market (i guess this is the defensive qualities)...hence I really like to enter that leg first.

I opted for the materials trade that I didn't quite get yesterday and went BLD/DLX. Like SKC, the BLD component is making me a bit underwater at present, but early days. 


I'm still sitting on a bunch of losers atm; SGT/TEL,  DJS/PMV and IIN/MTU are all making me


----------



## skc

VSntchr said:


> I'm still sitting on a bunch of losers atm; SGT/TEL,  DJS/PMV and IIN/MTU are all making me




Surely you are winning with IIN/MTU? Or do you have it the other way round?

There was some write up about TPM finally making a bit for IIN which I thought was the reason for IIN's strong showing last week. Anyhow that rumour has been as long as I've been in the market so take it with a grain of salt.


----------



## VSntchr

skc said:


> Surely you are winning with IIN/MTU? Or do you have it the other way round?
> 
> There was some write up about TPM finally making a bit for IIN which I thought was the reason for IIN's strong showing last week. Anyhow that rumour has been as long as I've been in the market so take it with a grain of salt.




Yep lol. Long MTU Short IIN.
Im only slightly down on IIN, it is MTU thats dragging me down...


----------



## skc

VSntchr said:


> Yep lol. Long MTU Short IIN.
> Im only slightly down on IIN, it is MTU thats dragging me down...




I will help you a bit... I am putting on long MTU / short TPM.

BTW there's also always a rumour that MTU and IIN will merge. Probably just some M&A bankers wet dream but you never know...


----------



## VSntchr

skc said:


> I will help you a bit... I am putting on long MTU / short TPM.




I'll start counting the profits now


----------



## SilverRanger

VSntchr said:


> There was actually a couple of moments where the entry was more favourable today. NHF was flat at 2.50 for a bit and RHC went up. Would have had to have been good timing however, I've found RHC a tough one to pairs trade as it can just run away from you while your waiting...it's price seems to be quite irrational from the market (i guess this is the defensive qualities)...hence I really like to enter that leg first.
> 
> I opted for the materials trade that I didn't quite get yesterday and went BLD/DLX. Like SKC, the BLD component is making me a bit underwater at present, but early days.
> 
> 
> I'm still sitting on a bunch of losers atm; SGT/TEL,  DJS/PMV and IIN/MTU are all making me




I've got similar stuff as you atm: TLS/TEL, DJS/MYR, IIN/MTU, plus 2 more bigger losers, CWN/ALL and ABC/CSR, but overall still up for the month.


----------



## skc

SilverRanger said:


> I've got similar stuff as you atm: TLS/TEL, DJS/MYR, IIN/MTU, plus 2 more bigger losers, CWN/ALL and ABC/CSR, but overall still up for the month.




For clarity I always put the long leg first... so I'd imagine you have ALL/CWN?

CWN has very shallow dips and every month when they release gaming stats in Macau, it goes up some more. I've pretty much given up shorting that against anything.


----------



## SilverRanger

skc said:


> For clarity I always put the long leg first... so I'd imagine you have ALL/CWN?
> 
> CWN has very shallow dips and every month when they release gaming stats in Macau, it goes up some more. I've pretty much given up shorting that against anything.




Oh, in that case then it's TLS/TEL, MYR/DJS, MTU/IIN, ALL/CWN and ABC/CSR. 

Yes, I think that's what I'd do with CWN from now on too, lesson learnt.


----------



## VSntchr

skc said:


> With GWA I shorted it towards the close as well. It's still reasonably strong today. I've paired that with BLD so it's a bit against me for now




Finally one that treated me well for the last fortnight! 
Managed break even on BLD but made the 2.2% target on the DLX short. BLD could well run back over $4.80 but I was happy to take the quick profit given my trading recently.

BLD had an update this time last year also so that could come into play any day now....


----------



## SilverRanger

VSntchr said:


> Finally one that treated me well for the last fortnight!
> Managed break even on BLD but made the 2.2% target on the DLX short. BLD could well run back over $4.80 but I was happy to take the quick profit given my trading recently.
> 
> BLD had an update this time last year also so that could come into play any day now....




I'm also having a good day today, but funny enough it's not because of my winners are bringing home the bacon, but my losers are shrinking! Time to close some of them and free up some capital.


----------



## SilverRanger

And skc, what sort of performance metrics do you use to measure your pair trading success? 

The ones I'm currently using now are:

# Trades

Winning %

Return (as a % of my average leg size)

Average winners (%)

Average losers (%)

Profit factor


It looks like I'm still missing on some good measurements of risk. Any ideas?


----------



## skc

SilverRanger said:


> And skc, what sort of performance metrics do you use to measure your pair trading success?
> 
> The ones I'm currently using now are:
> 
> # Trades
> 
> Winning %
> 
> Return (as a % of my average leg size)
> 
> Average winners (%)
> 
> Average losers (%)
> 
> Profit factor
> 
> 
> It looks like I'm still missing on some good measurements of risk. Any ideas?




Not much more. I track account % and $ P&L as well as drawdown. I also track P&L MA20 on trades and on account just to make sure things are on track.


----------



## VSntchr

SilverRanger said:


> It looks like I'm still missing on some good measurements of risk. Any ideas?




What about something that tracks your position sizing against volatility or something similar?
This could help you to optimise leg size


----------



## skc

VSntchr said:


> What about something that tracks your position sizing against volatility or something similar?
> This could help you to optimise leg size




Volatility is hard to track. Ideally I'd like to record max adverse excursion on each trade but my Excel skill isn't up to scratch.


----------



## VSntchr

skc said:


> Volatility is hard to track.




Instead of volatility could just chart % change on historical trades...not really perfect as it only captures what the trade finishes at, but its likely that the trades that swing +/-5% during the trade will finish at higher extremes than the ones that swing only 1-3%. Another limitation is that this only uses historical trades..hmmm. 



> Ideally I'd like to record max adverse excursion on each trade but my Excel skill isn't up to scratch.




Yeah, I try to automate as much as possible within excel, but I am fairly basic with my formula/coding skills.


----------



## SilverRanger

skc said:


> Volatility is hard to track. Ideally I'd like to record max adverse excursion on each trade but my Excel skill isn't up to scratch.




Max adverse excursion! Yes, that's what I want  I can probably use this to optimise my hard stop loss too.

Might as well add in max favourable excursion to measure my early exits' success. Thanks heaps!

I think these two should be fairly simply with a bit of macro, simply set up 2 cells (one for max and min) per trade and every you update PnL, press the macro button and update these two values as well.


----------



## SilverRanger

skc said:


> Not much more. I track account % and $ P&L as well as drawdown. I also track P&L MA20 on trades and on account just to make sure things are on track.




What's account %? The size of your leg relative to your account?


----------



## skc

SilverRanger said:


> Max adverse excursion! Yes, that's what I want  I can probably use this to optimise my hard stop loss too.
> 
> Might as well add in max favourable excursion to measure my early exits' success. Thanks heaps!
> 
> I think these two should be fairly simply with a bit of macro, simply set up 2 cells (one for max and min) per trade and every you update PnL, press the macro button and update these two values as well.




I stream live data from Iress into the spreadsheet for pair's P&L but with iterative/self-referencing cells I couldn't quite get the quote to work. If you get this working and don't mind sharing... I'd love to have that in my spreadsheet as well 



SilverRanger said:


> What's account %? The size of your leg relative to your account?




I just meant $ and % P&L at the account level, as opposed to individual trades. Because ultimately you want your account balance to move in the right direction while keeping track of individual trades.


----------



## SilverRanger

skc said:


> I stream live data from Iress into the spreadsheet for pair's P&L but with iterative/self-referencing cells I couldn't quite get the quote to work. If you get this working and don't mind sharing... I'd love to have that in my spreadsheet as well




Lol, not at all. I will work on it when I get back home, probably while watching tennis. 



skc said:


> I just meant $ and % P&L at the account level, as opposed to individual trades. Because ultimately you want your account balance to move in the right direction while keeping track of individual trades.



Oh, yes I keep track of them as well, although not as % of account since I have 2 separate accounts


----------



## SilverRanger

SilverRanger said:


> Lol, not at all. I will work on it when I get back home, probably while watching tennis.




Just finished my little macro to update the MAE and MFE for each trade, feel free to drop me a PM with your email if you are interested


----------



## VSntchr

Well Silver it may have been a coincidence that you were seeking opinions on how others react to brokers up/down grades as it looks like UBS just re-affirmed its SELL on CRZ...

Im looking at CRZ/AHE but waiting for a better entry on AHE before I jump in...


Some of the big losers have reverted a bit the last two days...still waiting on IIN/MTU and SGT/TEL though.

Looking back at some of my recent losers that I cut after ~8 days or so, they have reverted enough to trigger a signal the other way...eg. AIO/TOL. This is reinforcing that I need more patience, so I'm trying not to worry to much with the open losers as they are only now coming to the 8 day mark.


EDIT:
JPmorgan just re-affirmed overweight CRZ despite slightly lowering guidance so its a bit of a mixed bag.


----------



## skc

SilverRanger said:


> Just finished my little macro to update the MAE and MFE for each trade, feel free to drop me a PM with your email if you are interested




PM sent. Thanks! :#



VSntchr said:


> Looking back at some of my recent losers that I cut after ~8 days or so, they have reverted enough to trigger a signal the other way...eg. AIO/TOL. This is reinforcing that I need more patience, so I'm trying not to worry to much with the open losers as they are only now coming to the 8 day mark.




I am kicking myself with AIO/TOL. I closed at breakeven but now it's well in profit. I think information from the MAE/MFE type analysis I think you'd get a better sense on when to hold and when to fold.



VSntchr said:


> Well Silver it may have been a coincidence that you were seeking opinions on how others react to brokers up/down grades as it looks like UBS just re-affirmed its SELL on CRZ...
> 
> Im looking at CRZ/AHE but waiting for a better entry on AHE before I jump in...




With these car stocks, keep an eye on those monthly new car sale release timing. And a reminder to myself... try pairing MMS with these car stocks.


----------



## SilverRanger

VSntchr said:


> Well Silver it may have been a coincidence that you were seeking opinions on how others react to brokers up/down grades as it looks like UBS just re-affirmed its SELL on CRZ...
> 
> Im looking at CRZ/AHE but waiting for a better entry on AHE before I jump in...



I'm still in my CRZ/IRE and now slightly in the red, not too worried as this point



skc said:


> I am kicking myself with AIO/TOL. I closed at breakeven but now it's well in profit. I think information from the MAE/MFE type analysis I think you'd get a better sense on when to hold and when to fold.



First day plugging those MAE/MFE numbers in my trades and they told me how much of an idiot I was today, but I can really see MFEs being useful if I collect enough of them, especially measured against the % deviation.

I took TOL/BLD at market close, quite like this pair, could have gone BLD/TOL last week but missed my entry.


----------



## skc

VSntchr said:


> BLD had an update this time last year also so that could come into play any day now....




 That's what "know your stock well" is all about.

BLD issued a trading update today. I am not 100% what to make of it (and the market didn't know either). I had long BLD against short GWA which I closed today. I managed to get an average price of $4.76 for BLD which wasn't that bad compared to the VWAP of $4.719 by the end of the day. I could have had better exit in the morning spike but the GWA short was too thin and I wanted to exit both legs in a pretty even manner. Oh well, still a profitable trade.


----------



## skc

SilverRanger said:


> First day plugging those MAE/MFE numbers in my trades and they told me how much of an idiot I was today, but I can really see MFEs being useful if I collect enough of them, especially measured against the % deviation.




Remember your MAE/MFE is calculated on "touch" while your actual P&L is measured on "fill". So depending on your size and the sort of stocks (and their bid/ask spread) you trade, you are not expected to get the exact MAE/MFE.


----------



## SilverRanger

SilverRanger said:


> I'm still in my CRZ/IRE and now slightly in the red, not too worried as this point



CRZ /IRE closed, quite happy with today's gain. JBH today was quite interesting, giving up a good chunk of yesterday's gain, wished I had the guts to reverse my JBH/HVN yesterday!


----------



## skc

skc said:


> I am so glad that I didn't put on that long MYR short DJS trade. That will get blown out of the water tomorrow.






VSntchr said:


> Got out of my DJS short on tuesday  (for a profit too  )






Porper said:


> Excellent timing. Do you use a timing method V.S or was it the patterns that made you take profit?
> 
> When and why did you short...same question as to why you closed the position.






VSntchr said:


> Sorry, should have been more clear. I was commenting in reply to SKC's post about avoiding the pair trade involving long MYR and short DJS.
> I was in a pair involving long PMV short DJS.
> Entry and exit was as per normal pairs trading (fundamental correlation and statistical divergence).




I have moved these here so as not to clutter up DJS' thread.

Sometimes thing just sort of work out in your favour. Avoiding a loss is as good as any win. Since TRS and SUL trading update I have not put on any pairs in the retail sector due to the risks involved.

I was long TWE about 2 weeks ago so dodged a big one there as well.


----------



## SilverRanger

skc said:


> I have moved these here so as not to clutter up DJS' thread.
> 
> Sometimes thing just sort of work out in your favour. Avoiding a loss is as good as any win. Since TRS and SUL trading update I have not put on any pairs in the retail sector due to the risks involved.
> 
> I was long TWE about 2 weeks ago so dodged a big one there as well.




I closed MYR/DJS on Tuesday as well, but now I'm actually tempted to go back in, after all it's a deal they knocked down 2 months ago, and nothing is on the table now. It sort of reminds me of the DJS hoax too, which I was unlucky to be sitting on it and closed at a huge loss, only to see it bounced back the day after.


----------



## skc

SilverRanger said:


> I closed MYR/DJS on Tuesday as well, but now I'm actually tempted to go back in, after all it's a deal they knocked down 2 months ago, and nothing is on the table now. It sort of reminds me of the DJS hoax too, which I was unlucky to be sitting on it and closed at a huge loss, only to see it bounced back the day after.




That really sucked... to take a loss on a hoax.

Although I think the situation is a bit different here.


----------



## VSntchr

What also sucked was my trading today!!

Got half a fill at 6.84 on the close of my TCL short...then it decided to run back up and sit there all day...closed the rest out on the closing-auction for avg 6.89 

Was within a tick of closing CRZ/AHE this morning, then it flipped and now its -3.5% 
and same again with MTU/IIN..so close, then diverges again!


Rant over for the day and can't complain because I'm in the green for the week.


----------



## SilverRanger

skc said:


> That really sucked... to take a loss on a hoax.
> 
> Although I think the situation is a bit different here.




Ok, so I took HVN/DJS at market close just to see the flop, but did so with half my normal position size. If it's not looking good early next week, I fold.



VSntchr said:


> What also sucked was my trading today!!
> 
> Got half a fill at 6.84 on the close of my TCL short...then it decided to run back up and sit there all day...closed the rest out on the closing-auction for avg 6.89
> 
> Was within a tick of closing CRZ/AHE this morning, then it flipped and now its -3.5%
> and same again with MTU/IIN..so close, then diverges again!
> 
> 
> Rant over for the day and can't complain because I'm in the green for the week.




I can rant on those every day, especially with the MFE numbers I get. And yes, the week has been good, actually, the whole January was good


----------



## VSntchr

skc said:


> I will help you a bit... I am putting on long MTU / short TPM.




Well that is paying off for you today, TPM falling fast!


----------



## skc

VSntchr said:


> Well that is paying off for you today, TPM falling fast!




Already closed it last week 

This caused it...

http://www.afr.com/p/business/companies/tpg_share_price_slips_pc_iD7Krk7oELYG2VtQ4yJxLO



> TPG Telecom’s share price has fallen over 5 per cent on Tuesday morning after Communications Minister Malcolm Turnbull said he was undecided on the legality of the company’s plan to build a rival to the national broadband network.


----------



## VSntchr

Ended up taking the loss on IIN/MTU...only cost me 1.5% and the MAE was around 4% so I considering it a decent exit.

Hopped on to APN/FXJ this afternoon... my system has it at -3.06 SD so hoping for a decent trade here...APN is pretty thin these days and I haven't traded either of these stocks before so leg size is low. 

Tried to pair two goldies today; RSG/EVN - was looking good at 0.51 fill for RSG and then the price moved up with me left second in queue...whilst I got a half fill on EVN at 0.655 and then the price dropped to 0.64. Closed off the EVN for a small profit as I don't want to take the risk of holding anything overnight that isnt direction neutral at the moment!

Have a couple of trades I'd like to get out of this week, don't want to push it to close to reporting dates....I am already far too close with FOX - which reports this friday


----------



## SilverRanger

VSntchr said:


> Ended up taking the loss on IIN/MTU...only cost me 1.5% and the MAE was around 4% so I considering it a decent exit.
> 
> Hopped on to APN/FXJ this afternoon... my system has it at -3.06 SD so hoping for a decent trade here...APN is pretty thin these days and I haven't traded either of these stocks before so leg size is low.




I tried to get into APN/FXJ today as well, but only managed to fill 20% on APN before FXJ turning south, closed APN at break even, quite disappointing on an otherwise very good pair.


----------



## VSntchr

Managed to squeeze out of APN/FXJ yesterday....I really didn't like the look of APN...could be a decent re-entry now that its close to the 40c level...

Might just see how it plays out for a while


----------



## skc

I hope no one got caught shorting AUT... that would have been VERY nasty.


----------



## SilverRanger

VSntchr said:


> Managed to squeeze out of APN/FXJ yesterday....I really didn't like the look of APN...could be a decent re-entry now that its close to the 40c level...
> 
> Might just see how it plays out for a while




For a loss? I got in at 0.415 yesterday but is under water thanks to FXJ short.



skc said:


> I hope no one got caught shorting AUT... that would have been VERY nasty.




I actually got a signal to go long on AUT yesterday, but didn't take it


----------



## VSntchr

SilverRanger said:


> For a loss? I got in at 0.415 yesterday but is under water thanks to FXJ short.




Yeah small loss.

Couldn't resist myself and got back in at 0.41 and 0.675...the divergence is pretty big, hope its not luring me in with false hopes!

Not a great week for me, PBG just wont stop going up ~1.5% each day 

I'm not taking many signals now due to reporting season but I managed to get into DLX/JHX as they are on a different cycle. That said, JHX will put out a qrtly towards the end of Feb, but I'm comfortable with that.

On a side-note, do you guys do much directional trading whilst the pairs are slow around reporting time? I've been taking a few small positions when stocks I know well have reported..


----------



## SilverRanger

VSntchr said:


> Yeah small loss.
> 
> Couldn't resist myself and got back in at 0.41 and 0.675...the divergence is pretty big, hope its not luring me in with false hopes!
> 
> Not a great week for me, PBG just wont stop going up ~1.5% each day
> 
> I'm not taking many signals now due to reporting season but I managed to get into DLX/JHX as they are on a different cycle. That said, JHX will put out a qrtly towards the end of Feb, but I'm comfortable with that.
> 
> On a side-note, do you guys do much directional trading whilst the pairs are slow around reporting time? I've been taking a few small positions when stocks I know well have reported..




No, I don't do much around reporting period, but I am trading HKE stocks too, their reporting are pretty much done


----------



## skc

VSntchr said:


> Yeah small loss.
> 
> Couldn't resist myself and got back in at 0.41 and 0.675...the divergence is pretty big, hope its not luring me in with false hopes!
> 
> Not a great week for me, PBG just wont stop going up ~1.5% each day
> 
> I'm not taking many signals now due to reporting season but I managed to get into DLX/JHX as they are on a different cycle. That said, JHX will put out a qrtly towards the end of Feb, but I'm comfortable with that.
> 
> On a side-note, do you guys do much directional trading whilst the pairs are slow around reporting time? I've been taking a few small positions when stocks I know well have reported..




Yes I had a few PBG signals going off as well but I've deided to ignore them. PBG's last guidance was a downgrade to "materially below pcp" so it feels like various analysts will take wildish stabs at it... and that's who I avoided the trade seeing that it's bouncing off 52wk lows heading into reporting season. 

I do trade a fair bit directionally during reporting season - mostly on the back of reports but also using one company's report to trade others in the sector. E.g. IAG says growth will slow on written premium, SUN will take a hit.


----------



## SilverRanger

Duplicate


----------



## SilverRanger

SilverRanger said:


> Ok, so I took HVN/DJS at market close just to see the flop, but did so with half my normal position size. If it's not looking good early next week, I fold.




Closed HVN/DJS at market close, in exactly 2 weeks, didn't make as much and as quickly as I expect, but still a profit. Now fully focusing on HKEX!


----------



## VSntchr

Finally some decent volatility with the March futures rollover today and the index rebalance tomorrow the likely cause?

In any case I'm glad to see some trades popping up, it's been a slow start since the reporting season ended.


----------



## skc

VSntchr said:


> Finally some decent volatility with the March futures rollover today and the index rebalance tomorrow the likely cause?
> 
> In any case I'm glad to see some trades popping up, it's been a slow start since the reporting season ended.




Yes it's been a boring old 3 weeks since the reporting season. I have been forcing some trades which means I short volatility when volatility is low... not a winning strategy 

Still in the red for the month. 6 more sessions to redeem myself and keep in tact my perfect monthly record for the last 2 years.


----------



## VSntchr

skc said:


> Yes it's been a boring old 3 weeks since the reporting season. I have been forcing some trades which means I short volatility when volatility is low... not a winning strategy
> 
> Still in the red for the month. 6 more sessions to redeem myself and keep in tact my perfect monthly record for the last 2 years.




I have only taken 4 trades since reporting season - with 2 of those today. 
I'm being very selective at the moment, I think I was far too quick to jump on some trades in the recent past and it reflected in some crappy trading performance metrics. 

Good luck making in keeping the record in tact, let me know how you go


----------



## DJG

Guess what?
Pair Trade Finder replied.....after 9 months!!

Well first they sent me some discount offer and I mentioned I never even got to trial it since they never replied.


----------



## skc

DJG said:


> Guess what?
> Pair Trade Finder replied.....after 9 months!!
> 
> Well first they sent me some discount offer and I mentioned I never even got to trial it since they never replied.




Did you send by email or owl post? Perhaps the owl got lost?


----------



## VSntchr

Didn't get much sleep last night and this morning I just wandered in to a gold pair RSG/EVN. Statistically looks great and my gold pairs generally backtest really well. Haven't traded gold stocks extensively before, but after placing the trade it occurred to me that stocks in this sector really do need to be checked for fundamental comparison a bit more deeply than other sectors. 
The main factors I ignored was whether the company hedged their gold sales, and what their cash cost is.
In this case it appears that I was shorting the company with a hedging strategy, while going long on the company with a no-hedge strategy - where the latest investment presso actually states "strongly leveraged to the gold price". 

Obviously that is not the intention of my trade and since I am trying to trade statistically and not on the prospect of the recent gold slump rebounding, I managed to exit the trade and luckily even managed to cover my brokerage.

Lesson learnt  and time to return to increase my focus that's served me well over the last 2 weeks.


----------



## SilverRanger

VSntchr said:


> Didn't get much sleep last night and this morning I just wandered in to a gold pair RSG/EVN. Statistically looks great and my gold pairs generally backtest really well. Haven't traded gold stocks extensively before, but after placing the trade it occurred to me that stocks in this sector really do need to be checked for fundamental comparison a bit more deeply than other sectors.
> The main factors I ignored was whether the company hedged their gold sales, and what their cash cost is.
> In this case it appears that I was shorting the company with a hedging strategy, while going long on the company with a no-hedge strategy - where the latest investment presso actually states "strongly leveraged to the gold price".
> 
> Obviously that is not the intention of my trade and since I am trying to trade statistically and not on the prospect of the recent gold slump rebounding, I managed to exit the trade and luckily even managed to cover my brokerage.
> 
> Lesson learnt  and time to return to increase my focus that's served me well over the last 2 weeks.




I would also throw in the geographical location of their operating mine(s) as well, obviously that is going to have different political risk and exchange rate risk. But for me I'm out of ASX goldies altogether, mainly due to their size, both in absolute term and relative to their international peers.


----------



## skc

SilverRanger said:


> I would also throw in the geographical location of their operating mine(s) as well, obviously that is going to have different political risk and exchange rate risk. But for me I'm out of ASX goldies altogether, mainly due to their size, both in absolute term and relative to their international peers.




I haven't traded gold for the last 18 months. I did use to trade them a lot. 

Back in the days when gold was $1800, a cash cost between $900-1100 would yield a margin of $700 to $900, or ~20% difference. These days with gold at $1400, the same cash cost yield margins of $300 to $500, or over 60% difference. The problem is more pronounced when you start to look at different measures like all in sustaining costs. So a $20 drop in gold price may be worth 5% margin for one producer and 25% for another. It just gets too hard and too wild.

You can probably still trade gold pairs, but you do need to know them really well, and you should trade with the gold price chart to some extent. When you add in other operational risks, it'd be easier to just trade the spot gold.


----------



## VSntchr

skc said:


> I haven't traded gold for the last 18 months. I did use to trade them a lot.
> 
> Back in the days when gold was $1800, a cash cost between $900-1100 would yield a margin of $700 to $900, or ~20% difference. These days with gold at $1400, the same cash cost yield margins of $300 to $500, or over 60% difference. The problem is more pronounced when you start to look at different measures like all in sustaining costs. So a $20 drop in gold price may be worth 5% margin for one producer and 25% for another. It just gets too hard and too wild.
> 
> You can probably still trade gold pairs, but you do need to know them really well, and you should trade with the gold price chart to some extent. When you add in other operational risks, it'd be easier to just trade the spot gold.




Yep, that's the conclusion I came to when I sat down and had a think about whether it was feasible to keep pursuing these pairs or not. When the profit over the AISC is slim, as you say, the impacts of the POG movements are so much more extreme and it makes knowing the companies hedging policies even more relevant. I started plotting costs and hedging %'s and just realised it was getting too complicated for what are <15 day trades. 
Just for a little jab in the face I actually missed out on a 4% gain with that one, but I'll put that down to risk management expense. 


Was looking at PNA/OZL yesterday - but the hedging issue popped up again, as well as the complicating factor that one company is more reliant on copper than the other...I think its something like 65% for PNA and 75% for OZL with the remainder coming from gold and silver...again it gets complicated and at some point I think you either have to ignore the miners all together, or close your eyes on these risks (to a certain extent) and trust in the backtesting and quality of the signal. FWIW this trade would already be at 4.5% profit.


On another note, I have had numerous signals to short CSR on its big run over the last few months...and I have resisted them all...until this week when I felt it had run a bit hard on the back of the Macquarie upgrade and might be a decent pair with FBU. Well it proved me wrong (jumping quickly from 3.48 to 3.60+)...re-inforcing my lesson to avoid strong-trending stocks.

March was a 7-0 streak for me, but April is already far worse at 1-2.


----------



## skc

VSntchr said:


> Yep, that's the conclusion I came to when I sat down and had a think about whether it was feasible to keep pursuing these pairs or not. When the profit over the AISC is slim, as you say, the impacts of the POG movements are so much more extreme and it makes knowing the companies hedging policies even more relevant. I started plotting costs and hedging %'s and just realised it was getting too complicated for what are <15 day trades.
> Just for a little jab in the face I actually missed out on a 4% gain with that one, but I'll put that down to risk management expense.




Even if you look at some of the analyst numbers on cash costs between different producers, there are different methodoogies and terminologies used. So allin the too hard basket.



VSntchr said:


> Was looking at PNA/OZL yesterday - but the hedging issue popped up again, as well as the complicating factor that one company is more reliant on copper than the other...I think its something like 65% for PNA and 75% for OZL with the remainder coming from gold and silver...again it gets complicated and at some point I think you either have to ignore the miners all together, or close your eyes on these risks (to a certain extent) and trust in the backtesting and quality of the signal. FWIW this trade would already be at 4.5% profit.




This pair is not as bad although OZL can be wild, and PNA as you said is slightly more gold-like. I am more concerned with SFR taking OZL over (some years ago that rumour was the other way).



VSntchr said:


> On another note, I have had numerous signals to short CSR on its big run over the last few months...and I have resisted them all...until this week when I felt it had run a bit hard on the back of the Macquarie upgrade and might be a decent pair with FBU. Well it proved me wrong (jumping quickly from 3.48 to 3.60+)...re-inforcing my lesson to avoid strong-trending stocks.




Lol. I have BLD/CSR on at the moment. Only down 1.5% so nothing to worry about. FBU went ex-div recently and may have caused your entry signal. The rising NZD should help though.



VSntchr said:


> March was a 7-0 streak for me, but April is already far worse at 1-2.




Nice. How many trades do you put on a month on average?


----------



## VSntchr

skc said:


> Lol. I have BLD/CSR on at the moment. Only down 1.5% so nothing to worry about. FBU went ex-div recently and may have caused your entry signal. The rising NZD should help though.



Thats a nice trade, funny enough I actually have signal to short BLD..but it's another one that is trending up (I think PAV even mentioned it in his breakout thread) so I'd prefer to be long than short..



skc said:


> Nice. How many trades do you put on a month on average?



March was quiet as I didn't do anything for the first 13 days.
Average is around 20-30.


----------



## VSntchr

Pairs Trader said:


> Market changes are coming http://www.theaustralian.com.au/bus...trading-targeted/story-e6frg8zx-1225937363096 high frequency trading will dramatically increase over the next 2-3 years on the ASX from the current 20% levels of volume probably more closer to 70% like the US markets I think, because of new legislation that will open up the market to more competing exchanges and hedge funds, next year will probably see the introduction of chi-x which will create segmentation in market liquidity, and hopefully brokers can create smart routing options to collate the bids/offers together into one que for us or something like the NBBO in the US.
> 
> It's important as a trader to be aware of these changes, because it will affect how stocks trade, how the tape looks, hopefully the ASX forces time on que rules so we don't see those fleecing bids/offers that the US market sees, some stocks over there can have 3,000 bids/offers posted and pulled in under 1 second, not something we want here but let's see how it goes.
> 
> Until then the ASX still offers potent alpha from a relatively in-efficient market.




With HFT dominating my news feed at the moment I thought it would be relevant to dig up this old post and see if it has affected those who have traded for a longer period than myself?

Looking at the old trade journals from PTF it seems that profit margins have definitely been eroded, however this is complicated by the fact that this was in 2009 - a period of extreme volatility, I can imagine it was a great time to be an accomplished trader..but perhaps not a perfect learning environment.


----------



## VSntchr

Decided to take FXJ/APN today.

Might be in for a bit of pain in the short term with APN a bit more volatile than FXJ and both stocks have been strong recently but the signal looks pretty good. 

FBU/CSR is looking a bit better...

Was interesting to see CSR and BLD go into a JV for east coast bricks...doesn't seem to have affected the prices much though. If anything I though this might be positive for both and negative for all other competitors..


----------



## skc

VSntchr said:


> With HFT dominating my news feed at the moment I thought it would be relevant to dig up this old post and see if it has affected those who have traded for a longer period than myself?
> 
> Looking at the old trade journals from PTF it seems that profit margins have definitely been eroded, however this is complicated by the fact that this was in 2009 - a period of extreme volatility, I can imagine it was a great time to be an accomplished trader..but perhaps not a perfect learning environment.




I think it's more to do with the reduced in overall volatility rather than HFT. 



VSntchr said:


> Decided to take FXJ/APN today.
> 
> Might be in for a bit of pain in the short term with APN a bit more volatile than FXJ and both stocks have been strong recently but the signal looks pretty good.




Same. Got FXJ @ 94.25, APN @ 69.



VSntchr said:


> FBU/CSR is looking a bit better...
> 
> Was interesting to see CSR and BLD go into a JV for east coast bricks...doesn't seem to have affected the prices much though. If anything I though this might be positive for both and negative for all other competitors..




It's a pretty small JV in the whole scheme of things. BLD has revenue >$5B, CSR ~$1.5B. JV has revenue of $230m. 

However, ABC is looking weak today and I wonder if that's related.


----------



## edman79

skc said:


> I think it's more to do with the reduced in overall volatility rather than HFT.




X 2


----------



## VSntchr

Looking at long MTU with another telco today...still deciding between TEL/TLS/SGT.

APN/FXJ has been very frustrating - almost exited twice now but still haven't got there...actually "layered" this trade which was a first for me.


----------



## VSntchr

VSntchr said:


> Looking at long MTU with another telco today...still deciding between TEL/TLS/SGT.
> 
> APN/FXJ has been very frustrating - almost exited twice now but still haven't got there...actually "layered" this trade which was a first for me.




Went for MTU/TEL...so far underwater...

Got out of FXJ/APN yesterday, was some extreme volatility with FXJ breaking over the $1 mark...unfortunately I didn't get to ride it that far..out at 97.5c 

Although, being in RFG/CCL this morning paid off very well...nice to be on the good side of a downgrade - I am sure there will be plenty of occasions that the opposite occurs however..

Currently in CDI/DXS and CDI has just gone into a halt pending the takeover by parent Challenger...hopefully the bid offers some decent upside although I am not too optimistic due to the relationship.


----------



## skc

VSntchr said:


> Went for MTU/TEL...so far underwater...
> 
> Got out of FXJ/APN yesterday, was some extreme volatility with FXJ breaking over the $1 mark...unfortunately I didn't get to ride it that far..out at 97.5c
> 
> Although, being in RFG/CCL this morning paid off very well...nice to be on the good side of a downgrade - I am sure there will be plenty of occasions that the opposite occurs however..
> 
> Currently in CDI/DXS and CDI has just gone into a halt pending the takeover by parent Challenger...hopefully the bid offers some decent upside although I am not too optimistic due to the relationship.




Wow. What a nice day. 2 out of 2 on CDI bid and CCL downgrade. 

On the other hand, I was quite long beta (I had longs in PTM, MFG, IIN) and got fking ripped to pieces. AND I closed my EGP long yesterday   :bad:


----------



## VSntchr

Have the other pairstraders been getting the PTF emails lately?

Pretty spruiky to say the least...


----------



## VSntchr

Entered PTM/CPU today. Some pretty big divergence at the moment and the pair shows pretty good correlation. The fund managers have been releasing some good FUM updates (CGF, HGG etc) so I am hoping for PTM to follow the crowd. 
CPU on the other-hand continues its multi-year run which has gone extreme lately, all time high is 12.90 compared to current price of 12.50...perhaps there will be some resistance looming.


----------



## skc

VSntchr said:


> Entered PTM/CPU today. Some pretty big divergence at the moment and the pair shows pretty good correlation. The fund managers have been releasing some good FUM updates (CGF, HGG etc) so I am hoping for PTM to follow the crowd.
> CPU on the other-hand continues its multi-year run which has gone extreme lately, all time high is 12.90 compared to current price of 12.50...perhaps there will be some resistance looming.




PTM already released FUM on 7 Apr...


----------



## VSntchr

skc said:


> PTM already released FUM on 7 Apr...




Looking forwards to next month...7th May.

Noted that the last FUM report was pretty weak and price as a result has been weak.

Maybe I am just too biased to shorting CPU at the moment


----------



## skc

VSntchr said:


> Looking forwards to next month...7th May.
> 
> Noted that the last FUM report was pretty weak and price as a result has been weak.
> 
> Maybe I am just too biased to shorting CPU at the moment




FUM report by PTM wasn't awesome but the weakness predominately stem from recent selloff in momentum / high PE stocks. PTM trades on a historical PE of some 22x and is up over 100% in the last 18 months.

I am not trading pairs at the moment due to family committments, but I think the fall in these momentum stocks is actually the process of a longer term mean reversion against the other slower stocks. I wouldn't mind pairing high PE stocks against each other, but I'd be more inclined to short these names on retracements against a long in the more boring names.


----------



## VSntchr

skc said:


> I am not trading pairs at the moment




Noted that SKC isn't trading pairs currently, but how are the others going?

The last few weeks has been quite rough for me...I am getting a few signals but finding minimal reversion...
Some good movement today has sent off a few signals within the REIT's and building materials - but most of it is news related with a bunch of updates and presentations out today.


----------



## SilverRanger

VSntchr said:


> Noted that SKC isn't trading pairs currently, but how are the others going?
> 
> The last few weeks has been quite rough for me...I am getting a few signals but finding minimal reversion...
> Some good movement today has sent off a few signals within the REIT's and building materials - but most of it is news related with a bunch of updates and presentations out today.




JHX, BLD, ABC, FBU and GWA all down today, I'm not sure that's all to do with the presentations though (especially for JHX fell the most but didn't present). Maybe the strong Aussie dollar is to blame here, but I'm still in regardless, looking at BLD/DLX at the moment.

Last week/month was good for me, but this week going nowhere!


----------



## VSntchr

SilverRanger said:


> JHX, BLD, ABC, FBU and GWA all down today, I'm not sure that's all to do with the presentations though (especially for JHX fell the most but didn't present). Maybe the strong Aussie dollar is to blame here, but I'm still in regardless, looking at BLD/DLX at the moment.




My read was that BLD said the harsh weather over US winter impacted operations, so JHX reacted to that..
Also BLD didn't downgrade but perhaps some were looking for some more optimistic statements given the SP trend until the last week or so.

I do like BLD/DLX and traded it successfully last week (my only decent trade!), but avoided it this week..I was also looking at BLD/ABC...

Treading carefully at the moment as I seem to have curse this week !!


----------



## skc

VSntchr said:


> Noted that SKC isn't trading pairs currently, but how are the others going?
> 
> The last few weeks has been quite rough for me...I am getting a few signals but finding minimal reversion...
> Some good movement today has sent off a few signals within the REIT's and building materials - but most of it is news related with a bunch of updates and presentations out today.




Still no pairs from me. Just watching when I get a chance to so I keep up to date on the market. I hate the Macq conference season. So many presentations, no real schedule and important yet buried updates every now and then.



VSntchr said:


> I do like BLD/DLX and traded it successfully last week (my only decent trade!), but avoided it this week..I was also looking at BLD/*ABC*...
> 
> Treading carefully at the moment as I seem to have curse this week !!




M&A has really picked up of late... ALZ, ROC/HZN, AUT, GFF, AQA, TWE rumour, ENV, PNA. I don't remember seeing so many names on my pairs list being involved. So take care.


----------



## notting

I'm finding it hard to understand what on earth the AQA thing is all about. 8 billion infrastructure required.  It's not viable.


----------



## VSntchr

Had a bit of a crazy month with both my biggest loser and biggest winners.

Have closed off alot of pairs this week and am now only holding 1 as compared to 8 last week.
Having a look at PRY/ANN at the moment. News of the gp co-payment has been pulling back PRY while ANN has taken off with the resurgence of the market this week.
There is a decent reversion target on offer here of 6% plus but at this stage I might sit this one out...I personally don't think the proposed legislation will have a dramatic effect on PRY and it would seem that the worst is priced in, however I think I would prefer to keep my opinions on news out of my pairs trading.


----------



## kefa

skc said:


> M&A has really picked up of late... ALZ, ROC/HZN, AUT, GFF, AQA, TWE rumour, ENV, PNA. I don't remember seeing so many names on my pairs list being involved. So take care.




Still lots of M&A activity. Just SAI today and DUE last week. Really don't know whats safe to short anymore. Previously utilities have been pretty good for pairs trading but with the recent activity in ENV and now DUE I may stay clear.


----------



## skc

kefa said:


> Still lots of M&A activity. Just SAI today and DUE last week. Really don't know whats safe to short anymore. Previously utilities have been pretty good for pairs trading but with the recent activity in ENV and now DUE I may stay clear.




Probably shouldn't be too worried that you stop trading pairs altogether. Some of the names which received takeover offers were long-term potential candidates (ALZ, GFF, DJS, ENV, DUE, TWE).

On face value, there is no inherent "negative edge" in pairs and takeovers...you are just as likely to long a stock when a takeover offer is announced. The most important issue is to make sure you size you positions such that you don't get wiped out if something goes against you. 

It would be interesting to do a deeper research about takeover offer vs recent share price performance. May be share prices do tend to rise immediately before a takeover offer is revealed as news is leaked... and hence you are more likely to short that name. 

On the other hand, may be the opposite is true: That stocks with lower share price relative to recent performance attracts more takeover offers, and hence you are more likely to be long. 

I am guessing that any analysis would be quite inconclusive and largely depends on the timeframe you pick to define "recent movement". And I'd suspect that, on balance, takeovers are probably neutral to the strategy over many thousands of trades. So again, key is to make sure that you are not wiped out.


----------



## VSntchr

skc said:


> Probably shouldn't be too worried that you stop trading pairs altogether. Some of the names which received takeover offers were long-term potential candidates (ALZ, GFF, DJS, ENV, DUE, TWE).



Agree, there has been alot of M&A, but most of it has been pretty expected and nothing has shocked me..



> May be share prices do tend to rise immediately before a takeover offer is revealed as news is leaked... and hence you are more likely to short that name.



Don't jynx me, I just went short CHC!




> I am guessing that any analysis would be quite inconclusive and largely depends on the timeframe you pick to define "recent movement". And I'd suspect that, on balance, takeovers are probably neutral to the strategy over many thousands of trades. So again, key is to make sure that you are not wiped out.




Yep position sizing seems to be the most important part of pairs trading. I've had that reinforced to me recently with a few pairs that I probably was a bit overzealous with. 
And I also agree with the takeovers being neutral to the strategy - I have already had two in my favour (CDI and ENV) so I expect some will go against me at some point, providing some mean reversion to my takeover statistics :


----------



## kefa

MSCI rebalance this Friday. It may generate some good opportunities in the close.


----------



## edman79

skc said:


> May be share prices do tend to rise immediately before a takeover offer is revealed as news is leaked... and hence you are more likely to short that name.
> 
> On the other hand, may be the opposite is true: That stocks with lower share price relative to recent performance attracts more takeover offers, and hence you are more likely to be long.




Wow. I have been through those 2 exact thoughts countless times.

I was short AXA because it spiked the day before its takeover from AMP and long MCC when that got bought out, that's 2 in about 5 years. It can even up although from my recollection the AXA premium was about 40% and I had just increased my position size, ahhhhh memories...


----------



## DJG

What sort of capital figure would you guys say is a good starting point?
I'd imagine commission/spreads could be a killer. Plus any extended period of draw down.


----------



## skc

edman79 said:


> Wow. I have been through those 2 exact thoughts countless times.
> 
> I was short AXA because it spiked the day before its takeover from AMP and long MCC when that got bought out, that's 2 in about 5 years. It can even up although from my recollection the AXA premium was about 40% and I had just increased my position size, ahhhhh memories...




I had MCC short when the takeover was announced (on Friday after close just so I could cry over the weekend). And I hit a perfect AWB/(something) merger pair in my favour. I also had CQO when the deal was announced, but the premium was quite small. I had more luck with ALZ when the rumour came out but didn't hold over the actual announcement.

Having said all that, the level of M&A over the last 5 years has been very low by historical standards.



DJG said:


> What sort of capital figure would you guys say is a good starting point?
> I'd imagine commission/spreads could be a killer. Plus any extended period of draw down.




The overarching consideration should be based on what you are comfortable in risking. Also, your size should be such that you'd last long enough in the market to learn the strategy.

From a commission point of view... if you are say paying 10bps with minimum $10, then something like $5-8k aside "should" be enough to see you have a good go without commission eating too much into the edge. So if you take a leg size = 15% of capital (which is a reasonable number from a drawdown and adverse event consideration), you'd need something like $35-50k of capital.


----------



## DJG

Thanks for that SKC. Will definitely keep that in the back of my head.


----------



## VSntchr

Just to add, I started pairs when I was still working full time. This meant that I was only ever holding 2 pairs max and also had a stable discretionary cash flow coming in fortnightly. Because of this I started with a pretty small capital base, but I was quite aggressive and was using leg sizes around 20% right up to 60% in some cases.

This worked for me, but with the experience I have had since increasing the capital and re-alining the leg sizing, I see that continuing to trade like that, without a source of additional funds to add upon a drawdown period - would almost certainly result in the account blowing up at some point along the line. 

So I guess, while I do agree with SKC, I think there are a few other parameters to throw into your decision - how many pairs do you want to hold at any one time? Will this be your entire income, 30% of your income, or just an attempt to increase your current income? etc etc.


----------



## VSntchr

Hopped onto FXJ/APN this afternoon. Got a few FXJ at 0.92 then the market closed on me and I had to grab the rest at 0.925 in the auction. The market close also beat me to APN and only managed 0.795. I have been watching these for a couple of weeks and have been patient as despite this pair being successful for me in the past, the trade has often gone heavily against me early on.

Looked at AIO/TOL but passed on that unless it keeps diverging.


----------



## SilverRanger

VSntchr said:


> Hopped onto FXJ/APN this afternoon. Got a few FXJ at 0.92 then the market closed on me and I had to grab the rest at 0.925 in the auction. The market close also beat me to APN and only managed 0.795. I have been watching these for a couple of weeks and have been patient as despite this pair being successful for me in the past, the trade has often gone heavily against me early on.
> 
> Looked at AIO/TOL but passed on that unless it keeps diverging.




I've got FXJ/TEN opened since last week, was looking extremely good but now under water, but decided to hold on for a break even. 

Seen a couple of wild movements in the last 2 days, confession season, must tread carefully....


----------



## VSntchr

SilverRanger said:


> must tread carefully....




Indeed, this trade has not started well (as per history with this pair..hmmmm)


----------



## skc

VSntchr said:


> Indeed, this trade has not started well (as per history with this pair..hmmmm)




If that's the case you can consider adopting a delayed signal for this pair in particular. For example, may be you look for larger divergence in standard deviation terms. To use the PTF for this you can set the pair within a special grouping and set the parameters accordingly.

I don't really know why all the media stocks are being sold pretty badly of late (SWM, NEC, FXJ), yet APN and NWS are somehow not really affected


----------



## VSntchr

skc said:


> If that's the case you can consider adopting a delayed signal for this pair in particular. For example, may be you look for larger divergence in standard deviation terms. To use the PTF for this you can set the pair within a special grouping and set the parameters accordingly.
> 
> I don't really know why all the media stocks are being sold pretty badly of late (SWM, NEC, FXJ), yet APN and NWS are somehow not really affected




Here I am thinking that I had already done so, I had been tempted to enter at a far lower divergence - and now thought that with a mean reversion target of approx 9% the time was right!


----------



## VSntchr

Not a good day for your FXJ/TEN pair Silver - I hope you've got a few other good ones to make it up.

FWIW I had a shocker today too, FXJ/APN off to a bad start and late yesterday I swapped my MND/DOW for MND/WOR...don't like playing in this sector too often but there are a select few that I trade with half (or less) my usual leg size. Got out of DOW at 4.80 so got a good chunk of the sell off, but could have ridden it a bit further - I really didn't expect that announcement to have such a profound affect on not only DOW but what _seemed_ like the whole market   MND hasn't played well and sitting at a decent loss at the moment.

Also in SPN/TCL taking a bit of a beating, I know TCL has a dividend coming up on the 26th but I didn't think the run would continue so strongly. FWIW, I think they are probably a decent longer term short based on macro interest rate environment and the hefty price they paid for QML. A good lesson to avoid the yield type plays anywhere near dividend season. 

Glad I dodged a bullet by not taking the FLT signal a couple of days ago, the false up-move yesterday preceded another big fall today. I might start looking at it for my portfolio if it keeps going down at this rate


----------



## kefa

s&p rebalance on the close today. look out for some interesting moves.


----------



## VSntchr

kefa said:


> s&p rebalance on the close today. look out for some interesting moves.




Thanks for the reminder kefa. 

Options/futures expiry allowed for some good entries on the delayed open yesterday...pitty my account was pretty much at my self-imposed max number of pairs limit...some of the REITS are running pretty hard this week..IOF, CHC and FDC have all shot up a bit more than the rest of the pack.


----------



## kefa

VSntchr said:


> some of the REITS are running pretty hard this week..IOF, CHC and FDC have all shot up a bit more than the rest of the pack.




I generally like trading REIT pairs. Most of the REITs have a distribution coming up next week, this always seems to generate some volatility leading into it.


----------



## notting

Remembering that NAB has paid it's dividend and that CBA is about to.
This pair looks attractive to me buy NAB 33.13 sell CBA. 81.42


----------



## VSntchr

notting said:


> Remembering that NAB has paid it's dividend and that CBA is about to.
> This pair looks attractive to me buy NAB 33.13 sell CBA. 81.42




This seems counter-intuitive to me?
I would think that an approaching dividend is a _positive _influence on the supply/demand of a given stock.


----------



## notting

VSntchr said:


> This seems counter-intuitive to me?
> I would think that an approaching dividend is a _positive _influence on the supply/demand of a given stock.




At first it may seem that way, however that has been priced in about 3 times over so it makes sense and you can leverage up pretty high with these because they are seen as safe.  There is plenty of breathing space!!


----------



## VSntchr

notting said:


> At first it may seem that way, however that has been priced in about 3 times over so it makes sense and you can leverage up pretty high with these because they are seen as safe.  There is plenty of breathing space!!
> 
> View attachment 58415




Looking at that chart I'd assume your trading on a longer timeframe than I usually do. Im usually in and out within a few days, always less than 20. 

Personally I like the idea of some longer term mean reversion trading, but I am yet to engage in any trades.


----------



## edman79

Any thoughts on the AGK news today.
Would you pair trade it based on the news being applicable to all utility stocks?
Or is bad news bad news and just stay out?


----------



## skc

edman79 said:


> Any thoughts on the AGK news today.
> Would you pair trade it based on the news being applicable to all utility stocks?
> Or is bad news bad news and just stay out?




I happened to hold long ORG and short AGK... My position has nothing to do with my view on the carbon tax, so sometimes the chips just fall your way thanks to ignorance. 

When I read the news I closed my ORG long as quickly as possible, and I took some extra ORG shorts. I then slowly cover my AGK short, although I didn't capture the full percentage fall and left quite a few $$ on the table.

I wouldn't pair trade after the news however. It's a bit hard to know the full impact of the policy change, and how earnings might be affected. e.g. ORG might lose some from the electricity business but gain from their gas assets...


----------



## edman79

The other utility companies (making up XUJ) don't seem to have been effected by the news at all...
But I will probably sit this one out.


----------



## kefa

where has the volatility gone?

haven't seen lots of opportunities over the last month. are others experiencing a lack of opportunities too?


----------



## skc

kefa said:


> where has the volatility gone?
> 
> haven't seen lots of opportunities over the last month. are others experiencing a lack of opportunities too?




Down there some where...




The market has changed a lot since mid 2013. It's not the best market for pairs although it's still doable. 
It's not an ideal situation where you go short volatility when it is at an all time low. But it's still profitable albeit with lower profitability. 

I've been trading smaller divergences and taking smaller % profits. For instance, a good REIT pair trade 18 months ago could net me 3.5-4%. Now I put a trade on when there's 2.5-3% on offer, and close the trade quickly when there's 2% to be had. Given the bid/ask spread on some of these names can be 0.5%, this is barely better than pair scalping pips.

The volatility will return, and hopefully you are not holding too many pairs when the volatility does blow out!


----------



## kefa

skc said:


> View attachment 58776




There is an aussie VIX too. The chart looks pretty much like the US one.


----------



## skc

VSntchr said:


> Having a very frustrating day attempting to set up PTF on my new laptop (windows 8).




I am trying to put a copy of PTF on Windows 8 as well. I basically followed their instruction email..

Step1 - download Microsoft's LocalDB
Step2 - install PTF

The program seem to run and register my product key without problems, but I have been unable to load any stock codes. When I go Create Group and add stocks, it shows "Error adding XYZ" everytime. The "internet connection" indicator on the bottom left starts off green, but goes red when the error message is displayed.




Any hints or help?


----------



## edman79

skc said:


> Any hints or help?




Do any exchanges work?
Have you tried adding ".AX"?
Try turning off your firewall/antivirus temporarily...

Just suggestions...


----------



## skc

edman79 said:


> Do any exchanges work?
> Have you tried adding ".AX"?
> Try turning off your firewall/antivirus temporarily...
> 
> Just suggestions...




Thanks for the great suggestions... just tried them but none worked


----------



## VSntchr

skc said:


> Any hints or help?




My suggestions are similar to those offered by Edman...nothing major I can think of other than to check the details groups you have created (which exchange etc) - which I am sure you already have..

My problems were to do with the database creation...so you've made it further than I have with the PTF/Win 8 debacle.

One thing I did notice is that ur running v3.22, I am on v3.04, not sure if that has something to do with it.


----------



## edman79

skc said:


> Thanks for the great suggestions... just tried them but none worked




One more, I haven't used windows 8 much but is there a "run as administrator" option when running the .exe?
Or in properties run in compatibility mode (a long shot)

In win7 sometimes the UAC (user account control) caused issues with rights etc.


----------



## notting

If your confident that the windows DB thing installed correctly then uninstall PTF and reboot and install again?


----------



## skc

VSntchr said:


> One thing I did notice is that ur running v3.22, I am on v3.04, not sure if that has something to do with it.




PTF recently had a discount promotion so I bought another backup copy of the software for my Win8 laptop. I didn't even know that it had a v3.22 until I installed the program. They didn't really email existing users about the upgrade, and my desktop version is still v3.04.

The installation procedure for v3.22 is updated as well. May be you can download a trial of v3.22 and follow the newer install procedure to see if it works on your laptop?

I don't know what's worse... you can't create a database, or I can't populate my database with data!



edman79 said:


> One more, I haven't used windows 8 much but is there a "run as administrator" option when running the .exe?
> Or in properties run in compatibility mode (a long shot)
> 
> In win7 sometimes the UAC (user account control) caused issues with rights etc.




I am a bit of an idiot when it comes to Win 8 so I am not sure at all. One thing I will try tonight is to install a v3.22 onto a Win7 laptop and see if it works. That way at least I can isolate the problem to Win8 or the version of the software itself.


----------



## VSntchr

skc said:


> That way at least I can isolate the problem to Win8 or the version of the software itself.




That's a good idea.

Downloading the trial now to get the latest version, however I think I might try install it an alternate Win 8 laptop - I don't want to install the new one and have that over-ride my old installation midweek...
Failing that I'll update it over the weekend and let you know how I go.

It's probably a good time to run into these sort of issues...I am starting to get very careful about taking trades with some reports already started and a fair few coming the first half of August...


----------



## skc

I just found that there's an error log produced by PTF.

This is what I am getting



> System.FormatException: String was not recognized as a valid DateTime.
> at System.DateTimeParse.Parse(String s, DateTimeFormatInfo dtfi, DateTimeStyles styles)
> at System.DateTime.Parse(String s, IFormatProvider provider)
> at PairTradeFinder.dataGrabber.GetStockItem(String code, Int64 portfolio)




.NET expert anyone? Is it the coding, the database or Win8??




VSntchr said:


> That's a good idea.
> 
> Downloading the trial now to get the latest version, however I think I might try install it an alternate Win 8 laptop - I don't want to install the new one and have that over-ride my old installation midweek...
> Failing that I'll update it over the weekend and let you know how I go.
> 
> It's probably a good time to run into these sort of issues...I am starting to get very careful about taking trades with some reports already started and a fair few coming the first half of August...




On one hand, I do like twice-a-year reporting season which means a good time for database maintenance, directional trading, holiday etc. On the other hand, there are times when you are trading well leading into reporting, but are forced to cease because of it.


----------



## qldfrog

do not own PTF or have any link with this program but the type of error points to either a wrongly entered date, or maybe a wrong default regional setting on your computer:
are you set as australian date format: dd/mm/yyyy or american mm/dd/yyyy?
If I were you, i would switch my setting for "Region and language" from one to the other and try again.
Hope it helps but as I said, just working from your error with no knowledge of the underlying code.


----------



## SilverRanger

qldfrog said:


> do not own PTF or have any link with this program but the type of error points to either a wrongly entered date, or maybe a wrong default regional setting on your computer:
> are you set as australian date format: dd/mm/yyyy or american mm/dd/yyyy?
> If I were you, i would switch my setting for "Region and language" from one to the other and try again.
> Hope it helps but as I said, just working from your error with no knowledge of the underlying code.




Or just bad coding and lack of testing in Windows 8, and qldfrog said, try change the "Region and language" format around, English (Australia) and English (United States) probably...and compare line by line with the default Win 7 format.


----------



## skc

qldfrog said:


> do not own PTF or have any link with this program but the type of error points to either a wrongly entered date, or maybe a wrong default regional setting on your computer:
> are you set as australian date format: dd/mm/yyyy or american mm/dd/yyyy?
> If I were you, i would switch my setting for "Region and language" from one to the other and try again.
> Hope it helps but as I said, just working from your error with no knowledge of the underlying code.




You are a LEGEND! I changed the setting the English (Australia) and the short date to d/M/yyyy and it loaded the codes just fine.

Thanks a million!!! 



SilverRanger said:


> Or just bad coding and lack of testing in Windows 8, and qldfrog said, try change the "Region and language" format around, English (Australia) and English (United States) probably...and compare line by line with the default Win 7 format.




Thanks!


----------



## VSntchr

skc said:


> On one hand, I do like twice-a-year reporting season which means a good time for database maintenance, directional trading, holiday etc. On the other hand, there are times when you are trading well leading into reporting, but are forced to cease because of it.




Yep, I have had a pretty great month..
Although the good run feels like its starting to come to an end (APA short ), so perhaps reporting season is coming at a perfect time for me to sit back, review the previous month and prepare for September.

Funny that you say that reporting season could be a time for a Holiday - my partner seems to think that taking a 1 week trip to Singapore during a great trading run in July is the perfect time  



skc said:


> You are a LEGEND! I changed the setting the English (Australia) and the short date to d/M/yyyy and it loaded the codes just fine.




I know the feeling of finally getting PTF to work. The day I couldn't get it going I was soooo   and then when Edman helped me get it going I was sooo


----------



## SilverRanger

VSntchr said:


> I know the feeling of finally getting PTF to work. The day I couldn't get it going I was soooo   and then when Edman helped me get it going I was sooo




Proud to be PTF free, surely you can't go wrong with Excel! 

Yes July was a good month for me too, although I only get to say this in the final week


----------



## VSntchr

For those willing to side step reports (and hope that the trades revert quickly) today was a pretty opportunistic day. Especially this afternoon. Some heavy selling in the REITS, with sudden spikes down.

Was also some recoveries on the close too.

I like watching the market on days like today, it helps me get a good idea of what stocks are being accumulated. A couple of investments that I own didn't do too badly


----------



## skc

VSntchr said:


> For those willing to side step reports (and hope that the trades revert quickly) today was a pretty opportunistic day. Especially this afternoon. Some heavy selling in the REITS, with sudden spikes down.
> 
> Was also some recoveries on the close too.
> 
> I like watching the market on days like today, it helps me get a good idea of what stocks are being accumulated. A couple of investments that I own didn't do too badly




Don't you just love it? We've had such low volatility forever... Now finally a reasonable bout of volatility which would have been great for doing pairs, yet it's the reporting season and no pairs trading for me. 

Time to work on the directional trading I guess.

Re: Those REITs were so overbought... seriously. 5-5.5% yield, unfranked, with at best inflation type growth. It's like equity risk premium is zero. They should all trade at lending rate + 350bps yield imo.


----------



## SilverRanger

VSntchr said:


> For those willing to side step reports (and hope that the trades revert quickly) today was a pretty opportunistic day. Especially this afternoon. Some heavy selling in the REITS, with sudden spikes down.
> 
> Was also some recoveries on the close too.
> 
> I like watching the market on days like today, it helps me get a good idea of what stocks are being accumulated. A couple of investments that I own didn't do too badly




Mostly in runoff mode for my existing pairs but still picked up BWP/IOF, AWE/OSH, FMG/Rio today, hoping to close them off next week.

Part of my fun lately is watching BLY, not trading it, but watching it jump up and down...


----------



## VSntchr

MGR is really tempting me for a pairs trade with this stellar non-stop 1 week run from 1.74 to 1.86....hmmm. Should probably switch off PTF during this period!


----------



## skc

VSntchr said:


> MGR is really tempting me for a pairs trade with this stellar non-stop 1 week run from 1.74 to 1.86....hmmm. Should probably switch off PTF during this period!




I thought they were a bit cheap below $1.80 personally so...

BTW, SGP reporting on Monday always provides readthru to MGR...


----------



## SilverRanger

VSntchr said:


> MGR is really tempting me for a pairs trade with this stellar non-stop 1 week run from 1.74 to 1.86....hmmm. Should probably switch off PTF during this period!




I didn't resist, got in with the week's underperformer, SCP. My tea leaf reading skill tells me there couldn't be too much excitement in MGR compared to likes of GPT and DXS, given its 60% asset share in the office sector, so hopefully safe to short before earnings...


----------



## nulla nulla

SilverRanger said:


> I didn't resist, got in with the week's underperformer, SCP. My tea leaf reading skill tells me there couldn't be too much excitement in MGR compared to likes of GPT and DXS, given its 60% asset share in the office sector, so hopefully safe to short before earnings...




Do you have a predetermined exit price for scp?


----------



## SilverRanger

nulla nulla said:


> Do you have a predetermined exit price for scp?




Not in absolute term, but relative to MGR - either I make enough or lose enough as a pair, plus a time-based exit, before 21 Aug. Btw great work on your A-REIT valuation model thread, are you trading A-REIT for a living?


----------



## nulla nulla

SilverRanger said:


> Not in absolute term, but relative to MGR - either I make enough or lose enough as a pair, plus a time-based exit, before 21 Aug. Btw great work on your A-REIT valuation model thread, are you trading A-REIT for a living?



 Thankyou. Trading for a living but not just A-REIT's.


----------



## SilverRanger

Closed SCP/MGR today for a small profit, not holding to MGR reporting 

This officially marks the official start of my trading break


----------



## VSntchr

SilverRanger said:


> Closed SCP/MGR today for a small profit, not holding to MGR reporting
> 
> This officially marks the official start of my trading break




Nice to squeeze a profit there, MGR rising has been relentless....!

Do you do any other trading while you pause the pairs?


----------



## SilverRanger

VSntchr said:


> Nice to squeeze a profit there, MGR rising has been relentless....!
> 
> Do you do any other trading while you pause the pairs?




No, pairs trading is pretty much all I can do part time 

It's probably a good time to take a break and refresh your pairs. E.g. HSO, sounds good to go with RHC and SHL, although I haven't yet find a broker that will let me go short on it (and PGH, SCG and DSH for that matter)


----------



## VSntchr

Gotta love the first signal I look at since reporting season...



Waiting for another week for correlations to form though


----------



## SilverRanger

VSntchr said:


> Gotta love the first signal I look at since reporting season...
> View attachment 59256
> 
> 
> Waiting for another week for correlations to form though




Nice chart you got there! 
Probably from AREIT if I have to guess?


----------



## VSntchr

SilverRanger said:


> Nice chart you got there!
> Probably from AREIT if I have to guess?




YEP, I can't recall the pair but it was one of them..!

Lots of opportunities with the A-REITS have popped up over the last week...

I am getting slightly spanked (since when is that a bad thing ) by a few other pairs, big % open losses but smaller leg sizes due to the volatility. FXJ/APN is one of them - a pair that is historically successful for me, yet manages to get me  at some point during every trade!! It seems each time I trade it, I give it more room for divergence before entry..but each subsequent occasion it pushes further than I expect...the ratio is now below 1.0 and correlation has really broken down.


----------



## skc

VSntchr said:


> Lots of opportunities with the A-REITS have popped up over the last week...




The REITs are pretty weak at the moment... and I think one has to be a bit more careful with REIT pairs for the next few weeks. They are still moving as a cohert, but their individual yield, payout ratio and dividend growth potential will increasingly separate their performance... even more so than before.


----------



## VSntchr

skc said:


> The REITs are pretty weak at the moment... and I think one has to be a bit more careful with REIT pairs for the next few weeks. They are still moving as a cohert, but their individual yield, payout ratio and dividend growth potential will increasingly separate their performance... even more so than before.




Is your expectation of increased market reliance on these metrics a function of a flight to safety when the sector is weak? Or moreso simply just a continuation of the search for yield?

As an aside, some of the stocks that have long been running on takeover spec have been getting hit a bit harder recently, presumably since Simon Capital dampened the hopes of many..


----------



## skc

VSntchr said:


> Is your expectation of increased market reliance on these metrics a function of a flight to safety when the sector is weak? Or moreso simply just a continuation of the search for yield?




It's the discontinuation in the search for yield. The speed of abandonment will vary by those metrics.

I'd argue there's probably some macro trade there in going long something that yields 6-7% (like SGP) and shorting something that yields 4-5% (like GMG). But that's a game of very different timeframe and risks.


----------



## VSntchr

skc said:


> It's the discontinuation in the search for yield. The speed of abandonment will vary by those metrics.



Got it.



skc said:


> I'd argue there's probably some macro trade there in going long something that yields 6-7% (like SGP) and shorting something that yields 4-5% (like GMG). But that's a game of very different time-frame and risks.



I often play around with the thought of running a separate portfolio of pairs with a time-frame spanning weeks/months instead of <20 days..haven't pursued this yet but perhaps will look into it in the near future.


----------



## skc

VSntchr said:


> I often play around with the thought of running a separate portfolio of pairs with a time-frame spanning weeks/months instead of <20 days..haven't pursued this yet but perhaps will look into it in the near future.




Same here and probably a multi-sector market neutral strategy of some description. Long yield stocks and short mining services would have worked a treat since 2013. Long consumer stables and short discretionary would also do quite well.

However, I don't think it will be the most capital efficient for a retail trader. With longer timeframes involved you can't avoid stock specific issues (e.g. guidance up/downgrades) as easily... so you have to diversify and keep each position relatively small. You probably need to long 20 stocks and short 20 stocks at the same time to make it work.

The exit will also need to be further considered. With statistical stuff the exit signal is clear and unambiguous. With the longer timeframe approach you'd want to develop something that has the same property... May be a time based exit would be most appropriate?

Here's a mob selling managed accounts using a market neutral strategy. I don't know if they are legit or otherwise... Their strategy on paper sounds logical, but I can't tell if they can achieve what they want to achieve.
https://www.aussiestockforums.com/forums/showthread.php?t=28777&p=835276#post835276


----------



## VSntchr

Yep...its one of those mornings. First PTF was dragging my PC hard this morning, so I did some system maintennance...(which means deleting temp files and cleaning up a bit )....then once I restarted the system I get this error log...

Oh and the battery for my mouse died at 9:58...woohoooo! :1zhelp:


Anyone had this error before? So far I have tried reinstalling Visual C++..
I have SQL Server manager but I'm not really sure what to do with it or if it will help!


----------



## skc

VSntchr said:


> then once I restarted the system I get this error log...




No sorry haven't seen this before.



VSntchr said:


> Oh and the battery for my mouse died at 9:58...woohoooo! :1zhelp:




Replace new battery.



VSntchr said:


> Yep...its one of those mornings. First PTF was dragging my PC hard this morning, so I did some system maintennance...(which means deleting temp files and cleaning up a bit )....




Buy more RAM. Clean out dust in box. 

There you go. Solved 66.67% of your problems


----------



## edman79

VSntchr said:


> View attachment 59572
> 
> 
> then once I restarted the system I get this error log...
> 
> Anyone had this error before? So far I have tried reinstalling Visual C++..
> I have SQL Server manager but I'm not really sure what to do with it or if it will help!




When you say restarted the system, are you talking about windows or PTF?

If its PTF, have you tried a re-install? 
If you don't want to lose your current pairs you need to back up your database (I know this is help after the fact). Takes about 10 seconds. I can walk you through a backup using SSMS - just ask.


----------



## VSntchr

skc said:


> No sorry haven't seen this before.
> 
> Replace new battery.
> 
> Buy more RAM. Clean out dust in box.
> 
> There you go. Solved 66.67% of your problems




 Thanks lol....didn't have any spare batteries so I had to use one from the TV remote...guess my redundancy planning, or lack thereof, needs serious work.



edman79 said:


> When you say restarted the system, are you talking about windows or PTF?
> 
> If its PTF, have you tried a re-install?
> If you don't want to lose your current pairs you need to back up your database (I know this is help after the fact). Takes about 10 seconds. I can walk you through a backup using SSMS - just ask.




Okay, here is the weird thing. When I uninstall PTF and then reinstall..I don't seem to lose my pairs!?
So yeah I have tried a system restore, PTF reinstall and still getting the problem...
Perhaps if you could show me how to backup the database I could then do a complete wipe: PTF and other relevant software?


----------



## SilverRanger

VSntchr said:


> Thanks lol....didn't have any spare batteries so I had to use one from the TV remote...guess my redundancy planning, or lack thereof, needs serious work.
> 
> 
> 
> Okay, here is the weird thing. When I uninstall PTF and then reinstall..I don't seem to lose my pairs!?
> So yeah I have tried a system restore, PTF reinstall and still getting the problem...
> Perhaps if you could show me how to backup the database I could then do a complete wipe: PTF and other relevant software?




When you specify the location of your database for PTF initially, two files get created: pairTradeFinder.ldf & pairTradeFinder.mdf. These files contain the your pairs information. If you take a backup of them, then next time when reinstalling PTF you can overwrite the new files created using the backed up files. That way you get all your pairs back. You may get a file-in-use error when you try to do that, then simply restart your PC so that neither PTF or Microsoft SQL are using them. I've done that a couple of times before when moving things to my new desktop.


----------



## SilverRanger

Btw how's everyone doing in September? I dug myself a massive hole in the first half of the month shorting LLC. I recovered a bit in the last couple of days but still in the red, so my goal for the rest of the month is to break even.


----------



## skc

VSntchr said:


> Thanks lol....didn't have any spare batteries so I had to use one from the TV remote...guess my redundancy planning, or lack thereof, needs serious work.




I have a spare USb mouse plugged in at all times. 



SilverRanger said:


> Btw how's everyone doing in September? I dug myself a massive hole in the first half of the month shorting LLC. I recovered a bit in the last couple of days but still in the red, so my goal for the rest of the month is to break even.




Yes LLC has been a shocker for me as well. It has outperformed by about 5-6% against every single peer. I also had CWN/EGP doing me in for the last week. 

I am looking at a negative month unless I hit a couple of sixes next week.


----------



## VSntchr

SilverRanger said:


> Btw how's everyone doing in September? I dug myself a massive hole in the first half of the month shorting LLC. I recovered a bit in the last couple of days but still in the red, so my goal for the rest of the month is to break even.






skc said:


> I have a spare USb mouse plugged in at all times.
> 
> Yes LLC has been a shocker for me as well. It has outperformed by about 5-6% against every single peer. I also had CWN/EGP doing me in for the last week.
> 
> I am looking at a negative month unless I hit a couple of sixes next week.




I didnt take either of those trades, but I had my a** handed to me with FXJ/APN...and MQA/QUB wasn't great either. Have been negative all month until recently where I've had a good run and am back in the green. The market has certainly been volatile but it has been pretty mean too! I might finish at +1% for the month...


----------



## skc

VSntchr said:


> I didnt take either of those trades, but I had my a** handed to me with FXJ/APN...and MQA/QUB wasn't great either. Have been negative all month until recently where I've had a good run and am back in the green. The market has certainly been volatile but it has been pretty mean too! I might finish at +1% for the month...




I got out of FXJ/APN some time ago. APN is a bit too thin for me on most days. And both FXJ's and APN's chart looks sacry... FXJ breaking up and APN breaking down.

I didn't touch MQA because it was going ex-div and had a few funny announcements (like their Indiana toll road SPC filing chapter 11), but I did short QUB against BXB and had a win there.

The market has been volative which should have meant better pairs trading conditions. But perhaps it's been too long since we have had a correction (probably Jan 2014) and I've forgotten how to trade the volatility. My size are much bigger now so staring some larger adverse excursions is something I need to train my mind to accept. 

Keep Calm and Keep Trading!


----------



## VSntchr

skc said:


> I got out of FXJ/APN some time ago. APN is a bit too thin for me on most days. And both FXJ's and APN's chart looks sacry... FXJ breaking up and APN breaking down.



You know, while I was exiting APN I came to the same conclusion...it really struggles to trade for most of the session...my size still gets filled easily...but it can sit there for a long time unless I want to push it. I will probably not touch it again for a while.



skc said:


> I didn't touch MQA because it was going ex-div and had a few funny announcements (like their Indiana toll road SPC filing chapter 11), but I did short QUB against BXB and had a win there.



Nice! 


skc said:


> The market has been volative which should have meant better pairs trading conditions. But perhaps it's been too long since we have had a correction (probably Jan 2014) and I've forgotten how to trade the volatility. My size are much bigger now so staring some larger adverse excursions is something I need to train my mind to accept.
> Keep Calm and Keep Trading!



Well I've been learning in tranquil conditions so I am being pretty conservative as we enter the storm...I need to see first hand what kind of damage can really be done 
And as for size, I too have been looking at some bigger $ PnL swings...not in the league I imagine you are talking about given your experience and the prop factor..but still 3x what I started with, so have been learning a lot very quickly.

Good luck with the rest of the month


----------



## edman79

VSntchr said:


> Perhaps if you could show me how to backup the database I could then do a complete wipe: PTF and other relevant software?




>open SSMS
>connect (using windows authentication)
>expand Databases (top left)
>right click on pairtradefinder > tasks > Backup > browse to file location.

To restore same process...
>right click on pairtradefinder > tasks > Restore > database
>select "from device" radio button
>Browse to backup file you generated - see above.
>check the backup to restore
>go to "options" at the top left and check "overwrite the existing database"

I do a backup at the end of each day. If there is ever a problem I just restore yesterdays copy.


----------



## VSntchr

SilverRanger said:


> When you specify the location of your database for PTF initially, two files get created: pairTradeFinder.ldf & pairTradeFinder.mdf. These files contain the your pairs information. If you take a backup of them, then next time when reinstalling PTF you can overwrite the new files created using the backed up files. That way you get all your pairs back. You may get a file-in-use error when you try to do that, then simply restart your PC so that neither PTF or Microsoft SQL are using them. I've done that a couple of times before when moving things to my new desktop.






edman79 said:


> >open SSMS
> >connect (using windows authentication)
> >expand Databases (top left)
> >right click on pairtradefinder > tasks > Backup > browse to file location.
> 
> To restore same process...
> >right click on pairtradefinder > tasks > Restore > database
> >select "from device" radio button
> >Browse to backup file you generated - see above.
> >check the backup to restore
> >go to "options" at the top left and check "overwrite the existing database"
> 
> I do a backup at the end of each day. If there is ever a problem I just restore yesterdays copy.




Thanks guys/
Did a complete PTF wipe, and SQL wipe...managed to retain the database though thanks to your combined intellect.

Problem has been solved! and now Im running the 3.22v which doesn't seem any different but good to be up to date I guess..


----------



## skc

VSntchr said:


> Good luck with the rest of the month






skc said:


> Keep Calm and Keep Trading!




My account P&L for the month. Just scraped in to the green... enough to buy a donut or two. :bad:




It does look like a tight triangle about to breakout anytime  

Yes, there are technical patterns in equity curve.



edman79 said:


> >open SSMS...




Edman, how good is it to have you around?!


----------



## VSntchr

skc said:


> It does look like a tight triangle about to breakout anytime
> Yes, there are technical patterns in equity curve.



I think it was TH that had a blog post about equity curve patterns and how he monitored them to get an idea of what was going on (sorry if it wasn't you TH - I can't exactly recall where I saw this), I thought it was very interesting.



skc said:


> Edman, how good is it to have you around?!




Edman might not have many posts, but I reckon he has used a pretty decent percentage of them in helping me...I owe you a beer/coffee/one of SKC's donuts.


I managed to hit the green a bit earlier in the month, but the scale wasn't great for me either...so perhaps only a box of donuts at best! This pnl includes some directional trading too, singling out the pairs results looks a little better. I really need to work on directional trading, specifically stop placement - missed a great run on TPM after being stopped out pretty much on the low just before the take-off. Also missed extra profit on JBH short, don't know how I managed to f** that stop up , anyway thats off topic from pairs!


----------



## edman79

skc said:


> Edman, how good is it to have you around?!






VSntchr said:


> Edman might not have many posts, but I reckon he has used a pretty decent percentage of them in helping me...I owe you a beer/coffee/one of SKC's donuts.


----------



## skc

VSntchr said:


> I think it was TH that had a blog post about equity curve patterns and how he monitored them to get an idea of what was going on (sorry if it wasn't you TH - I can't exactly recall where I saw this), I thought it was very interesting.




Now that you've mentioned it... yes I did steal it from him, internalised it and thought it was my own idea 

Nonetheless, I think he stole it from the random walk theory... where you can create share price charts look-alikes from just about any random observations.


----------



## VSntchr

Question guys:
When you are entering a trade through the closing auction, what are your thoughts around order placement. Do you place an order deep into the money to ensure you get a fill on both legs - at the risk of getting a crappy price if it shifts in the last few seconds. Or do you prefer to set orders at the level which you will be happy to pay and risk missing the fill on one/both legs. 

It's something I really need to improve with my trading as I have just missed one leg in a trade for the second time in 2 weeks and go into tomorrows trading NAKED. Thankfully it's a REIT trade so should the stock I missed not co-operate on the open I may have another few to choose from.


----------



## skc

VSntchr said:


> Question guys:
> When you are entering a trade through the closing auction, what are your thoughts around order placement. Do you place an order deep into the money to ensure you get a fill on both legs - at the risk of getting a crappy price if it shifts in the last few seconds. Or do you prefer to set orders at the level which you will be happy to pay and risk missing the fill on one/both legs.
> 
> It's something I really need to improve with my trading as I have just missed one leg in a trade for the second time in 2 weeks and go into tomorrows trading NAKED. Thankfully it's a REIT trade so should the stock I missed not co-operate on the open I may have another few to choose from.




A good question. Here are a few things that I do.
- If you have one leg open and waiting for a fill on another leg, and it's approaching closing time, consider entering half the size by crossing the spread, and leave the other half to the random closing price.
- Or, if you have one leg open and have several alternatives for the opposing leg, then keep your eyes peeled on those few names. You might even just scratch the open leg and try again tomorrow.
- If you want a fill, go far out to ensure you get filled. Of course this assumes there's enough liquidity so you are not the one moving the price to your own detriment.
- If you are unsure you want a fill (e.g. you will only open both legs if the match price is favourable), then you have little choice but to keep your finger on the delete key and take the orders out if the match doesn't look like a goer. I'd still use a deep order in this case.
- Avoid doing more than 3-4 trades at the close to stay under control.
- Personally I avoid being naked overnight the best I can.

Ideally, you'd write an algo such that the orders will be adjusted automatically and executed in the match, as long as the ratio of the match prices fit your defined criteria. But I am not sure such a thing exists.


----------



## SilverRanger

VSntchr said:


> Question guys:
> When you are entering a trade through the closing auction, what are your thoughts around order placement. Do you place an order deep into the money to ensure you get a fill on both legs - at the risk of getting a crappy price if it shifts in the last few seconds. Or do you prefer to set orders at the level which you will be happy to pay and risk missing the fill on one/both legs.
> 
> It's something I really need to improve with my trading as I have just missed one leg in a trade for the second time in 2 weeks and go into tomorrows trading NAKED. Thankfully it's a REIT trade so should the stock I missed not co-operate on the open I may have another few to choose from.




Generally if I need to open a long leg on a strong stock or short a weak one, then I would consider doing it before the close, but most of the time it's the opposite so I don't mind going to the close with a deep order. Obviously if things aren't looking good then I would pull out and try again the next day. 

I would prefer hedging against the index than going naked any day


----------



## VSntchr

Thanks for the responses guys. Top quality as usual.

Well, with the DOW down 240pt it's not a good day to be naked, well I do have SHORTS on..lol.
Let's see how this plays out..


----------



## VSntchr

Managed to save myself and got a different short, just closed the trade and managed 0.9%. Lucky to get out with a small profit considering the way things panned out...


Bloody BAML upgrading GMG...grrrrr not helping my MGR/GMG trade.
GMG has the lowest yield of all the REITS, I know it's got global exposure and decent growth compared to some of the other REITS, but I really didn't think it would push back up this hard in the current environemnt...


----------



## skc

VSntchr said:


> Bloody BAML upgrading GMG...grrrrr not helping my MGR/GMG trade.
> GMG has the lowest yield of all the REITS, I know it's got global exposure and decent growth compared to some of the other REITS, but I really didn't think it would push back up this hard in the current environemnt...




Lol. I've got the GMG short against another REIT as well. Was tempted to close it on open but the volume just wasn't there. Will just have to wait for it to mean reverse... which is the name of the game.

The premise of the upgrade was bs imo. It's yielding 3.9% vs say 6% with SGP. GMG's only growing at 6-7% per year so it'd take 7 years of growth at that pace to arrive at the same distribution as other listed alternatives. And a bloody lot can happen in 7 years!


----------



## VSntchr

skc said:


> The premise of the upgrade was bs imo. It's yielding 3.9% vs say 6% with SGP. GMG's only growing at 6-7% per year so it'd take 7 years of growth at that pace to arrive at the same distribution as other listed alternatives. And a bloody lot can happen in 7 years!




I agree. Lets hope its a pump and.....

It's even out of whack with WFD, so it's more than just the global exposure pushing this one...


----------



## VSntchr

What a day!
Closed 3 trades and opened 3 today. Pretty busy considering my usual strike rate.

GMG is still causing me a pain! Looked like short covering this morning (it seems I should have joined them), but it showed strength not to fade like some others did late.

Building Materials had some good opp's today..GWA spiked up hard on an upgrade based on yesterdays restructure announcement...this led to some disjointed rises with ABC following and CSR + FBU a little later to the party. BLD and JHX didn't move much so it seems the US exposure wasn't in favour today...


----------



## skc

VSntchr said:


> What a day!
> Closed 3 trades and opened 3 today. Pretty busy considering my usual strike rate.
> 
> GMG is still causing me a pain! Looked like short covering this morning (it seems I should have joined them), but it showed strength not to fade like some others did late.
> 
> Building Materials had some good opp's today..GWA spiked up hard on an upgrade based on yesterdays restructure announcement...this led to some disjointed rises with ABC following and CSR + FBU a little later to the party. BLD and JHX didn't move much so it seems the US exposure wasn't in favour today...




Yes... last few days have been pretty wild. GMG definitely causing me pain. Also STO is refusing to move up even today. Made good money on MGR/SCG. LLC has been remarkably strong but I shorted it today as a pair with WFD. Also half opened BLD/FBU and day traded CSR/ABC. 

I hope this kind of condition remains for some time. It was truely getting too calm and margin getting too thin in the last 8 months.


----------



## VSntchr

skc said:


> I hope this kind of condition remains for some time. It was truely getting too calm and margin getting too thin in the last 8 months.




Yeah, it was getting very scalpy....so many of my trades were very tight. Frustrating to get a period of activity and close some trades - thinking it was a good close, then seeing the reversion go..and go..and go.
If the conditions stay this way for a while then that's an adjustment I need to focus on, not closing too early. I guess for me right now it's a balancing act between adjusting to new conditions but at the same time remembering that the conditions can change at any moment.


----------



## skc

VSntchr said:


> If the conditions stay this way for a while then that's an *adjustment I need to focus on, not closing too early. *I guess for me right now it's a balancing act between adjusting to new conditions but at the same time remembering that the conditions can change at any moment.




I'd focus the adjustment on not openning too early.

The strategy is "short volatility". When you have lots of pairs on and volatility blows out on you it's not a good thing. I have been doing a bit more scaling in. Just enough of a position to get started and keep a close watch, if it diverges more than put more on. Subjected to overall position sizing limits of course.


----------



## VSntchr

skc said:


> I'd focus the adjustment on not openning too early.
> 
> The strategy is "short volatility". When you have lots of pairs on and volatility blows out on you it's not a good thing. I have been doing a bit more scaling in. Just enough of a position to get started and keep a close watch, if it diverges more than put more on. Subjected to overall position sizing limits of course.




Good advice. Now that I have bigger positions and no min. brokerage, this is much more achievable to do.


You still in STO? Ive got STO/WPL approaching time-stop and today has just made me


----------



## skc

VSntchr said:


> You still in STO? Ive got STO/WPL approaching time-stop and today has just made me




Not really. I had STO paired with ORG so they pretty much fell in line. Closed them over the last few days for a lost nontheless.

STO's quarterly coming out this Friday so there's a hard stop for you.


----------



## VSntchr

skc said:


> STO's quarterly coming out this Friday so there's a hard stop for you.




Pretty sure WPL is tomorrow too, so was hoping for a close today...!


----------



## Bsim

Hello all, 

I have been using the PTF software for the past few months with reasonable success however I haven't been able to find a way to get a live data feed for the ASX and as a result am missing a fair few good trades. Is anyone able to tell me how I can do this?

I have access to Web IRESS and other live platforms but can't work out a way to get PTF to source data from them instead of Yahoo?

Any help would be greatly appreciated,

Thanks,


----------



## VSntchr

Bsim said:


> Hello all,
> 
> I have been using the PTF software for the past few months with reasonable success however I haven't been able to find a way to get a live data feed for the ASX and as a result am missing a fair few good trades. Is anyone able to tell me how I can do this?
> 
> I have access to Web IRESS and other live platforms but can't work out a way to get PTF to source data from them instead of Yahoo?
> 
> Any help would be greatly appreciated,
> 
> Thanks,




If you figure it out, be sure to let me know


----------



## skc

Bsim said:


> Hello all,
> 
> I have been using the PTF software for the past few months with reasonable success however I haven't been able to find a way to get a live data feed for the ASX and as a result am missing a fair few good trades. Is anyone able to tell me how I can do this?
> 
> I have access to Web IRESS and other live platforms but can't work out a way to get PTF to source data from them instead of Yahoo?
> 
> Any help would be greatly appreciated,
> 
> Thanks,




You can use Excel export function in PTF, reverse engineer the "Home" page calculations and use WebIress RTD (real time data) streams to populate the prices in Excel, and calculate the divergence in real time.

The calculations will not be 100% accurate (depending on the magnitude of the standard deviation) but it's good enough. 

Whilst it's good to get real time data, I find it not to be a huge detriment because the first signal is rarely snaps back without the pair going into loss to start with (except for large spikes which would be hard to catch even if you are watching). Sometimes waiting a bit can offer better entry.


----------



## VSntchr

skc said:


> Sometimes waiting a bit can offer better entry.




I hit signals instantly probably about 10% of the time, 40% I hit the same day but wait for a good entry...the other 50% I hold off till the next day or even longer depending on a number of factors...
So I definitely agree here.

By the way, I just pulled those %'s out of the air, not actually tracking that metric


----------



## SilverRanger

skc said:


> Sometimes waiting a bit can offer better entry.




What about any specific time of the day? I'm starting to observe that on average, I tend to get the better entries near or during market close, maybe I should have just turn this into an EOD system!


----------



## skc

SilverRanger said:


> What about any specific time of the day? I'm starting to observe that on average, I tend to get the better entries near or during market close, maybe I should have just turn this into an EOD system!




In general, mornings tend to be quick thin and hence more wild. Around lunch it's boring as and you can sit in the queue for ages and get nothing filled unless you cross the spread. In the afternoon before close, stocks can either continue or reverse the morning's trend... so I don't have a strong bias one way or another.


----------



## SilverRanger

skc said:


> In general, mornings tend to be quick thin and hence more wild. Around lunch it's boring as and you can sit in the queue for ages and get nothing filled unless you cross the spread. In the afternoon before close, stocks can either continue or reverse the morning's trend... so I don't have a strong bias one way or another.




Yes, it is the morning wildness that's eating my P&L, quite often I see signals in the morning and take them. While there are some very quick wins which I can literally close them on the same day, but more often than not I see the diversion going a little further in the afternoon and gives an even better entry signal (it means me going into the red), I see the same thing with the exits as well. 

For that reason I'm starting to trade more in the afternoon, mainly just picking the ones which continued the morning trend like you said.


----------



## skc

SilverRanger said:


> For that reason I'm starting to trade more in the afternoon, mainly just picking the ones which continued the morning trend like you said.




Same here but to me it's more to do with better depth. Take something like AIO, in the morning there could be <10k per side while in the afternoon there could be 50-100k at each price level. You definitely won't need to worry about moving the market...


----------



## VSntchr

CFX (NVN), FDC (FDCDA) and DXS (DXSDA) 
Three of my usual suspects all deciding that they don't want to be traded for the next month 
I could use excel I guess, or perhaps I should use this as a catalyst to widen my scope.

As for DXS, hopefully the higher SP results in better execution in the future!


----------



## skc

VSntchr said:


> CFX (NVN), FDC (FDCDA) and DXS (DXSDA)
> Three of my usual suspects all deciding that they don't want to be traded for the next month
> I could use excel I guess, or perhaps I should use this as a catalyst to widen my scope.
> 
> As for DXS, hopefully the higher SP results in better execution in the future!




I think all companies >$1B should consolidate their shares to a share price >$5.


----------



## VSntchr

skc said:


> I think all companies >$1B should consolidate their shares to a share price >$5.




+1.

In application there would need to be some additional conditions around this, such as consolidation occurs every 24 months and share has to have been under the threshhold level for at least 12 months..or something similar. Also, it would help if new listings for $1B+ (I say even $500m+) were at $5+. Obviously this idea isn't in the minds of others, as we prepare for one of our biggest ever floats to be priced at a whopping $2!

Some of the other markets in Europe and the US that I have taken a peek at, seem to have much higher denominations...perhaps I'll make the jump to Spain and start living cheaply and trading the FTSE reits


----------



## History Repeats

you guys using cointegration to find pairs?


----------



## VSntchr

History Repeats said:


> you guys using cointegration to find pairs?




Personally I do not use it specifically as a trade filter, but I would think that some people on ASF would.
Do you trade pairs? How do you find trades?



How are the ASF pairs traders going lately? I had a pretty good run towards the end of October, but November is proving very difficult. Not that I have any big losers, but just that good trades seem hard to come by. The targets are small and quite a few times I've had trades get close to target..before reversing and diverging again...leaving me quite frustrated! 
Patience is key in times like this..


----------



## skc

VSntchr said:


> How are the ASF pairs traders going lately? I had a pretty good run towards the end of October, but November is proving very difficult. Not that I have any big losers, but just that good trades seem hard to come by. The targets are small and quite a few times I've had trades get close to target..before reversing and diverging again...leaving me quite frustrated!
> Patience is key in times like this..




Yes October was very good with heaps of trade. Nov has so far continued the trend although trade activities have died down a lot. I did have a bad loss in STO/WPL thanks to the ever falling oil price... having closed it to day it makes me feel better but I am sure WPL will launch a takeover offer for STO tomorrow!


----------



## SilverRanger

skc said:


> Yes October was very good with heaps of trade. Nov has so far continued the trend although trade activities have died down a lot. I did have a bad loss in STO/WPL thanks to the ever falling oil price... having closed it to day it makes me feel better but I am sure WPL will launch a takeover offer for STO tomorrow!




I knew it! I knew that would happen since ___ years ago when I was still young 

Looks like October was a good month for us all, Nov I'm out of action due to a long needed holiday. While travelling what came to my mind is that it's quite feasible to trade the ASX while living in another country, especially in Asia,  it's only a 7 to 1 shift and I can be off to enjoy the cheap eats and great night life.


----------



## VSntchr

SilverRanger said:


> While travelling what came to my mind is that it's quite feasible to trade the ASX while living in another country, especially in Asia,  it's only a 7 to 1 shift and I can be off to enjoy the cheap eats and great night life.




I did it from Singapore for a week while I was there. Was only at about 60% workload as I was just taking the most obvious trades and managing existing ones - no research or other work..but totally agree that it's do-able.

Perhaps a Tim Ferris inspired 4-hour work week would fit this business well. I think there is a term like "geographical arbitrage" where you sell your product skill where it can fetch the most money, while drawing your supplies from the cheapest location and then also living somewhere cheap. For memory the example in the book I am referring to was to sell clothes in America by importing from China all the while living in Mexico.


----------



## skc

SilverRanger said:


> Looks like October was a good month for us all, Nov I'm out of action due to a long needed holiday. While travelling what came to my mind is that it's quite feasible to trade the ASX while living in another country, especially in Asia,  it's only a 7 to 1 shift and I can be off to enjoy the cheap eats and great night life.






VSntchr said:


> Perhaps a Tim Ferris inspired 4-hour work week would fit this business well. I think there is a term like "geographical arbitrage" where you sell your product skill where it can fetch the most money, while drawing your supplies from the cheapest location and then also living somewhere cheap. For memory the example in the book I am referring to was to sell clothes in America by importing from China all the while living in Mexico.




You guys are obviously single with no kids


----------



## VSntchr

skc said:


> You guys are obviously single



Actually, its my partner who drags me around 



skc said:


> with no kids



This part you nailed!


----------



## SilverRanger

skc said:


> You guys are obviously single with no kids




You're spot-on  Just out of curiosity, do you know any traders pursuing this path? I mean the ones who even changed their tax residency out of Aus, I would really like to know how they went about this


----------



## VSntchr

PTF has gone wacky this morning. It started out working fine, but at about 11am the prices reverted to yesterdays close and are not updating...am I solo in this problem or is it Yahoo feed related?


As for pairs, the AREITs are proving quite unpredictable for me this month. ABP is outperforming, IOF seems to have had its takeover speculation cool off a bit and MGR is underperforming...perhaps the market wanted and upgrade yesterday. Not that I usually have the ability to pen the direction of these stocks, moreso that they are not complying with my expectations of mean reversion.


All-in-all, unless the last week throws up some good trades and some reversion in the ones I have open I may have my first down month in quite a while.


----------



## skc

VSntchr said:


> PTF has gone wacky this morning. It started out working fine, but at about 11am the prices reverted to yesterdays close and are not updating...am I solo in this problem or is it Yahoo feed related?




Same ehere.



VSntchr said:


> As for pairs, the AREITs are proving quite unpredictable for me this month. ABP is outperforming, IOF seems to have had its takeover speculation cool off a bit and MGR is underperforming...perhaps the market wanted and upgrade yesterday. Not that I usually have the ability to pen the direction of these stocks, moreso that they are not complying with my expectations of mean reversion.




Agree..REITs are trickier than usual. I put it down to the AGMs even though nothing too dramatic was said in any of them. May be the market is just recalibrating the expectations on some of these names.



VSntchr said:


> All-in-all, unless the last week throws up some good trades and some reversion in the ones I have open I may have my first down month in quite a while.




Was having a reasonable month run until I stuffed up two trades. Had WOW/MTS and closed it yesterday basically at the bottom (look where it is a today ). And opened a position in CDD/DOW yesterday and bam! Profit warning the next morning. Thankfully the position was very small... but still hurts a lot.

These two combined means that this week's loss just about erased last week's solid gains. So a good 2 weeks of nothingness.


----------



## VSntchr

Well it didn't turn on all day so I was left pretty redundant, had a few opportunities that I was manually calculating..but didn't take any..except for a small STO/OSH this morning. The oilers are usually mean to me, hence the small size.



skc said:


> Was having a reasonable month run until I stuffed up two trades. Had WOW/MTS and closed it yesterday basically at the bottom (look where it is a today ).



Bugger. That reversion just got better all day...sucks missing out by one session.

Interestingly, I traded MTS for the first time ever last week..I think I had it with TGR though.



skc said:


> And opened a position in CDD/DOW yesterday and bam! Profit warning the next morning. Thankfully the position was very small... but still hurts a lot.



It's times like this when you need someone to join in on the  
I saw the drop this morning and was a bit shocked at how far it fell...I mean surely the market didn't expect them to be increasing earnings this year? I guess any excuse to short in this environment will do.


----------



## skc

VSntchr said:


> Well it didn't turn on all day so I was left pretty redundant, had a few opportunities that I was manually calculating..but didn't take any..except for a small STO/OSH this morning. The oilers are usually mean to me, hence the small size.




STO investor day Wednesday... and this headline from the news wire.



> 2227 GMT - Santos (STO.AU) holds its eagerly anticipated investor day next Wednesday,
> during which analysts will look for signs its company-transforming US$18.5B GLNG venture
> in Queensland state with Total (TOT) is on track for completion next year, in line with
> its upwardly revised budget. "We expect Santos will refine its GLNG start-up date to
> the second-half of calendar 2015 from current guidance of 2015," JPMorgan says.




I am guessing that's why OSH jumped much more than STO and ORG. OSH's capex is done and on an upward production profile... While STO and ORG still have their LNG project under construction and subjected to associated risks.



VSntchr said:


> Bugger. That reversion just got better all day...sucks missing out by one session.




This was just a BAD trade. I was in a loss and I basically panicked out of the trade like a little rabbit. This is the area I've struggled all year... build up higher risk tolerance in line with my position size.



VSntchr said:


> It's times like this when you need someone to join in on the
> I saw the drop this morning and was a bit shocked at how far it fell...I mean surely the market didn't expect them to be increasing earnings this year? I guess any excuse to short in this environment will do.




I am OK with this trade. I followed all the risk management rules. Overall position size was <10% of what I'd put on a full-sized pair. Mining services is a sector that I've been mostly avoiding, and I only put it on because they both had their AGM very recently and the chance of a downgrade was slim. It was just bad luck, but not a bad trade.

At their AGM, CDD hinted at a decent year ahead so to adjust estimates so soon was a shock and hence very deservingly punished by the market.

P.S. I think the PTF problem today came from Yahoo's end. Yahoo's website was updating, but another application that I use (TopShare Portfolio) also fetches prices from Yahoo and that wasn't working either. It seems to be working now nonetheless.


----------



## skc

SilverRanger said:


> You're spot-on  Just out of curiosity, do you know any traders pursuing this path? I mean the ones who even changed their tax residency out of Aus, I would really like to know how they went about this




Not really. My brother-in-law works in Singapore as a self employed dude doing whatever he does. I think the only requirement is that he needs to leave the country every 3 months... which is esily done just crossing the boarder to Malaysia, have lunch there and coming back.

But that's all I know and could be wrong. You might get better infromation on some ex-pat forums or government websites.


----------



## spec

VSntchr said:


> Personally I do not use it specifically as a trade filter, but I would think that some people on ASF would.
> Do you trade pairs? How do you find trades?




I use COINT exclusively these days to find pairs
Actually I trade triplets (basket of 3 stocks. Also tried quadruplets, i.e. 4 stocks baskets but profit potential was too small)

What I found using COINT is:
-it works a little bit better for me than correlation
-it allows you to go beyond pairs easily
-it does not allow you to build a money printing machine. Nothing replaces the usual routine: fundamental analysis, following news, knowing the business, industry, market etc.
-COINT can spit out baskets that have a strong exposure bias (see below), i.e. not capital neutral. But it can play to your advantage if you're a good directional trader.

Here's an ugly trade. I was too short dollar, i.e. betting against the bull market. In addition I forgot to take into account the ExDiv of one of the stocks, and now the div chasers are killing me

100*D-67*DTE+148*TE



Here's a nice basket that I have traded successfully

100*XLU-46*AEE-21*ETR



All the underlyings are US utilities stocks.


----------



## Atari rose

Gentlemen, Ladies, Pair trader, skc and of course silver, 

Have read the whole thread a couple of times and now find myself in a position to give this a run. Have the capital and a head full of dreams so we will be keeping this tread alive for a while I fear.

Would like to thank the people who have contributed to the tread - its not often you learn something new from the internet, I will buy you a beer if you ever around my way.

I will try and do the research today and post a possible trade up tonight. Please be rough with me its the only way I seem to be able to learn and there is a zero chance that I will be offended.

Look forward to getting to know you a bit better..


----------



## Atari rose

Ok time for the weekly update,

I have a regular job so have been doing this in time off etc.. and started with a demo account.

stared off OK

Challenger		CGF		$6.43		$9,031.00	$7.10		$909.00	10.1%
Henderson		HGG		$4.12		9,888.00	$4.06	 	-144.00	-1.5%

IOOF		                       $9.18		5,049.00	9.14	5,027.00	-22.00	-0.4%
Newcrest mining  (short)     $10.37		5,703.50	10.60	5,830.00	126.50	2.2%

Oil search (short)		$8.56			         	1.2%
Santos			$11.94	                   	-2.4%

Altogether not a bad week, I also did some really stupid stuff like going long and short on the same stock! Brain dead!!!

still ended up with roughly 1K up for the week.


----------



## VSntchr

Atari rose said:


> Ok time for the weekly update,
> 
> I have a regular job so have been doing this in time off etc.. and started with a demo account.
> 
> Altogether not a bad week, I also did some really stupid stuff like going long and short on the same stock! Brain dead!!!
> 
> still ended up with roughly 1K up for the week.




You are lucky you got out of Challenger before today!
What made you go long and short the same stock? Were you entering multiple pairs? or just fat finger/error trades?

$1k for the week is pretty good, especially if you have other employment...
Good to see other pairs traders posting...


I've had a decent week with lots of opportunities starting to appear, the profits have yet to flow for me though.
I'm seeing opportunities in a number of sectors today, Infrastructure, Transport, Building, Media and REITS...hopefully this bodes well for a good start to December before I take 2 weeks off to go :bowser:


----------



## skc

Atari rose said:


> Ok time for the weekly update,
> 
> Challenger		CGF		$6.43		$9,031.00	$7.10		$909.00	10.1%
> Henderson		HGG		$4.12		9,888.00	$4.06	 	-144.00	-1.5%
> 
> IOOF		                       $9.18		5,049.00	9.14	5,027.00	-22.00	-0.4%
> Newcrest mining  (short)     $10.37		5,703.50	10.60	5,830.00	126.50	2.2%
> 
> Oil search (short)		$8.56			         	1.2%
> Santos			$11.94	                   	-2.4%
> 
> Altogether not a bad week, I also did some really stupid stuff like going long and short on the same stock! Brain dead!!!
> 
> still ended up with roughly 1K up for the week.




Great start. There will be mistakes no doubt. I think I once went long on both legs...

Not sure I'd pair IFL with NCM, they are pretty different beasts. A "wild" stock like NCM will have high cointegration with a more stable one, but it really doesn't mean they are fundamentally cointegrated.



VSntchr said:


> I've had a decent week with lots of opportunities starting to appear, the profits have yet to flow for me though.




Had the busiest day ever today in terms of volume... but made no money! Let's see if there is mean reversion next week. The oil stocks are getting like gold and iron ore at these levels... i.e. margins and balance sheet start to matter a lot. See how STO performed differently to OSH. I hope oil price would rebound soon so the once good oil sector doesn't become too hard to trade.


----------



## VSntchr

skc said:


> Had the busiest day ever today in terms of volume... but made no money! Let's see if there is mean reversion next week. The oil stocks are getting like gold and iron ore at these levels... i.e. margins and balance sheet start to matter a lot. See how STO performed differently to OSH. I hope oil price would rebound soon so the once good oil sector doesn't become too hard to trade.




TELL ME ABOUT IT!! I haven't had a day off all year (financial year)..and I had to take yesterday afternoon off...talk about horrendous timing 
I did manage to get 2 trades open though so it wasn't a complete waste...and had to scratch APA/TCL as TCL fell before I got set...

As for the Oilers, I tend to be horrible at trading this sector and therefore I try to stay away...or play it with about 5-10% max size...I just don't have the run-down of these companies sorted like you! 
Lots of people are starting to talk about oil stocks and are getting interested, presumably for swing strategies...but I just keep looking at iron-ore and gold stocks and get put off even thinking about attempting to ride a bounce. Pairing it fundamentally (and statistically if they both align) would of course be the go...but I have yet to put in the work to figure out what to buy and what to sell.


----------



## VSntchr

skc said:


> The oil stocks are getting like gold and iron ore at these levels...* i.e. margins and balance sheet start to matter a lot*. See how STO performed differently to OSH. *I hope oil price would rebound soon so the once good oil sector doesn't become too hard to trade*.




Looks like Credit Suisse is thinking your fears will be confirmed 

From SMH: Credit Suisse analysts believe the current oil price environment will “truly distinguish the haves and the have nots (in the Australian oil & gas/exploration & production sector) on strong balance sheets, margins and growth projects.”


----------



## skc

VSntchr said:


> Looks like Credit Suisse is thinking your fears will be confirmed
> 
> From SMH: Credit Suisse analysts believe the current oil price environment will “truly distinguish the haves and the have nots (in the Australian oil & gas/exploration & production sector) on strong balance sheets, margins and growth projects.”




I am not certain they are "my fears". I am just going off what other analysts have said... so not claiming credits for being ahead of the market or anything remotely like that.

I can understand STO falling, but I can't get why LNG is still worth so much.

It's a case of 1 project on paper barely started is better than 1 project 85% finished.


----------



## VSntchr

Not sure if this has been the result of the TOL asset sale announcement or perhaps that TOL is favoured more than AIO from a lower oil price.

Nonetheless, the divergence is the biggest I've seen for this pair for a while. I have a small position on but am a bit cautious about scaling in further as I think I may have underestimated the impact of the TOL announcement.


----------



## skc

VSntchr said:


> Not sure if this has been the result of the TOL asset sale announcement or perhaps that TOL is favoured more than AIO from a lower oil price.
> 
> Nonetheless, the divergence is the biggest I've seen for this pair for a while. I have a small position on but am a bit cautious about scaling in further as I think I may have underestimated the impact of the TOL announcement.




Just closed this trade yesterday as my largest loss ever!!!

I felt bad the moment I put it on. It was one of those "macro is against you" trade, and I should have trusted my gut and close it out way earlier.

As you said, the low oil benefits TOL more (at least on perception) than AIO, the asset sale is leading to talks of capital return (although not announced) which the market loves without question (if you want your capital back that badly, why invest in that company!), and AIO has large exposure to coal... the use or pay contracts can really bike if it forces all coal miners into bankruptcy. 

Having said that... TOL looks like it was going to roll from the high as of today.

Anyhow, I am always happy to close a large losing trade... it really helps to build risk tolerance   

P.S. I am more annoyed that I didn't open a trade long BKN short DOW yesterday... it was going to be the trade to open today. Why can't they wait another day to announce the deal?!


----------



## VSntchr

skc said:


> Just closed this trade yesterday as my largest loss ever!!!
> 
> I felt bad the moment I put it on. It was one of those "macro is against you" trade, and I should have trusted my gut and close it out way earlier.
> 
> As you said, the low oil benefits TOL more (at least on perception) than AIO, the asset sale is leading to talks of capital return (although not announced) which the market loves without question (if you want your capital back that badly, why invest in that company!), and AIO has large exposure to coal... the use or pay contracts can really bike if it forces all coal miners into bankruptcy.
> 
> Having said that... TOL looks like it was going to roll from the high as of today.
> 
> Anyhow, I am always happy to close a large losing trade... it really helps to build risk tolerance
> 
> P.S. I am more annoyed that I didn't open a trade long BKN short DOW yesterday... it was going to be the trade to open today. Why can't they wait another day to announce the deal?!




I assume largest loss is due to scaling up rather than biggest % loss?
Its not looking great for me either - not in largest loss range..but not expecting it to get back to profit. 


Ahh bummer missing the BKN/DOW trade!!! Funny watching the BKN intraday chart...it was like: woohooooo takevoer...oh noooo they mentioned capital raising....but who cares they are using it for growth


----------



## skc

VSntchr said:


> I assume largest loss is due to scaling up rather than biggest % loss?
> Its not looking great for me either - not in largest loss range..but not expecting it to get back to profit.




Not that big percentage wise. It was a bad trade to put on...



VSntchr said:


> Ahh bummer missing the BKN/DOW trade!!! Funny watching the BKN intraday chart...it was like: woohooooo takevoer...oh noooo they mentioned capital raising....but who cares they are using it for growth




Took a bite on open, sold for 12c profit when it's clear that no one is rushing to think it's a done deal. Nibbled the rest of the day away, although should have gone in hard when it went down to $4.11.


----------



## Atari rose

skc said:


> Just closed this trade yesterday as my largest loss ever!!!




Bad luck there mate, I didn't put anything on last week at all, The Market didn't help such a newbie as myself so I thought I would just sit back and watch. Good thing is I get payed in US dollars and scored myself a 12% payrise. 

Anyway this week.


----------



## VSntchr

Not happy with my APA trade at the moment...it's left me hanging till next Monday after going into a halt pending CR and acquisition of gas lines from Gladstone 

A busy day today and my account is pushing pretty hard...need some reversion soon to close a few of the older ones down!


----------



## skc

VSntchr said:


> Not happy with my APA trade at the moment...it's left me hanging till next Monday after going into a halt pending CR and acquisition of gas lines from Gladstone
> 
> A busy day today and my account is pushing pretty hard...need some reversion soon to close a few of the older ones down!




Are you long or short there? It's a renounceable issue so you'd probably come out a wash if you are long. If you are short you'd need to buy some of those rights back. It really depends on whether it opens above or below the TERP.


----------



## VSntchr

skc said:


> Are you long or short there? It's a renounceable issue so you'd probably come out a wash if you are long. If you are short you'd need to buy some of those rights back. It really depends on whether it opens above or below the TERP.




Long. If the market keeps tanking this week then perhaps it will be a blessing in disguise as it misses the selling...


----------



## notting

Consider longing JBH vs short HVN.
HVN just went ex, have done a cap raising and are running on absolute BS.


----------



## SilverRanger

There were some rather interesting gaps happened in Friday's closing auction in REITs, specically, WFD, CHC and ABP up 0.58%, 0.84% and 0.67%, while BWP down 1.12% compared to just the minute before close. Didn't make any money on them as such but at least they helped improving my entries


----------



## SilverRanger

VSntchr said:


> Long. If the market keeps tanking this week then perhaps it will be a blessing in disguise as it misses the selling...



APA's been chasing this since August and I've been avoiding it since then. Good luck there, you never know what's gonna happen to rights issues these days, people don't seem to care about TERP anymore  



notting said:


> Consider longing JBH vs short HVN.
> HVN just went ex, have done a cap raising and are running on absolute BS.



Just happened to short JBH today against SUL long, but obviously for very different reason and time frame, so good luck to both of us  On another unrelated note, I recently visited Singapore and Malaysia, and guess what Aussie icons I found....Harvey Norman and ANZ! And Hardly Normal seemed pretty well respected in SE Asia, surprise, surprise...


----------



## VSntchr

SilverRanger said:


> There were some rather interesting gaps happened in Friday's closing auction in REITs, specically, WFD, CHC and ABP up 0.58%, 0.84% and 0.67%, while BWP down 1.12% compared to just the minute before close. Didn't make any money on them as such but at least they helped improving my entries



Closed my BWP short at 3:50pm! Grrrr! and I have both WFD and CHC short...guess I took WFD short a bit early and didn't think it would keep going so far on the AUD drop. Lesson learnt there....



SilverRanger said:


> APA's been chasing this since August and I've been avoiding it since then. Good luck there, you never know what's gonna happen to rights issues these days, people don't seem to care about TERP anymore




Poor awareness on my part, this one took me by surprise. Its a complicated situation to deal with as to know what to do with the other leg of the pair. I decided to keep it open and slot in another infrastructure stock for the time being.



SilverRanger said:


> Just happened to short JBH today against SUL long, but obviously for very different reason and time frame, so good luck to both of us  On another unrelated note, I recently visited Singapore and Malaysia, and guess what Aussie icons I found....Harvey Norman and ANZ! And Hardly Normal seemed pretty well respected in SE Asia, surprise, surprise...



I saw SUL/JBH and was going to take it, but the SUL chart spooked me a bit and hence caused me to wait until next week to see how it looks.


----------



## VSntchr

Anyone have tech difficulties with PTF today? I think perhaps the problems may be isolated to me as they appear to be database issues rather than datafeed. Hope it's not time for another wipe!! 



A number of my pairs have duplicate dates appearing, some with lots of trades, some with no trades...


----------



## skc

VSntchr said:


> Anyone have tech difficulties with PTF today? I think perhaps the problems may be isolated to me as they appear to be database issues rather than datafeed. Hope it's not time for another wipe!!
> View attachment 60757
> 
> 
> A number of my pairs have duplicate dates appearing, some with lots of trades, some with no trades...




I did have problems today but it was just prices not coming through until some time in the afternoon.

Your issue appears every now and again, and usually after a day of not having PTF running (e.g. on a public holiday). A refresh of all the pairs (I usually do in blocks of say 30 pairs) should resolve it.


----------



## VSntchr

skc said:


> I did have problems today but it was just prices not coming through until some time in the afternoon.
> 
> Your issue appears every now and again, and usually after a day of not having PTF running (e.g. on a public holiday). A refresh of all the pairs (I usually do in blocks of say 30 pairs) should resolve it.




Indeed your correct. I started doing it last night cause I know how long it takes and usually freezes the program while its "working". But yeah, problem solved.


----------



## VSntchr

SilverRanger said:


> Just happened to short JBH today against SUL long.






VSntchr said:


> I saw SUL/JBH and was going to take it, but the SUL chart spooked me a bit and hence caused me to wait until next week to see how it looks.




Well congrats Silver, big jump for SUL today should give you a nice profit on that one. 
I was very close to jumping in Monday afternoon but for some reason I ignored it and just couldn't pull the trigger on this one.


----------



## skc

VSntchr said:


> Well congrats Silver, big jump for SUL today should give you a nice profit on that one.
> I was very close to jumping in Monday afternoon but for some reason I ignored it and just couldn't pull the trigger on this one.




2nd big spike on SUL. I traded the long and short directionally today.

There's something brewing... my guess is that it will come to bear in either the new year (after the xmas trading update) or the report.

Look at how BKN spiked a few times on various takeover talks... yet in the end the share price is still trading well below the first spike after the bid is revealed.


----------



## SilverRanger

VSntchr said:


> Well congrats Silver, big jump for SUL today should give you a nice profit on that one.
> I was very close to jumping in Monday afternoon but for some reason I ignored it and just couldn't pull the trigger on this one.




If I had them yesterday then it would have been decent, but it just turned barely green early today and now still in red, so still holding on. Two stocks just never seem to reverse for me this week, AOG and SCP


----------



## VSntchr

skc said:


> 2nd big spike on SUL. I traded the long and short directionally today.
> 
> There's something brewing... my guess is that it will come to bear in either the new year (after the xmas trading update) or the report.




You appear to be getting alot more active with your directional game SKC, well done - I know you mentioned it was a goal of yours to improve and it appears you have. 

I missed all trades involving SUL as I was too trigger shy. 




SilverRanger said:


> If I had them yesterday then it would have been decent, but it just turned barely green early today and now still in red, so still holding on. Two stocks just never seem to reverse for me this week, AOG and SCP




I'm feeling you on SCP...I am only slightly down there..but holding max size so I am keen to see that one fall. I actually have 2 trades with SCP. One is paired with MGR and the other with FDC. FDC is the clearer fundamental pair, but MGR has historically traded at a premium to SCP (I speak solely in price terms here) so I am confident taking that trade with any ratio that is meaningfully <1.0.

I remember last December I had a few that would just not revert...so I am starting to get weary of placing new trades as the low liquidity period approaches...but I am finding the temptation too strong...still getting plenty of good signals coming through! 
If only I didn't make a few stupid mistakes this month (like shorting WFD) I'd be well in the green...


----------



## skc

VSntchr said:


> You appear to be getting alot more active with your directional game SKC, well done - I know you mentioned it was a goal of yours to improve and it appears you have.
> 
> I missed all trades involving SUL as I was too trigger shy.




I am closing down my pairs trading over Xmas / New Years so I only have 2 pairs left. It gives me much more focus to do intraday directional trading.

I want to increase my directional game because pairs trading is not very "holiday friendly"... I like to hold a large portfolio of pairs (say 12-16 pairs). Anytime I want to take 2 weeks off, it's really 4 weeks away from pairs trading. 1 week prior to going away, I need to start ramping down the pairs and stop opening up new ones. And it takes me about a week after the holiday to rebuild the pairs portfolio. 

The large pairs portfolio makes day-to-day equity curve a lot smoother (as each pair is uncorrelated) and I need a smooth equity curve to confidently hold pairs that go against me, and to open new trades. As a result, my performance overall suffers during the ramp up/down periods as I do silly things unnecessarily. With shutdowns during the 2 reporting seasons and the Xmas periods, and when my kids grow up I'd need time off during the school holidays, there could be 4-5 shut down periods in the year. So it's prudent for me to have a back up skill to keep the P&L flowing. 

In the last 3 days I've done as much volume in directional trades as I would on a busy pairs day, with similar results, with no overnight positions and no tail risks (and reward). So it's worth building upon.



VSntchr said:


> I'm feeling you on SCP...I am only slightly down there..but holding max size so I am keen to see that one fall. I actually have 2 trades with SCP. One is paired with MGR and the other with FDC. FDC is the clearer fundamental pair, but MGR has historically traded at a premium to SCP (I speak solely in price terms here) so I am confident taking that trade with any ratio that is meaningfully <1.0.




One of my 2 pairs is also SCP short


----------



## Bsim

Hi Guys, 

Can anyone tell me if there is something going on with either FXJ or SWM that I havent seen? Apart from the UBS upgrade to FXJ I cant find any reason they would be so far out of line.

I got into this spread a few days ago and am getting smoked on both sides. Debating whether to bail out or Average in.

Cheers


----------



## VSntchr

Bsim said:


> Hi Guys,
> 
> Can anyone tell me if there is something going on with either FXJ or SWM that I havent seen? Apart from the UBS upgrade to FXJ I cant find any reason they would be so far out of line.
> 
> I got into this spread a few days ago and am getting smoked on both sides. Debating whether to bail out or Average in.
> 
> Cheers




I think FXJ is selling a radio station to APN. Other than that I haven't heard much. I was in a trade with SWM but got out for a loss earlier in the week. It does look a bit oversold here..
I am assuming your long SWM and short FXJ?


----------



## Bsim

VSntchr said:


> I think FXJ is selling a radio station to APN. Other than that I haven't heard much. I was in a trade with SWM but got out for a loss earlier in the week. It does look a bit oversold here..
> I am assuming your long SWM and short FXJ?





Yeah that's right L SWM S FXJ

SWM really struggling to hold a bid. But I'll hold for a bit longer and see what happens


----------



## skc

Bsim said:


> Hi Guys,
> 
> Can anyone tell me if there is something going on with either FXJ or SWM that I havent seen? Apart from the UBS upgrade to FXJ I cant find any reason they would be so far out of line.
> 
> I got into this spread a few days ago and am getting smoked on both sides. Debating whether to bail out or Average in.
> 
> Cheers




SWM downgrade their guidance quietly during the AGM. I am surprised that the reaction was quite muted for a number of days... but that firmly set the stock in a downtrend. So I'd say a lot of the divergence you see between SWM/FXJ is attributed to that news. 

FXJ is just ranging, although some potential radio transactions are on the cards as already mentioned.


----------



## VSntchr

skc said:


> I want to increase my directional game because pairs trading is not very "holiday friendly"... I like to hold a large portfolio of pairs (say 12-16 pairs). Anytime I want to take 2 weeks off, it's really 4 weeks away from pairs trading. 1 week prior to going away, I need to start ramping down the pairs and stop opening up new ones. And it takes me about a week after the holiday to rebuild the pairs portfolio.



Wow, the most I have ever held is 11...that's must take alot of focus during market hours to manage that many.



skc said:


> The large pairs portfolio makes day-to-day equity curve a lot smoother (as each pair is uncorrelated) and I need a smooth equity curve to confidently hold pairs that go against me, and to open new trades.



I guess this is the counter to my above statement, holding more allows you to draw your focus away from the couple of pairs that if you spend to much time looking at will just make you 



skc said:


> So it's prudent for me to have a back up skill to keep the P&L flowing.
> In the last 3 days I've done as much volume in directional trades as I would on a busy pairs day, with similar results, with no overnight positions and no tail risks (and reward). So it's worth building upon.



Prudent and effective! If you can nail directional trading it will likely help in certain circumstances with the pairs portfolio too.
I'm working on directional trading too...but my volume is <10% of my pairs. Not confident enough to size up and still figuring out what works for me with regards to the types of trades to pursue and how to manage the risk. I have formulated two small systems which have provided some good results but the trade frequency is limited. More work to do


----------



## Bsim

skc said:


> SWM downgrade their guidance quietly during the AGM. I am surprised that the reaction was quite muted for a number of days... but that firmly set the stock in a downtrend. So I'd say a lot of the divergence you see between SWM/FXJ is attributed to that news.
> 
> FXJ is just ranging, although some potential radio transactions are on the cards as already mentioned.




Thanks All, Should've looked more carefully!


----------



## skc

VSntchr said:


> Wow, the most I have ever held is 11...that's must take alot of focus during market hours to manage that many.





I certainly don't carry all 16 pairs at full size. Normally there are the big boring pairs then some small, more volatile pairs.

It does get difficult with so many codes and then each trade needs to be split into however many parcels. Juggling them means it's hard for me to catch a spike these days (which, as you know, really helps performance).


----------



## spec

re: DAY TRADING

I'm also thinking of doing some day trading, mostly the open (based on the order imbalance), to smooth out my equity curve. According to some statistics, most imbalances happen during the first 45 minutes. This means I don't have to day trade all day, only the first hour.

has anyone tried ? any success, failure ? 

my concern is that not all stocks open at the same time. So the opening print you see in historical data is not exactly the price at the open. This delay can cause some distortion in the statistics, i.e. the statistical edge you see in backtesting might disappear in real life


----------



## skc

spec said:


> re: DAY TRADING
> 
> I'm also thinking of doing some day trading, mostly the open (based on the order imbalance), to smooth out my equity curve. According to some statistics, most imbalances happen during the first 45 minutes. This means I don't have to day trade all day, only the first hour.
> 
> has anyone tried ? any success, failure ?




I don't know if there's much of an edge there. Even if there was some imbalance it'd only be for a few ticks, and the "static" imbalance may mean very little. Back test it carefully would be my immediate reaction (although I have no idea how you actually back test this).



spec said:


> my concern is that not all stocks open at the same time. So the opening print you see in historical data is not exactly the price at the open. This delay can cause some distortion in the statistics, i.e. the statistical edge you see in backtesting might disappear in real life




The open print is the price that it opens at, taking into account of the staggered open. So it's not a concern.


----------



## spec

skc said:


> I don't know if there's much of an edge there. Even if there was some imbalance it'd only be for a few ticks, and the "static" imbalance may mean very little. Back test it carefully would be my immediate reaction (although I have no idea how you actually back test this).




In a nutshell the system looks at historical price distribution at the open of

spread=X*component stock - index futures

where "component stock" is a component of "index futures", e.g. ASX 200. X is a multiplicator and it can be beta, ATR etc. If at today's open the spread is out of range then you bet that it will revert to the mean. So basically this is a stat arb mean reverting system. There is a theory as why this would work (think fair value of futures v.s. constituents). Practically, to build this system one would have to:

1- backtest it. You'd need intraday data, the more granular the better, but the backtest can be done.
2- if there is an edge, then develop a program that scans the market at the open looking for spreads that are out of range

This is doable, but requires serious programming effort. That's why I'm still hesitating whether to risk my time or not.


----------



## Atari rose

I'm back online people,  I will be updating when I remember.......


----------



## edman79

spec said:


> In a nutshell the system looks at historical price distribution at the open of
> 
> spread=X*component stock - index futures
> 
> where "component stock" is a component of "index futures", e.g. ASX 200. X is a multiplicator and it can be beta, ATR etc. If at today's open the spread is out of range then you bet that it will revert to the mean. So basically this is a stat arb mean reverting system. There is a theory as why this would work (think fair value of futures v.s. constituents). Practically, to build this system one would have to:
> 
> 1- backtest it. You'd need intraday data, the more granular the better, but the backtest can be done.
> 2- if there is an edge, then develop a program that scans the market at the open looking for spreads that are out of range
> 
> This is doable, but requires serious programming effort. That's why I'm still hesitating whether to risk my time or not.




Id be interested how you get the futures data for the market open. Would you take the close of the night futures or the open of the index? Due to the staggered open of the index there is no real "open" price. If you look on a platform eg- iress. Todays index supposedly opened at 5423 just 27 points down from yesterday even though by the time all constituents were open the index was down over 1 percent. Some days the futures are down or up a fair margin and by 10:10am its back to flat.

Add to that the particular stock may or may not be in line with the particular index you are following. The mining companies are sometimes going to be more effected by the overnight commodity price than where the index opens.

Then you have the huge cap companies like BHP and CBA etc where you are wondering is it them following the market or the market following them?

Also the liquidity needs to be there. Sometimes there is a margin at open but there is not enough volume to support a substantial order. 

My thoughts would be that (if you could backtest it) it would backtest well will small illiquid stocks but trying to trade it with more than 10 bucks would be impossible.


----------



## Atari rose

Gentlemen,

  I'm finding that most of the stocks that I would like to short are unavailable on IG especially the smaller stocks. Do you guys have a way around this?


----------



## SilverRanger

Atari rose said:


> Gentlemen,
> 
> I'm finding that most of the stocks that I would like to short are unavailable on IG especially the smaller stocks. Do you guys have a way around this?




Change your broker 
Each has its own shortable list of stocks, and has different margin requirements. I'm using multiple brokers for this exact reason.


----------



## VSntchr

Atari rose said:


> Gentlemen,
> 
> I'm finding that most of the stocks that I would like to short are unavailable on IG especially the smaller stocks. Do you guys have a way around this?






SilverRanger said:


> Change your broker
> Each has its own shortable list of stocks, and has different margin requirements. I'm using multiple brokers for this exact reason.




Agree on that Silver. I use two brokers, and it really frustrates me for reporting purposes..as I have one inside a structure and the other in my personal name (have tried to set up both inside my new structure but broker being a PITA).

Atari-
As for IG not having the stocks you require as shortable, I actually have found that IG is usually who I turn too when my other broker cannot give me a short.
Perhaps your playing in the shallow end of the liquidity pool (noted you say smaller stocks), in this case you will have a very hard time finding shorts from anyone.

I'm back trading tomorrow after a two week break. Looks like I missed some good volatility while I was away :22_yikes:


----------



## VSntchr

Back in the saddle last week and what a week it was. Plenty of trades taken, in-fact I think it may have been my most active week ever in terms of new trades opened. 
I think that there was a number of trades ready to be taken after diverging over the xmas break, while throughout the week a number of new opportunities presented themselves.

SFR/OZL was one of the more volatile pairs that I traded. Position size was kept low to manage the risk, but timing was good as I managed to trade in and out twice within the week.

The A-REITS have been quiet for me so far, with only a little bit of action in this sector. It's a bit odd to see SCG flying and WFD crashing back down without any substantial change to the AUD scenario. SCG was downgraded today so hopefully my GMG/SCG trade gets a boost as the week progresses.


----------



## VSntchr

Also, I hope everyone had a good calendar year of returns for pairs.

I have recently been reviewing my trading and some patterns that I have observed. One major thing that I have identified is that I am entering trades too heavily too early on. It is common to have a pair go against me in the beginning stages of a trade, and I accept that - however some of the metrics I track show that I would improve my expectancy by being more patient and waiting (or scaling in slower) for more divergence. 

Another metric I track is '% change vs target'. I set a goal of having this metric be >60% (losses are included hence why it is well below 100%). It is currently sitting at ~48%. What this tells me is either: 
1) I am taking profits too early and not allowing trades to reach my target areas
2) I am setting targets too ambitiously
3) A combination of 1) and 2).

Having sized up my account substantially over the period, I think that 1) is quite likely to be a major contributor to this as I have struggled with mentally adjusting to the larger $ swings. Looking at % change is where focus needs to stay, not the $ column. As I do not aim for complete reversion in my targets, I do not think I am being too ambitious, however I will need to explore this further. My target setting procedure is pretty rough and could probably do with some additional thought. 

I have found a few things to work on, but also recognise that the markets constantly changing and thus the trader must be nimble in order to remain profitable. 
The next 6 months I will be working diligently to improve on these metrics and adjust to any new market themes that appear.


----------



## skc

VSntchr said:


> Having sized up my account substantially over the period, I think that 1) is quite likely to be a major contributor to this as I have struggled with mentally adjusting to the larger $ swings. Looking at % change is where focus needs to stay, not the $ column. As I do not aim for complete reversion in my targets, I do not think I am being too ambitious, however I will need to explore this further. My target setting procedure is pretty rough and could probably do with some additional thought.




VSntchr... sizing up is a challenge. Doing a $50k trade is going to have more slippage against doing a $10k trade. So your profitability metrics will come down... it's pretty inevitable.

You might find that you are increasingly spending more time micro-managing your executions. It increases significantly the number of transactions, and hence decisions, you have to make through the trading day. Also, with bots and fake market depth these days, hitting the bid for $10k might cause the bid to drop 2 steps (even on a ASX100 stock). When trading $10k you've closed the position, when trading $50k your paper profit has just been reduced by half. You then stare at it thinking... "should I chase, should I wait, should I put it back on" etc etc.   It will mean you have less time to do other things, or less focus on other positions.
The overall impact of any lucky spikes on your account will also be much reduced. So you need to be fair to yourself in terms of profitability metrics.

Hopefully, despite all these frustrations and challenges, the overall P&L is still heading in the right direction.

P.S. I had a full clip long MQG overnight... so not a bad day


----------



## Atari rose

Do you guys keep the positions you are in relative to the share prices? currently for example have HIG  (36.00) and ALL (61.00) with one share almost double the other would you take a smaller position in the larger stock and then add?


----------



## VSntchr

skc said:


> P.S. I had a full clip long MQG overnight... so not a bad day



Good stuff SKC 



Atari rose said:


> Do you guys keep the positions you are in relative to the share prices? currently for example have HIG  (36.00) and ALL (61.00) with one share almost double the other would you take a smaller position in the larger stock and then add?



Your question confuses me. But ideally I like to have most pairs be similar in price denomination, however I do trade pairs with big denomination differences - and no I do not alter the position sizes based on this factor.


----------



## VSntchr

A nice continuation of the good start to the year with my most active ever week by volume last week.

Have dug a bit of a hole today with CSR going up and up after I entered a short this morning, taking the shine off what has been a pretty good period for me.

Also giving me a headache is DSH/HVN and CRZ/REA. Also have a position on ANZ/WBC which I have never traded before, so have kept position size modest to reflect my poor understanding of the relationship...so far it is not performing very well with only 2 days till time stop.


----------



## SilverRanger

VSntchr said:


> A nice continuation of the good start to the year with my most active ever week by volume last week.
> 
> Have dug a bit of a hole today with CSR going up and up after I entered a short this morning, taking the shine off what has been a pretty good period for me.
> 
> Also giving me a headache is DSH/HVN and CRZ/REA. Also have a position on ANZ/WBC which I have never traded before, so have kept position size modest to reflect my poor understanding of the relationship...so far it is not performing very well with only 2 days till time stop.




Quite a busy week for me too, and I'm holding some similar stuff as you, CRZ/SEK, ANZ/WBC, ABC/CSR...

There were some negative news on CRZ on AFR 2 days ago, that their vehicle listings have fallen to their 3 year low and competitors like Gumtree and CarsGuide could be eating away CRZ's 70% market share. Personally I don't see much damage in this, at least not until they report their numbers mid-Feb so I'm in (and hopefully sell before then).

ANZ/WBC is one of my favourite financials and the only big 4 pair I trade, very good track record and good leverage (only 10% margin required for the pair!) 

And something to watch out for next week, JBH is due to report on Monday, the numbers may be affecting your DSH/HVN, and don't forget REA result is due on Tuesday!


----------



## Atari rose

SilverRanger said:


> And something to watch out for next week, JBH is due to report on Monday, the numbers may be affecting your DSH/HVN, and don't forget REA result is due on Tuesday!





Yes this I got caught in, I actually got out of the Dick smith side early, but JB up 5% on weaker growth? FFS......


----------



## SilverRanger

Got burnt badly today with NVN, why the heck is FDC offering a premium?


----------



## edman79

SilverRanger said:


> Got burnt badly today with NVN, why the heck is FDC offering a premium?



So did I, got out half at 2.53 and then other half at 2.51.
It seems to be heading south though, wonder if RBA decision will move it this arvo.


----------



## SilverRanger

edman79 said:


> So did I, got out half at 2.53 and then other half at 2.51.
> It seems to be heading south though, wonder if RBA decision will move it this arvo.




I got out at 2.51 this morning, and changed course for NVN/FDC and trade the merger


----------



## VSntchr

VSntchr said:


> View attachment 59572




Well this has been re-occuring for me again!! This time, no matter what I do I cannot resolve it. I have even tried deleting my database and rebuilding (there goes 4 hours!)...but the problem re-occurs on the second or third restart of PTF. 

I have emailed PTF support but they just say that it's *probably* due to having small cap stocks in my database (I am sure we all have some small stuff in there now given the mining service stocks falling?). I would think that if this was the case then many others would have this issue too...

I noticed the error log contains a system.NullReferenceException: Object reference not set to an instance of an object.

I am almost to the point of buying a new computer/laptop setup, this has my head ready to explode and is causing my trading to become erratic!


----------



## VSntchr

Here's a good pairs trade



Havn't got an SD on this but CBA looks pretty ripe for a longer term trade vs. the other big 3!


----------



## skc

SilverRanger said:


> Got burnt badly today with NVN, why the heck is FDC offering a premium?






edman79 said:


> So did I, got out half at 2.53 and then other half at 2.51.
> It seems to be heading south though, wonder if RBA decision will move it this arvo.




Double ouch! I haven't traded NVN since it's code change. But did the REIT space went crazy in the last week or two. 

Seriously... we are looking at GMG trading at 3.35% historical yield unfranked. This is just 110 bps above the cash rate. I wonder if it's ever traded at this thin a margin before.


----------



## VSntchr

skc said:


> Seriously... we are looking at GMG trading at 3.35% historical yield unfranked. This is just 110 bps above the cash rate. I wonder if it's ever traded at this thin a margin before.




Crazy isn't it! And it went flying again this morning! I got a trade on it (SCP/GMG) and made a modest 1.9% target intra-day. It kept going and would have offered over 3% but this market is just bonkers right now, I am happy to take targets quickly as stocks keep flipping and reversing (except the ones that just keep going against me  )

IOF is out of whack with just about every other AREIT, I am thinking the takeover speculation brought about by FDC  and NVN has reignited the fuel for IOF getting gobbled. I hopped on as this rumour hasnt had much substance to it and it doesnt report till late Feb, allowing time for a trade with CHC which also reports late Feb.

Still getting spanked by CSR but GWA did perform well today which slightly helped.
Closed out my DSH/HVN for a stinker of a loss, as well as CRZ/REA  

Have started avoiding quite a few signals for reporting season now, so the focus on directional trading increases...


----------



## SilverRanger

VSntchr said:


> Crazy isn't it! And it went flying again this morning! I got a trade on it (SCP/GMG) and made a modest 1.9% target intra-day. It kept going and would have offered over 3% but this market is just bonkers right now, I am happy to take targets quickly as stocks keep flipping and reversing (except the ones that just keep going against me  )
> 
> IOF is out of whack with just about every other AREIT, I am thinking the takeover speculation brought about by FDC  and NVN has reignited the fuel for IOF getting gobbled. I hopped on as this rumour hasnt had much substance to it and it doesnt report till late Feb, allowing time for a trade with CHC which also reports late Feb.
> 
> Still getting spanked by CSR but GWA did perform well today which slightly helped.
> Closed out my DSH/HVN for a stinker of a loss, as well as CRZ/REA
> 
> Have started avoiding quite a few signals for reporting season now, so the focus on directional trading increases...




Nice to see some volatility out there, added shorts on GMG and IOF today, I too don't expect much merger going on before the reporting season, fingers crossed.

Flipped again on FDC/NVN today as NVN is now trading at a premium to the implied takeover price, which again makes no sense at all


----------



## skc

SilverRanger said:


> Nice to see some volatility out there, added shorts on GMG and IOF today, I too don't expect much merger going on before the reporting season, fingers crossed.
> 
> Flipped again on FDC/NVN today as NVN is now trading at a premium to the implied takeover price, which again makes no sense at all




I think we've been conditioned to take 1.5-2.5% on these REIT pairs and now these are blowing out. 

I traded FDC/SCP today when it went down 5%. May be market is looking for some cash component in the deal?! 
But my big mistake was closing BWP/FDC yesterday when FDC didn't fall on making the bid... 

Another one that has been crazy is APA... only yielding 4.12%, vs DUE @ 6.66%. I know there are differences in growth profile etc... but that's a 50% difference in yield.


----------



## VSntchr

Seems like I am not the only one scratching my head at the moment!

What was a great month for January has turned into a moderate drawdown for Feb - but most pairs could revert so still time for patience.


----------



## edman79

Personally I find that stocks are good to trade before reporting season even into the report. If a stock has been underperforming usually any bad news is priced in and the report does little damage and vice versa, an outperforming stock is expecting good reports. The main issue I have found over the past 4 years in reporting season is stocks running up on good reports. I still trade through reporting season but make sure I am not shorting a good report. This is not advice just my experience.


----------



## Atari rose

Yes People have taken a lot of money out of oil stocks and have been jamming this in anything by the looks of it .

Not going well this year have been cutting to much I will just have to see it through.

currently have 

CSR Limited: leighton holdings

Macquarie Atlas Roads Limited:Transurban Group

and US 

Mercury General Corporation(NYSE:MCY):  Hartford financial

Mercury is reporting and has been going up, will wait and see if it goes down after to a normal level.


----------



## VSntchr

Atari rose said:


> Yes People have taken a lot of money out of oil stocks and have been jamming this in anything by the looks of it .
> 
> Not going well this year have been cutting to much I will just have to see it through.
> 
> currently have
> 
> CSR Limited: leighton holdings
> 
> Macquarie Atlas Roads Limited:Transurban Group
> 
> and US
> 
> Mercury General Corporation(NYSE:MCY):  Hartford financial
> 
> Mercury is reporting and has been going up, will wait and see if it goes down after to a normal level.




I'm with you in CSR, so heres to hoping that comes down.

With your MQA/TCL trade - I let this one pass as MQA is having some issues with the french government on the toll increases so there could be some unexpected events unfolding there. Also it is heavily exposed to the Euro, whereas TCL is more exposed to the USD.

That's interesting that you trade multiple markets, how have you found profitability for each one?


----------



## SilverRanger

skc said:


> I think we've been conditioned to take 1.5-2.5% on these REIT pairs and now these are blowing out.
> 
> I traded FDC/SCP today when it went down 5%. May be market is looking for some cash component in the deal?!
> But my big mistake was closing BWP/FDC yesterday when FDC didn't fall on making the bid...
> 
> Another one that has been crazy is APA... only yielding 4.12%, vs DUE @ 6.66%. I know there are differences in growth profile etc... but that's a 50% difference in yield.




Trading around FDC/NVN  merger seems rewarding so far, closed it midday for some quick profit and in it again at the close. Takeover premium currently at 1% but it's probably not worth the effort any lower than that.

APA is on my blacklist as I always feel that they are onto something.


----------



## Atari rose

VSntchr said:


> I'm with you in CSR, so heres to hoping that comes down.
> 
> With your MQA/TCL trade - I let this one pass as MQA is having some issues with the french government on the toll increases so there could be some unexpected events unfolding there. Also it is heavily exposed to the Euro, whereas TCL is more exposed to the USD.
> 
> That's interesting that you trade multiple markets, how have you found profitability for each one?




Yeah good to hear your with me on CSR.  Yeah if MQA didn't have Macquarie in the name I would worry (name seems to gold in Australia)  but after about a week of pain due to France not raising the road tolls they seem to have steadied out.

As for the US I will let you know. I'm pretty new to this game.....


----------



## VSntchr

Looks like I'll be going through a drawdown period over the reporting season after a number of trades are staying divergent for me and reporting dates are approaching.

Not good timing but will have nothing to do but improve once I start revving back up in March.


----------



## Atari rose

Atari rose said:


> Yes People have taken a lot of money out of oil stocks and have been jamming this in anything by the looks of it .
> 
> Not going well this year have been cutting to much I will just have to see it through.
> 
> currently have
> 
> CSR Limited: leighton holdings
> 
> Macquarie Atlas Roads Limited:Transurban Group
> 
> and US
> 
> Mercury General Corporation(NYSE:MCY):  Hartford financial
> 
> Mercury is reporting and has been going up, will wait and see if it goes down after to a normal level.




Closed trade: CSR Limited: leighton holdings good profits (well for me anyway)

Closed trade: Mercury General Corporation(NYSE:MCY):  Hartford financial Very good profits - this only went the right way as Mercury missed there profit forecast and were also at 52 week highs, by the end of the night I went for 500.00 in the red to about %650.00 in the black 

Closed trade :Macquarie Atlas Roads Limited:Transurban Group,  good profits (about $500) took a while....


----------



## VSntchr

SilverRanger said:


> Flipped again on FDC/NVN today as NVN is now trading at a premium to the implied takeover price, which again makes no sense at all




NVN/FDC merger to be at 0.8225

Current ratio is 0.8417. Scope there for another good trade, assuming no curveballs.


----------



## SilverRanger

VSntchr said:


> NVN/FDC merger to be at 0.8225
> 
> Current ratio is 0.8417. Scope there for another good trade, assuming no curveballs.




Yes it's doable but probably needs more love and care as it can revert intra-day then bounce back. I still don't understand why NVN is trading at a premium, as I don't think there will be a cash component offered given the size of NVN and FDC, and if the deal blows up then shorting NVN is the way to go.


----------



## skc

SilverRanger said:


> Yes it's doable but probably needs more love and care as it can revert intra-day then bounce back. I still don't understand why NVN is trading at a premium, as I don't think there will be a cash component offered given the size of NVN and FDC, and if the deal blows up then shorting NVN is the way to go.




I don't know why FDC is sold down so much either. It's still yielding whatever it is yielding. It completely missed out on the post rate cut madness engulfing the sector.

There were some words about NVN getting alternate bids but we are not seeing downward pressures on the potential bidders like GPT, MGR, SGP etc.

To me the pairs trade is on long FDC / short sector in general. That way you mitigate the specific risks of NVN getting an alternate bid, although also missing out on the gains if the bid is dropped.


----------



## VSntchr

skc said:


> I don't know why FDC is sold down so much either. It's still yielding whatever it is yielding. It completely missed out on the post rate cut madness engulfing the sector.
> 
> There were some words about NVN getting alternate bids but we are not seeing downward pressures on the potential bidders like GPT, MGR, SGP etc.
> 
> To me the pairs trade is on long FDC / short sector in general. That way you mitigate the specific risks of NVN getting an alternate bid, although also missing out on the gains if the bid is dropped.




Well I took on the risk of the curveball. Scaled in with three parcels today...and as the day wore on I got a bit worried as to why FDC was falling so far...although the whole sector was weighed a fair bit today.
Ended up closing it out in the auction and captured 0.70%. 

Still some big divergences that are not closing, CQR popped up early and I thought perhaps it was starting to catch up but then got smashed all day and divergence got even bigger.

IOF has stopped outperforming but failing to fallback as of yet.

Directionally speaking, I thought that MGR at 2.18 was a pretty good chance for a short this morning although I didn't manage to hold it down to the lows..I was happy to cover at 2.13. The report had nothing outstanding and guidance was only narrowed rather than upgraded. Not much to justify a surge in addition to the oustanding run it has already had. 

CSR was being kind this week, until it roared back up today...trade is at time expiry for me now so that will be a big loss to close out tomorrow


----------



## skc

VSntchr said:


> Well I took on the risk of the curveball. Scaled in with three parcels today...and as the day wore on I got a bit worried as to why FDC was falling so far...although the whole sector was weighed a fair bit today.
> Ended up closing it out in the auction and captured 0.70%.
> 
> Still some big divergences that are not closing, CQR popped up early and I thought perhaps it was starting to catch up but then got smashed all day and divergence got even bigger.
> 
> IOF has stopped outperforming but failing to fallback as of yet.
> 
> Directionally speaking, I thought that MGR at 2.18 was a pretty good chance for a short this morning although I didn't manage to hold it down to the lows..I was happy to cover at 2.13. The report had nothing outstanding and guidance was only narrowed rather than upgraded. Not much to justify a surge in addition to the oustanding run it has already had.
> 
> CSR was being kind this week, until it roared back up today...trade is at time expiry for me now so that will be a big loss to close out tomorrow




Plenty of seemingly random things going on in the REIT sector... collectively they are, along with the yield play, taking a breather. They have run too far, even with the prospect of another rate cut or 2. Like TCL... upgrade distribution from 39 to 39.5c. Come on... that's barely a rounding error.

To illustrate... GMG is yielding 3.31% (or 1% above official interest rate) and looking at say 8% growth. Even if you allow interest rate to stay low for 3 years and growth to remain at that pace, can you actually make money by buying today?

If the spread remains and the interest rate goes back to a more normal 5% in 3 years time, GMG investors will demand 6% yield. But the dividend amount will only 29c in 3 years (from 23c today). GMG's share price @ 29c dividend and 6% yield = $4.83... compared with $6.49. May be this is flawed thinking but I really think it's being seriously mis-priced, unless interest rate stays low forever.

Anyhow... all out of pairs now. Will focus on trading the reports.


----------



## skc

And this probably explains the premium of NVN vs FDC.

http://www.afr.com/p/opinion/cs_run_numbers_on_stockland_novion_hPGcGcVdptdKadToqULLvL



> Stockland could afford to trump Federation Centres’ bid for shopping centre owner Novion Property Group with a scrip and cash offer that would add 3.4 per cent to Stockland’s earnings per share.
> 
> That’s the view from Credit Suisse’s property analysts who said Stockland had greater capacity than Federation Centres to debt fund any deal and would be able to extract just as many synergies.
> 
> Credit Suisse analysts ran the numbers on Thursday and said Stockland could afford to put forward a $2.67 cash and scrip bid, worth 5 per cent more than Federation Centres’ proposed deal.


----------



## SilverRanger

skc said:


> And this probably explains the premium of NVN vs FDC.
> 
> http://www.afr.com/p/opinion/cs_run_numbers_on_stockland_novion_hPGcGcVdptdKadToqULLvL




Thanks. Yes that would explain the premium a little. Now let's hope I get to milk more than the 5% they suggested before the offer comes


----------



## SilverRanger

SilverRanger said:


> Thanks. Yes that would explain the premium a little. Now let's hope I get to milk more than the 5% they suggested before the offer comes




The takeover premium now at 3.8%, looks like the market is dead certain on a competing bid. I wonder how much more risk is there to average in now. On the bright side, hit a home run with TOL!


----------



## VSntchr

SilverRanger said:


> The takeover premium now at 3.8%, looks like the market is dead certain on a competing bid. I wonder how much more risk is there to average in now. On the bright side, hit a home run with TOL!




You had TOL open?
Your monthy PnL would be looking pretty green!


----------



## skc

SilverRanger said:


> The takeover premium now at 3.8%, looks like the market is dead certain on a competing bid. I wonder how much more risk is there to average in now. On the bright side, hit a home run with TOL!




50% premium. That's a 2-month maker!


----------



## skc

skc said:


> To me the pairs trade is on long FDC / short sector in general. That way you mitigate the specific risks of NVN getting an alternate bid, although also missing out on the gains if the bid is dropped.




Worked pretty well. Now whether one should have held through the reports is another matter.


----------



## VSntchr

skc said:


> Worked pretty well. Now whether one should have held through the reports is another matter.
> 
> View attachment 61659




Funny, I just came here to say good call from the other day. FDC outperforming the rest of the sector.


----------



## SilverRanger

skc said:


> Worked pretty well. Now whether one should have held through the reports is another matter.
> 
> View attachment 61659




Looks like Deutsche Bank analysts are also questioning the premium, and it's now shrunk to 1.3%, an easy 2.5% from yesterday

http://www.afr.com/p/novion_merger_talks_front_of_mind_YroCPNvAitJ8morauGRVSO



> At the current price, the stock was valued about 3 per cent higher than the value implied in the Federation merger, the analysts said, and 14 per cent higher than their sum-of-the-parts estimate.
> 
> "With the stock trading above pricing implied by the Federation merger proposal, which we view as a compelling one for Novion, we struggle to see upside for Novion," the analysts said.




And since M/A is hot these days, I think something worth watching for is IIN/TPM, I've never seen price of TPM trading above IIN, so now even 1:1 script offer now means a 14% premium.


----------



## SilverRanger

Another great day for FDC (I'm sure everyone's happy ), closed my FDC/NVN as the premium dropped back to 0.24%. 
Overall managed about 9% trading the pair since the announcement, which is roughly the damage shorting NVN in the first place, but happy to have taken my revenge!


----------



## SilverRanger

SilverRanger said:


> Another great day for FDC (I'm sure everyone's happy ), closed my FDC/NVN as the premium dropped back to 0.24%.
> Overall managed about 9% trading the pair since the announcement, which is roughly the damage shorting NVN in the first place, but happy to have taken my revenge!




I'm in FDC/NVN again at market close (premium 2.2%), I wonder how long this will last for, better get it while I can


----------



## VSntchr

SilverRanger said:


> I'm in FDC/NVN again at market close (premium 2.2%), I wonder how long this will last for, better get it while I can




I'm in again too on this. Only a tiny size though. Previous trade made 1.67% over 8 days. Hopefully this one is quicker.

Well done on milking back your loss, thats some nifty trading.

While we are on merger arb, have you considered AMM/VOC? It has been offering some good potential...not sure if it has been reverting or not...I do know that on results day there was about 5% to be made within 30 minutes - but I was too scared! It is currently offering 2.9% for full reversion.


----------



## SilverRanger

VSntchr said:


> I'm in again too on this. Only a tiny size though. Previous trade made 1.67% over 8 days. Hopefully this one is quicker.
> 
> Well done on milking back your loss, thats some nifty trading.
> 
> While we are on merger arb, have you considered AMM/VOC? It has been offering some good potential...not sure if it has been reverting or not...I do know that on results day there was about 5% to be made within 30 minutes - but I was too scared! It is currently offering 2.9% for full reversion.




No I haven't, but that's only because they weren't even on my watchlist! (they were filter out due to market cap/liquidity). But thanks for bringing that up, just checked that both are shortable, so maybe a small size will make sense. The wildcard here obviously is TPM, probably need more thoughts on this.


----------



## skc

SilverRanger said:


> No I haven't, but that's only because they weren't even on my watchlist! (they were filter out due to market cap/liquidity). But thanks for bringing that up, just checked that both are shortable, so maybe a small size will make sense. The wildcard here obviously is TPM, probably need more thoughts on this.




I traded AMM/VOC on the first day, until VOC borrow became unavailable. Make sure you take dividends into account on the merger ratio. I wouldn't touch it unless it's >3% discount. A 1.5% discount is probably too thin to milk given transaction costs and time value of money.


----------



## SilverRanger

skc said:


> I traded AMM/VOC on the first day, until VOC borrow became unavailable. Make sure you take dividends into account on the merger ratio. I wouldn't touch it unless it's >3% discount. A 1.5% discount is probably too thin to milk given transaction costs and time value of money.




3% looks about right!


----------



## SilverRanger

VSntchr said:


> I'm in again too on this. Only a tiny size though. Previous trade made 1.67% over 8 days. Hopefully this one is quicker.




Closed mine at market close today, 1.5% for 3 days of hold, let it come again!


----------



## SilverRanger

SilverRanger said:


> 3% looks about right!
> View attachment 61746




Following from last week...the chart looks even better than FDC/NVN!


----------



## VSntchr

Yeah it did revert well again SR, I was looking closely but didn't take the trade 

I see in the WOW thread you have taken a long. Did you pair it up with WES?


----------



## SilverRanger

VSntchr said:


> Yeah it did revert well again SR, I was looking closely but didn't take the trade
> 
> I see in the WOW thread you have taken a long. Did you pair it up with WES?




No I had WOW/CCL, don't think I have WOW/WES on my watchlist (probably removed for back test reasons), but added it back overnight, and makes more sense, will see if I can swap it somehow today


----------



## VSntchr

SilverRanger said:


> No I had WOW/CCL, don't think I have WOW/WES on my watchlist (probably removed for back test reasons), but added it back overnight, and makes more sense, will see if I can swap it somehow today




Hmmm WOW/CCL does look quite good though - I was considering it this morning....CCL hasn't fallen...and you'd think any push on costs by WOW will be negative for CCL. Tough choice. This is _almost_ a fundamental pairs trade rather than statistical so I am trading carefully. It's an area I am interested in expanding into...


----------



## SilverRanger

VSntchr said:


> Hmmm WOW/CCL does look quite good though - I was considering it this morning....CCL hasn't fallen...and you'd think any push on costs by WOW will be negative for CCL. Tough choice. This is _almost_ a fundamental pairs trade rather than statistical so I am trading carefully. It's an area I am interested in expanding into...




Personally I would argue it's still statistical. The back tests don't know when the reporting periods are, and the fact that they are still giving good results means the pair is statistically well-behaved even if the signals are generated from the earnings reports. In fact, the big wins in the back tests are usually the ones generated out of these signals.

That said, I'm not a pure statistical pair trader so I add my own filters that works for me, some technical, and some fundamentals.


----------



## skc

SilverRanger said:


> Personally I would argue it's still statistical. The back tests don't know when the reporting periods are, and the fact that they are still giving good results means the pair is statistically well-behaved even if the signals are generated from the earnings reports. In fact, the big wins in the back tests are usually the ones generated out of these signals.
> 
> That said, I'm not a pure statistical pair trader so I add my own filters that works for me, some technical, and some fundamentals.






VSntchr said:


> Hmmm WOW/CCL does look quite good though - I was considering it this morning....CCL hasn't fallen...and you'd think any push on costs by WOW will be negative for CCL. Tough choice. This is _almost_ a fundamental pairs trade rather than statistical so I am trading carefully. It's an area I am interested in expanding into...




WOW only reported 3 days ago?! If the pair backtest well through reporting, it's purely coincidental. The next report will be different. Overall, it's not a disciplined pair imho. 

Let WOW settle on it's own. If you want to trade a bounce, trade the bounce... If you think CCL should be sold down on the back of the news, short CCL. Each of these trades will have different size and stop levels compared to a paired scenario.

The trade to take was short WES on WOW's report... that was a good low risk trade on open.


----------



## VSntchr

SilverRanger said:


> Closed mine at market close today, 1.5% for 3 days of hold, let it come again!




And it's back....3.87% on offer for full reversion at the close.


----------



## VSntchr

skc said:


> The trade to take was short WES on WOW's report... that was a good low risk trade on open.




Yeah that did appear to be a good trade. I was off managing some other trades and didn't even consider it. I did manage to ride SIP on API's upgrade though.


----------



## skc

SilverRanger said:


> And since M/A is hot these days, I think something worth watching for is IIN/TPM, I've never seen price of TPM trading above IIN, so now even 1:1 script offer now means a 14% premium.




I hope you are all over this 

I exited my directional IIN position before ex-div 3 days ago...  

The market was pulling back, and many ex-div stocks fell a lot more than the dividend itself. But I was prepared to re-establish a position this morning... why couldn't they make the annonucement mid-day?!


----------



## VSntchr

skc said:


> I hope you are all over this
> 
> I exited my directional IIN position before ex-div 3 days ago...
> 
> The market was pulling back, and many ex-div stocks fell a lot more than the dividend itself. But I was prepared to re-establish a position this morning... why couldn't they make the annonucement mid-day?!




And turns out your caution was unwarranted due to the JPmorgan upgrade deflecting any fall yesterday...damn! The landscape reduces by one. Now we have TPM, MTU, SGT and TLS.


----------



## VSntchr

Price at $8.65 now.
I see that as of last week it was about 5% of company shorted. Lot of covering/pain from them this morning..plus some speculation of a competing bid I suppose. The announcement mentions ACCC is fine with the deal so the chance of failure is very low.


----------



## SilverRanger

skc said:


> I hope you are all over this
> 
> I exited my directional IIN position before ex-div 3 days ago...
> 
> The market was pulling back, and many ex-div stocks fell a lot more than the dividend itself. But I was prepared to re-establish a position this morning... why couldn't they make the annonucement mid-day?!




I wish I was too, closed this very same pair 2 days ago for the same reason as you (and was looking to re-enter this morning too!) But looking at TPM was doing I probably didn't miss out a lot 

I also noticed the unusual fall of stocks going ex-div, and shorted a few myself, MND, MRM and even IIN yesterday. I think it will still work for the next couple of days, but need to be selective.


----------



## SilverRanger

VSntchr said:


> And it's back....3.87% on offer for full reversion at the close.




It's been ranging between 3% - 5% the last couple of days, quite a tough (but fun) ride!


----------



## craft

SilverRanger said:


> But looking at TPM was doing I probably didn't miss out a lot




So TPM pays 300M premium over the 1.1B IIN was valued at yesterday using debt and the market thinks - lets add another Billion of market cap to TPM. Seems the market just loves PE arbitrage _at the moment_.


----------



## skc

craft said:


> So TPM pays 300M premium over the 1.1B IIN was valued at yesterday using debt and the market thinks - lets add another Billion of market cap to TPM. Seems the market just loves PE arbitrage _at the moment_.




Yes... I am scratching my head a bit when TPM was up about as much as IIN. I guess there'd be plenty of synergies in the combined entity. A $1B @ 25x PE you'd only need $40m annual savings which really isn't a large number on a combined cost base of ~$1B.

Every other Telco is running on the back of this... so there's a rational market for you.


----------



## VSntchr

Have had a decent start back to pairs after the reporting season break...but a bit of a below the belt punch was felt this morning when I saw that ABP has gone into a halt due to a non-renounceable offer. Certainly throws a spanner in the works for my ABP pair. Lucky I have started back with a small size so the effect won't be significant to me. 

This is the second A-REIT to raise funds, with SCP doing so also. That combined with the FDC/NVN merger shows that corporate activity is alive and well in this sector - this tells me to keep individual position sizes modest and dont go mavericking around!


----------



## skc

VSntchr said:


> Have had a decent start back to pairs after the reporting season break...but a bit of a below the belt punch was felt this morning when I saw that ABP has gone into a halt due to a non-renounceable offer. Certainly throws a spanner in the works for my ABP pair. Lucky I have started back with a small size so the effect won't be significant to me.
> 
> This is the second A-REIT to raise funds, with SCP doing so also. That combined with the FDC/NVN merger shows that corporate activity is alive and well in this sector - this tells me to keep individual position sizes modest and dont go mavericking around!




I have ABP long as well but I found that rights issue don't isn't normally that damaging. You can potentially pre-short your entitlement if it open above the TERP and trade your way out of it. Or apply for additional entitlements if available (and price being favourable). The REITs aren't rocketing at the moment, so a 2 down days while ABP is halted might actually work in your favour as well.

So in summary... reason to stay nimble, but no reason to be too pessimistic.

But your observation about raising funds is quite interesting. With debt so cheap, you'd think they'd raise debt! May be it means there are opportunities for acquisitions (using high equity price to buy highly priced properties - a wash really), as alluded to by ABP's announcement. Certainly worth monitoring as they tend to do these things in a cohert.


----------



## SilverRanger

VSntchr said:


> This is the second A-REIT to raise funds, with SCP doing so also. That combined with the FDC/NVN merger shows that corporate activity is alive and well in this sector - this tells me to keep individual position sizes modest and dont go mavericking around!




Third, GPT had one too (it was a SPP and their board came up with a super stingy scaleback strategy).



skc said:


> I have ABP long as well but I found that rights issue don't isn't normally that damaging. You can potentially pre-short your entitlement if it open above the TERP and trade your way out of it. Or apply for additional entitlements if available (and price being favourable). The REITs aren't rocketing at the moment, so a 2 down days while ABP is halted might actually work in your favour as well.




Great, looks like we are all in this


----------



## SilverRanger

SilverRanger said:


> Third, GPT had one too (it was a SPP and their board came up with a super stingy scaleback strategy).
> 
> 
> 
> Great, looks like we are all in this




How's everyone going today? ABP fell more than expected, I bought in some more at 2.86 hoping to recoup some losses, now considering ABP/anything at market close maybe.

On the bright side, closed all my FDC/NVN after a nice fall on NVN, don't think I will wait for the convergence this time.


----------



## VSntchr

SilverRanger said:


> How's everyone going today? ABP fell more than expected, I bought in some more at 2.86 hoping to recoup some losses, now considering ABP/anything at market close maybe.
> 
> On the bright side, closed all my FDC/NVN after a nice fall on NVN, don't think I will wait for the convergence this time.




Yes, ABP has fallen a bit more - and the offer doesnt really help a whole lot as its 1-12. Im still down on that trade but I have it with CHC which has co-operated so the loss is <1% currently.

Still got the merger arb on, but I will probably close today too...it's been at a loss for 12 days so seeing the profit is like seeing the first sunny day after a long cold winter :

I am doing quite well with my pairs so far..but as I said earlier...very small sizes while I rebuild my confidence. Additionally I have been executing some other trades which has had me very busy and unable to execute many pairs in the morning session.


----------



## skc

SilverRanger said:


> How's everyone going today? ABP fell more than expected, I bought in some more at 2.86 hoping to recoup some losses, now considering ABP/anything at market close maybe.




Nothing to really be too concerned. It fell a bit more today but probably the same as any other REIT over the last week or so.



SilverRanger said:


> On the bright side, closed all my FDC/NVN after a nice fall on NVN, don't think I will wait for the convergence this time.




Haha... I did the same thing. It blew out to >5% at one stage. I covered them in parts and made like $200 



VSntchr said:


> I am doing quite well with my pairs so far..but as I said earlier...very small sizes while I rebuild my confidence.


----------



## VSntchr

VSntchr said:


> Yes, ABP has fallen a bit more - and the offer doesnt really help a whole lot as its 1-12. Im still down on that trade but I have it with CHC which has co-operated so the loss is <1% currently.



Well that changed quickly. Now >-5% 



skc said:


> Haha... I did the same thing. It blew out to >5% at one stage. I covered them in parts and made like $200



Ended up closing the next day (yesterday) after you guys. It's blown out again! Purely looking at it from a optimistic perception would have you mouth watering with 5%+ again on offer...but the fact that this is trending lower and lower is concerning. I haven't heard anything that is jeopardising the deal - but I have certainly been out-of-sync with AREITS for a good few months now so treading cautiously here.


----------



## skc

VSntchr said:


> Well that changed quickly. Now >-5%




I got out of my ABP/IOF trade earlier Friday morning with minimum damage... although I do have a pair shorting CHC and it seems to be on one of those runs which has the ASKs retreating at great speed.



VSntchr said:


> Ended up closing the next day (yesterday) after you guys. It's blown out again! Purely looking at it from a optimistic perception would have you mouth watering with 5%+ again on offer...but the fact that this is trending lower and lower is concerning. I haven't heard anything that is jeopardising the deal - but I have certainly been out-of-sync with AREITS for a good few months now so treading cautiously here.
> View attachment 62045




Nice chart. Thanks. It's almost working the other way... that the rise in NVN is holding FDC high. FDC is now outperforming the major REITs since my last update.




I have FDC short against another REIT, but in theory I may be should have shorted NVN (sort of gives you 2 trades in 1). I am of the opinion that no one is starting a takeover war for NVN at current prices. It is now trading at 37% above NTA and 5% yield. If you look at the usual suspects like GPT, MGR, SGP etc, their price/NTA are all lower (1.19, 1.21, 1.29), so any script based deal would be dilutive. Then again, someone was willing to pay $9 for TOL and several $B for a default toll road in Indiana. So you can never underestimate what silly aciton that cheap money can produce .


----------



## SilverRanger

skc said:


> I got out of my ABP/IOF trade earlier Friday morning with minimum damage... although I do have a pair shorting CHC and it seems to be on one of those runs which has the ASKs retreating at great speed.
> 
> 
> 
> Nice chart. Thanks. It's almost working the other way... that the rise in NVN is holding FDC high. FDC is now outperforming the major REITs since my last update.
> 
> View attachment 62068
> 
> 
> I have FDC short against another REIT, but in theory I may be should have shorted NVN (sort of gives you 2 trades in 1). I am of the opinion that no one is starting a takeover war for NVN at current prices. It is now trading at 37% above NTA and 5% yield. If you look at the usual suspects like GPT, MGR, SGP etc, their price/NTA are all lower (1.19, 1.21, 1.29), so any script based deal would be dilutive. Then again, someone was willing to pay $9 for TOL and several $B for a default toll road in Indiana. So you can never underestimate what silly aciton that cheap money can produce .




I got in again yesterday and saw the pair revert more than 1% intra-day then back to peanuts. I'm sure this is not the first time this happens. Tomorrow I will consider closing half when I make 1% and leave the other half for a meaningful reversion.


----------



## VSntchr

SilverRanger said:


> I got in again yesterday and saw the pair revert more than 1% intra-day then back to peanuts. I'm sure this is not the first time this happens. Tomorrow I will consider closing half when I make 1% and *leave the other half for a meaningful reversion.*



Happy days SR! I've got it at -0.2% diversion at the moment. That's more than a FULL reversion!


----------



## skc

VSntchr said:


> Happy days SR! I've got it at -0.2% diversion at the moment. That's more than a FULL reversion!




Reverses without me


----------



## VSntchr

skc said:


> Reverses without me




Me too. I had orders in yesterday which wud have given me 3.6% in <24hrs..but i baulked over 1c on each side - thinking I'd get a better spread in the afternoon. My database has been relatively quiet this week, a few REIT signals and thats about it - hence I haven't been very active.


----------



## SilverRanger

skc said:


> Reverses without me






VSntchr said:


> Me too. I had orders in yesterday which wud have given me 3.6% in <24hrs..but i baulked over 1c on each side - thinking I'd get a better spread in the afternoon. My database has been relatively quiet this week, a few REIT signals and thats about it - hence I haven't been very active.




It will come again, I promise


----------



## VSntchr

CMW ex-div 1.99c today and still managed to put on 0.9% for the day. 
Maybe some traders forgot about the quarterly div schedule. I took a hedged short on the close for what I hope will be a quick trade. CAB also shook off their dividend pretty nicely after opening quite low...

I considered TGR/BGA after the TGR announcement but decided to wait - they still havent indicated (well, they have indicated that they don't know) what the government hopes to get from the enquiry. If I was an investor I wouldn't be too worried but as a short term trader it could still limit the immediate upside. One for the waiting list.


----------



## VSntchr

How is everyone doing with their pairs lately?

I was within 1c on either side of closing FDC/NVN for another round. Wish I nudged it because I could have re-opened again on close...instead I watched my position flip all the way from 93% of target to below zero!


I have noticed BWP and SCP are showing strength against the sector, have both of those short up against some others. 

A recent lesson I have had to learn the hard way is not to be tempted into trading illiquid companies. I found a good signal with MYT and took it, without really studying how good the depth was.
I saw it on probably one of its more liquid days, took note of the $4bn+ market cap and thought it would be fine - rookie error and one I will not be repeating. Didn't end up costing me much, but it did teach me that ignoring liquidity can make for a very stressful holding/exit.


----------



## skc

VSntchr said:


> How is everyone doing with their pairs lately?




March was my second highest P&L month but some of that was the result of good directional trading. There were no major ups or downs in the pairs, just steady.

I am dipping my toes back into gold stocks... just the large ones and certainly avoiding quarterly reports. Also, the media sector seems a bit more stable and tradable now. The age care sector is collecting quite a few participants. I am starting very small just see how they tick (and what ticks them). By the next reporting period they should be ripe for some good pairing.

Meanwhile, the iron ore sector is total no-go zone. The mining services also remain dangerous (either big downgrade or takeover - choose your poison). I haven't done a trade in the "stables" (WOW, WES, MTS, CCL) for some time which is quite unusual.



VSntchr said:


> I have noticed BWP and SCP are showing strength against the sector, have both of those short up against some others.




Same here.


----------



## SilverRanger

VSntchr said:


> How is everyone doing with their pairs lately?
> I was within 1c on either side of closing FDC/NVN for another round. Wish I nudged it because I could have re-opened again on close...instead I watched my position flip all the way from 93% of target to below zero!



Yes, that was exactly why I went for the 1% in my last trade, but surely we will get another chance next week, right? 



skc said:


> I am dipping my toes back into gold stocks... just the large ones and certainly avoiding quarterly reports. Also, the media sector seems a bit more stable and tradable now.



Goldies I'm sticking with NCM, NST, EVN and OGC only, got 3 out of 3 last month, but still hesitant to raise my half-size position on them.

Yes, media was good too, had FXJ/APN last week, and holding SEK/REA to close next week. 



skc said:


> The age care sector is collecting quite a few participants. I am starting very small just see how they tick (and what ticks them). By the next reporting period they should be ripe for some good pairing.



I have recently added REG and EHE to my watchlist as well, but haven't got any signals yet, had a look at JHC too, but its volume is probably too thin for my liking. 

Also new on my watchlist is SLF, and wished I have discovered it quicker, seems very handy to single out any out-performer/under-performer with this. The only downside is probably the fact that you need to rely on maker makers  for its liquidity, and good luck trading it at market open/close!


----------



## VSntchr

skc said:


> March was my second highest P&L month but some of that was the result of good directional trading.



Nice! March was also good to me. My highest ever PnL both $ and % wise. However, similarly to you - this came as a result of some good directional trading. Kind of bittersweet as I find the most satisfying results come from pairs - but I am also happy to be making headway with my other systems. 
Due to the small size I have been using, I think pairs only represented about 5% of my month, still struggling in this area but I have been making progress on identifying my errors.


> There were no major ups or downs in the pairs, just steady.



I think you just described the perfect equity curve 



> I am dipping my toes back into gold stocks... just the large ones and certainly avoiding quarterly reports. Also, the media sector seems a bit more stable and tradable now. The age care sector is collecting quite a few participants. I am starting very small just see how they tick (and what ticks them). By the next reporting period they should be ripe for some good pairing.



For a while there, REIT's were >80% of the trades I was taking. It got to the point where I started to consider key customer (errr sector) risk. As you say, the market has certainly come to life in some other sectors. Some of the splurge of listings we have had over the past 18 months are starting to trickle through represent good pairs lists. Aged care is looking good and some other listings have joined established sectors such as packaging/staples, insurance etc.. 
I actually took my first pair with MPL recently, although it felt probably a bit early - still not sure that the price is correlating strongly yet due to the indexing influences that have played so heavy on the stock.


----------



## VSntchr

SilverRanger said:


> Yes, that was exactly why I went for the 1% in my last trade, but surely we will get another chance next week, right?



Surely we will get another 3 or so chances next week! 



> Goldies I'm sticking with NCM, NST, EVN and OGC only, got 3 out of 3 last month, but still hesitant to raise my half-size position on them.



Nice work. I did read a bit of chatter about EVN going on the hunt for deals, so perhaps something to keep in mind...



> Yes, media was good too, had FXJ/APN last week, and holding SEK/REA to close next week.



I haven't touched FXJ/APN for a while after finding that I could never enter at the right time. Every time I entered it would be too early, even after knowing this was the case and waiting a little longer the next time round - it would still get me! Perhaps a change of parameters is needed for that pair. I've also never had much luck with the online lists, my experience is that they respond to macro news (interest rates, employment data etc) with varying degrees of intensity.



> Also new on my watchlist is SLF, and wished I have discovered it quicker, seems very handy to single out any out-performer/under-performer with this. The only downside is probably the fact that you need to rely on maker makers  for its liquidity, and good luck trading it at market open/close!



Nice pick up. I note alot of US traders a big on the ETF thing, whereas I haven't seen it used much over here for trading (I might just be under a rock though). I have been using the XPJ for my outperform/underperform benchmark - but this looks to be a bit better given the trade-ability


----------



## skc

VSntchr said:


> For a while there, REIT's were >80% of the trades I was taking. It got to the point where I started to consider key customer (errr sector) risk. As you say, the market has certainly come to life in some other sectors. Some of the splurge of listings we have had over the past 18 months are starting to trickle through represent good pairs lists. Aged care is looking good and some other listings have joined established sectors such as packaging/staples, insurance etc..




ORA/PGH was a good pair until their recent report. And PGH doesn't quite have the aura of the likes of AMC and BXB yet.



VSntchr said:


> I actually took my first pair with MPL recently, although it felt probably a bit early - still not sure that the price is correlating strongly yet due to the indexing influences that have played so heavy on the stock.




Agree. I'd give MPL some more time. NIB (NHF.ASX) is the most natural peer but their size differential is significant. If history is anything to go by, MPL as a government IPO should enjoy a strong run for the next 6-12 months (e.g. how QRN, now AZJ, got re-rated over time).



SilverRanger said:


> Also new on my watchlist is SLF, and wished I have discovered it quicker, seems very handy to single out any out-performer/under-performer with this. The only downside is probably the fact that you need to rely on maker makers  for its liquidity, and good luck trading it at market open/close!




I didn't think you can short it? If so who with? I am a bit hesitate to use it as a long play, as it can be a bit slow to catch up if you are pairing with a short that's running away from you. Shorting it, however, would be ideal if the underperformance of the long leg is without merit. You also do away with takeover risk on the short side.


----------



## SilverRanger

skc said:


> I didn't think you can short it? If so who with? I am a bit hesitate to use it as a long play, as it can be a bit slow to catch up if you are pairing with a short that's running away from you. Shorting it, however, would be ideal if the underperformance of the long leg is without merit. You also do away with takeover risk on the short side.




Apparently you can with my trusty CFD broker (not mentioning names but it's a local DMA provider, wait, there's only 1!?), it probably depends on the prime broker they have.

In terms of trading it, yes definitely ideal to short as it removes the upside risk, but I would consider long as well if the back-test warrants it (from what I can see, there are a couple of pairs with 100% win rate)


----------



## SilverRanger

Missed the obvious (well, everything is obvious in hindsight) short on MIN last week, should have known better AGO's mothballing impact on its contractors!


----------



## Newtotrading

Hi Everyone,

Can someone tell me where I Can learn about pair trading, or point me in the right direction.

I would appreciate any imput.Thank you.


----------



## VSntchr

Newtotrading said:


> Hi Everyone,
> 
> Can someone tell me where I Can learn about pair trading, or point me in the right direction.
> 
> I would appreciate any imput.Thank you.




Ur in the right spot buddy!
This thread has a large number of informative posts...


----------



## skc

SilverRanger said:


> Apparently you can with my trusty CFD broker (not mentioning names but it's a local DMA provider, wait, there's only 1!?), it probably depends on the prime broker they have.




I guess I should ask again at this end...



SilverRanger said:


> Missed the obvious (well, everything is obvious in hindsight) short on MIN last week, should have known better AGO's mothballing impact on its contractors!




I didn't know MIN does anything with AGO... I knew MLD is the contractor, MCS the trucker. I shorted MLD when AGO first went into the halt... but it actually traded up today. It's only PE <4x so it's "priced in" I guess.

MIN was a good directional trade today, nonetheless. It was unwarrantedly (new word?) strong since the AGO announcement.

P.S. MIN announcement just out. Not material 
P.S. I also shorted QUB since AGO. But again it said today immaterial impact _for FY14 results_. I wonder if the market should probably look a little bit beyond FY14 which only has 2 months left.


----------



## VSntchr

Now we say goodbye to SGT as they request a de-listing. My telco database is shrinking fast this year!


----------



## SilverRanger

VSntchr said:


> Now we say goodbye to SGT as they request a de-listing. My telco database is shrinking fast this year!




Well, they are still tradable on the Singapore stock exchange 

Hey, for AMM/VOC does anyone know whether the the merger ratio is actually adjusted? Reading from the Adjusted Merger Ratio section in the scheme booklet, the ratio may still stay the same since the dividend was well declared in advance. Thoughts?



> if the record date for any dividend, distribution or return of capital that is recommended,
> declared or paid by Amcom (other than any interim and/or special dividend
> recommended, declared or paid by Amcom in the ordinary course of business agreed
> between the parties) occurs on or after the date of this agreement but on or prior to the
> Implementation Date, the number of New Vocus Shares determined in accordance with
> the following formula (rounded down to 4 decimal places):
> M = A Ã—B/C
> where:
> M = the Adjusted Merger Ratio;
> A = the Initial Merger Ratio;
> B = $2.45 less the amount per Scheme Share of any such dividend, distribution or
> return of capital; and
> C = $2.45,


----------



## VSntchr

SilverRanger said:


> Well, they are still tradable on the Singapore stock exchange
> 
> Hey, for AMM/VOC does anyone know whether the the merger ratio is actually adjusted? Reading from the Adjusted Merger Ratio section in the scheme booklet, the ratio may still stay the same since the dividend was well declared in advance. Thoughts?




From the letter released to shareholders in Feb



> *Consideration & Amcom Board Recommendation*
> Under the Scheme, Amcom shareholders will receive consideration of 0.4614 Vocus shares
> for each Amcom share owned. The consideration will not be adjusted for Amcom’s 1H FY15
> dividend (capped at 5 cents per share). Upon completion of the Scheme, Amcom
> shareholders will own approximately 51.6% of the combined group.


----------



## skc

SilverRanger said:


> Well, they are still tradable on the Singapore stock exchange
> 
> Hey, for AMM/VOC does anyone know whether the the merger ratio is actually adjusted? Reading from the Adjusted Merger Ratio section in the scheme booklet, the ratio may still stay the same since the dividend was well declared in advance. Thoughts?




Not adjusted. Don't forget VOC ex-div on 2 Mar to 1.2c and 5.1c special div.

P.S. Had a pair shorting DXS... making it the 3rd AREIT to raise capital. It's becoming a trend.


----------



## skc

VSntchr said:


> I have noticed BWP and SCP are showing strength against the sector, have both of those short up against some others.




SCP trading @ all time high $2.19. Has anyone seen takeover rumours on them? I seem to remember reading about it ages ago...


----------



## VSntchr

skc said:


> SCP trading @ all time high $2.19. Has anyone seen takeover rumours on them? I seem to remember reading about it ages ago...




I haven't heard anything. 
I haven't seen AREIT outperformance like this since IOF a few months back.
Chart shows IOF v SLR



And now currently, SCP v SLR



Had a few opportunities with this one and I actually traded in and out of SCP twice. Am back in again now although already underwater a few ticks..


Also, back on that first chart - hasn't IOF really gone quiet since that breakout ran out of steam. Morgan Stanley is selling some part of the IOF entity, couldn't really get my head around the complicated structure..but perhaps this is part of the underperformance?


----------



## SilverRanger

VSntchr said:


> Also, back on that first chart - hasn't IOF really gone quiet since that breakout ran out of steam. Morgan Stanley is selling some part of the IOF entity, couldn't really get my head around the complicated structure..but perhaps this is part of the underperformance?




I think Morgan Stanley is selling Investa Property Trust (IPT) and Investa Office Management (IOM). IPT shares some properties with IOF and IOM has management rights over IOF, and hold some IOF shares (about 9%). 

IOF has some pre-emptive rights over the properties it shares with IPT and its own management rights with IOM. It's not that complicated right?  




skc said:


> SCP trading @ all time high $2.19. Has anyone seen takeover rumours on them? I seem to remember reading about it ages ago...



I haven't heard/read anything, otherwise I wouldn't get burnt today


----------



## SilverRanger

Also got back into AMM/VOC today. It seems too good to miss. I may get a chance with FDC/NVN tomorrow too.


----------



## skc

SilverRanger said:


> I think Morgan Stanley is selling Investa Property Trust (IPT) and Investa Office Management (IOM). IPT shares some properties with IOF and IOM has management rights over IOF, and hold some IOF shares (about 9%).
> 
> IOF has some pre-emptive rights over the properties it shares with IPT and its own management rights with IOM. It's not that complicated right?




If IOF wants to exercise the pre-emptive rights they'd need to raise a fair bit of capital... so may be that contributes to the underperformance.

Having said that, it's headline yield is only now @ 4.97%, so may be it just ran too hard for too long. It's hard to make an accretive deal when you acquire someone yielding less than you.


----------



## VSntchr

SilverRanger said:


> It's not that complicated right?



:bonk:



SilverRanger said:


> Also got back into AMM/VOC today. It seems too good to miss. I may get a chance with FDC/NVN tomorrow too.




I hopped into FDC/NVN today already, aswell as AMM/VOC. Started out as a divvie play on AMM but got the chance to go bigger and turned it into a merger pair play. 

Wish I'd been more vigilant on AMM/VOC - it's been behaving well...yet this is my first time! 

Now - let us all pray that SCP starts to behave today.


----------



## SilverRanger

VSntchr said:


> :bonk:
> 
> 
> 
> I hopped into FDC/NVN today already, aswell as AMM/VOC. Started out as a divvie play on AMM but got the chance to go bigger and turned it into a merger pair play.
> 
> Wish I'd been more vigilant on AMM/VOC - it's been behaving well...yet this is my first time!
> 
> Now - let us all pray that SCP starts to behave today.




I'm in for FDC/NVN at market close as well, although the chart doesn't look as pretty as AMM/VOC, this pair is definitely the cash cow of the year for me, and there's still 1 more month to go!


----------



## VSntchr

SilverRanger said:


> I'm in for FDC/NVN at market close as well, although the chart doesn't look as pretty as AMM/VOC, this pair is definitely the cash cow of the year for me, and there's still 1 more month to go!




Let's just hope that nothing comes from left field and wipes out the previous arb profits!

Have either of you ever had any foul plays arbing mergers? I can imagine it would be quite ugly depending on specifics.


----------



## skc

VSntchr said:


> Have either of you ever had any foul plays arbing mergers? I can imagine it would be quite ugly depending on specifics.




No thankfully but SKE/PRG would be a recent example that didn't work out. 

I played with a really small arb a few years back... PAN taking over someone (can't even remember the code). It was so small and thin that it didn't even revert on the last day. I got issued PAN shares and the broker squared off my position.

I found the AMM/VOC pair a bit tricky to get set for a decent enough size, and for that 1.5% takes a lot of my eyeball away from other market actions. May be I should just accumulate and wait for the actual deal completion.


----------



## VSntchr

skc said:


> I found the AMM/VOC pair a bit tricky to get set for a decent enough size, and for that 1.5% takes a lot of my eyeball away from other market actions.




Sometimes there are advantages to being a minnow


----------



## Atari rose

Short Honda, Long Ford......


----------



## SilverRanger

Just read on AFR that MTU is mulling an all-script offer for IIN, IIN is already reacting in the open market auction. It's a bit hard to evaluate the impact of this on AMM/VOC, but TPG does hold some shares in AMM, looks like another fun ride for the week.


----------



## VSntchr

SilverRanger said:


> Just read on AFR that MTU is mulling an all-script offer for IIN, IIN is already reacting in the open market auction. It's a bit hard to evaluate the impact of this on AMM/VOC, but TPG does hold some shares in AMM, looks like another fun ride for the week.




Some nice profit potential based on the pre-open if you don't think TPG will engage in a bidding war. Not so sure id be game enough to short IIN until we can be more certain. It certainly is the in-demand asset at the moment!


----------



## SilverRanger

VSntchr said:


> Some nice profit potential based on the pre-open if you don't think TPG will engage in a bidding war. Not so sure id be game enough to short IIN until we can be more certain. It certainly is the in-demand asset at the moment!




Sometimes I can only blame myself not thinking quick enough, shorting TPM should be on a good trader's mind today


----------



## VSntchr

Having trouble calculating the MTU/IIN deal arb.

-The ratio is set at 0.803 MTU shares for every IIN share owned.  
-IIN holders will receive a 75c dividend.
-For calculations assume scheme is 100% successful

1) Ignoring dividend, we have ~12% profit (0.899 current ratio) on the table *if you assume* that this deal goes through. 

2) Adjust for the fact that IIN holders will be receiving a 75c dividend. Which would result in IIN going ex-div and the current ratio approximating 0.83 giving 3.4% profit potential.

3) Theoretical price for IIN = 0.803x$10.90 + $0.75 = $9.50, and then using this for the current ratio = 0.872. Which gives profit potential of 8.6%. 



I'm not sure which of the above to apply; why am I having trouble with something so simple?

Either way, it appears that IIN has risen more than the deal warrants (as it should) due to speculation of a sweetened offer from TPG.


----------



## skyQuake

Agree with 3), though not sure how u're getting 8.6% profit potential

All I see is IIN trading at around a 2% prem to the bid.

Might also be worth considering what happens if either bidder decides to take a Blocking stake.


----------



## McLovin

VSntchr said:


> Having trouble calculating the MTU/IIN deal arb.
> 
> -The ratio is set at 0.803 MTU shares for every IIN share owned.
> -IIN holders will receive a 75c dividend.
> -For calculations assume scheme is 100% successful
> 
> 1) Ignoring dividend, we have ~12% profit (0.899 current ratio) on the table *if you assume* that this deal goes through.
> 
> 2) Adjust for the fact that IIN holders will be receiving a 75c dividend. Which would result in IIN going ex-div and the current ratio approximating 0.83 giving 3.4% profit potential.
> 
> 3) Theoretical price for IIN = 0.803x$10.90 + $0.75 = $9.50, and then using this for the current ratio = 0.872. Which gives profit potential of 8.6%.
> 
> 
> 
> I'm not sure which of the above to apply; why am I having trouble with something so simple?
> 
> Either way, it appears that IIN has risen more than the deal warrants (as it should) due to speculation of a sweetened offer from TPG.




I'm confused by what you're trying to work out.

All I see is a $0.75c cash component, by way of a dividend + a scrip component of 0.803 MTU share for every IIN share. Which gives a value of $9.50 (or more depending on your tax position!). I imagine IIN will have been delisted by the time the cash component is paid.

This feels like MTU trying to get TPG to pay overs, as much as it feels like them wanting to acquire the business.


----------



## SilverRanger

Reading through M2's announcement:


> M2 values its Competing Proposal for iiNet at $11.37 per share by considering three elements of value, being:
> (i)the current value of the M2 shares being offered ($9.25)1;
> (ii) the cash value of the special dividend ($0.75); and
> (iii) the value of the expected synergies ($1.37) that would accrue to iiNet shareholders as shareholders in the
> enlarged M2 Group




i) is worth less now, ii) is the only part I like, for its franking credits, and iii) is BS. The best part, the deal is "indicating and non-binding", and makes no mention of TPG's stake, who can easily fork another $52 mil to form a blocking stake!


----------



## skc

SilverRanger said:


> Sometimes I can only blame myself not thinking quick enough, shorting TPM should be on a good trader's mind today




Traded these on a string today! Shorted TPM, shorted IIN, shorted MTU, longed TPM then finished with an arb of IIN/MTU.



McLovin said:


> This feels like MTU trying to get TPG to pay overs, as much as it feels like them wanting to acquire the business.




Agree. Not a bad game strategy.



VSntchr said:


> Having trouble calculating the MTU/IIN deal arb.
> 
> -The ratio is set at 0.803 MTU shares for every IIN share owned.
> -IIN holders will receive a 75c dividend.
> -For calculations assume scheme is 100% successful
> 
> 1) Ignoring dividend, we have ~12% profit (0.899 current ratio) on the table *if you assume* that this deal goes through.
> 
> 2) Adjust for the fact that IIN holders will be receiving a 75c dividend. Which would result in IIN going ex-div and the current ratio approximating 0.83 giving 3.4% profit potential.
> 
> 3) Theoretical price for IIN = 0.803x$10.90 + $0.75 = $9.50, and then using this for the current ratio = 0.872. Which gives profit potential of 8.6%.
> 
> I'm not sure which of the above to apply; why am I having trouble with something so simple?
> 
> Either way, it appears that IIN has risen more than the deal warrants (as it should) due to speculation of a sweetened offer from TPG.




Just work out what IIN is worth at current MTU price, and divide by current MTU price. So IIN is worth 0.803*10.90 + 0.75 = $9.50. If you include franking credits it can add another 30c. So the current premium is simply $9.8 (IIN close) / $9.5 = 3.2% if you ignore. Or no premium if you include franking. 

To place an arb trade, just spread at the 0.803 ratio. The cash component is just that and doesn't change how many shares you buy/sell. The profit potential will come from further bidding. It won't come from the IIN/MTU deal parameters.


----------



## VSntchr

Thanks all. Feel a bit silly at the moment, I knew I was over complicating things and in the process missed all the good trading opps! Might go hide for a few days. 

Wait - I found the best place to go https://www.aussiestockforums.com/forums/showthread.php?t=24553

SKC - you mentioned trading TPG short and long, are you trading based on discretionary price/vol type signals..or are you using your knowledge of the stocks, the situation and your perception of any over/under reactions?


----------



## skc

VSntchr said:


> SKC - you mentioned trading TPG short and long, are you trading based on discretionary price/vol type signals..or are you using your knowledge of the stocks, the situation and your perception of any over/under reactions?




I shorted TPM near its open. TPM jumped a lot when it announced the first offer to buy IIN, which means the market perceived that TPM is getting a great deal. If TPM counters, it will cost more. If TPM doesn't counter, it loses all that growth. So it's a no brainer short.

The long later on was a result of watching the IIN/MTU deal converging quickly. It reads to me that the market may think that deal has a chance and TPM may not trumpt the offer. So the shorts on TPM in the morning need to cover... so I went long.

That was just my interpretation of the price actions. It could be as accurate as the flat earth theory... the theory fits the observations but is completely wrong!


----------



## SilverRanger

skc said:


> I shorted TPM near its open. TPM jumped a lot when it announced the first offer to buy IIN, which means the market perceived that TPM is getting a great deal. If TPM counters, it will cost more. If TPM doesn't counter, it loses all that growth. So it's a no brainer short.
> 
> The long later on was a result of watching the IIN/MTU deal converging quickly. It reads to me that the market may think that deal has a chance and TPM may not trumpt the offer. So the shorts on TPM in the morning need to cover... so I went long.
> 
> That was just my interpretation of the price actions. It could be as accurate as the flat earth theory... the theory fits the observations but is completely wrong!




Just reading through the schemes of arrangement in Australia, TPG actually needs 25% to form a blocking stake (as opposed to just 10% in a takeover bid). That means they can either walkaway or raise the takeover price, but not build a blocking stake just to screw up MTU. That's really a 50/50 to me, so I don't think I'm in for this merger arbitrage


----------



## skc

SilverRanger said:


> Just reading through the schemes of arrangement in Australia, TPG actually needs 25% to form a blocking stake (as opposed to just 10% in a takeover bid). That means they can either walkaway or raise the takeover price, but not build a blocking stake just to screw up MTU. That's really a 50/50 to me, so I don't think I'm in for this merger arbitrage




I have already closed my IIN/MTU pair, with IIN trading some 7.5% premium at one stage today.

I now have a half sized IIN/TPM pair. It's not much of a merger arbitrage... just a punt that the current offer for IIN is not the last. It's been a long while since a good takeover battle. Considering where MTU and TPM trades at, a higher valuation for IIN is still possible.

I think there's also a clause that, upon the IIN Board declaring that the competing offer is superior, TPM can go to market and buy up IIN shares. TPM currently can't buy IIN on market as part of the first deal (which crazily is still the "recommended" deal). However, I don't know if TPM can buy enough on market. They'd need some big insto holder to do them a favour via block trade.......


----------



## Atari rose

Cloesed Honda/Ford trade went quicker than expected and better.

+500.00 on Honda.


----------



## VSntchr

Took a hit on TPG ruining the AMM/VOC trade. Lost ~8% there, so while it sucks and has ruined my month..it's not so bad..and the profits from the other mergers I have been trading are largely covering this. 

TPG doesn't have many customers as fans, now it's lost a few investor fans too!


----------



## skc

VSntchr said:


> Took a hit on TPG ruining the AMM/VOC trade. Lost ~8% there, so while it sucks and has ruined my month..it's not so bad..and the profits from the other mergers I have been trading are largely covering this.
> 
> TPG doesn't have many customers as fans, now it's lost a few investor fans too!




Bad luck Mate. By pure chance I am not on this whilst it happened.

This is a very tricky sector to pairs now so best to just stand aside unless you have some pretty firm insight into the chess game that's playing out.


----------



## VSntchr

skc said:


> Bad luck Mate. By pure chance I am not on this whilst it happened.
> 
> This is a very tricky sector to pairs now so best to just stand aside unless you have some pretty firm insight into the chess game that's playing out.




Yep. Telco is a stand and watch for me at the moment. Closed my SPK/TLS for 2.2% so that helps a bit and also clears me from the sector.


----------



## McLovin

skc said:


> This is a very tricky sector to pairs now




Understatement...

What's TPG playing at? Feels like they're showing MTU just how much bigger and more cashed up they are..."we can sit on a blocking stake in AMM and IIN if we feel like it and you can't" 

This could turn into an old skool takeover battle.


----------



## skyQuake

McLovin said:


> Understatement...
> 
> What's TPG playing at? Feels like they're showing MTU just how much bigger and more cashed up they are..."we can sit on a blocking stake in AMM and IIN if we feel like it and you can't"
> 
> This could turn into an old skool takeover battle.




MTU just woke up with a severed horse's head


----------



## VSntchr

Bit of reversal in the overall market this week has presented quite a few quick trades for me (alot of money left on the table too!!). I am pretty cautious about the next major theme that will emerge over the next few days/weeks so still keeping position sizes in check and ensuring that fundamental correlations are tight (e.g. no matching USD earnings with domestic earnings etc). 

Our favourite merger arb is back in all its glory with over 3.5% on offer again. 
Below I have placed an hourly chart of the profit potential to full reversion. The two boxes show areas where I have been entering and exiting portions, while retaining a 'retainer' for full reversion. The hourly parameter excludes some favourable spikes so being quick can allow for better entries and exits on any given day than the chart suggests, I just couldn't be bothered collating any more data points!


----------



## skc

VSntchr said:


> Our favourite merger arb is back in all its glory with over 3.5% on offer again.
> Below I have placed an hourly chart of the profit potential to full reversion. The two boxes show areas where I have been entering and exiting portions, while retaining a 'retainer' for full reversion. The hourly parameter excludes some favourable spikes so being quick can allow for better entries and exits on any given day than the chart suggests, I just couldn't be bothered collating any more data points!




There's only 1 month to go. The market is acting like it's lost its calculator on this merger ratio... or a last moment counter offer is set to emerge like the AMM/VOC deal.



VSntchr said:


> Bit of reversal in the overall market this week has presented quite a few quick trades for me (alot of money left on the table too!!). I am pretty cautious about the next major theme that will emerge over the next few days/weeks so still keeping position sizes in check and ensuring that fundamental correlations are tight (e.g. no matching USD earnings with domestic earnings etc).




Very wise. Time to be a bit cautious. You don't want to go heavyhand shorting volatility when volatility is rising. Let the correlation blow out a bit more before putting on a trade imo.


----------



## VSntchr

skc said:


> You don't want to go heavyhand shorting volatility when volatility is rising. Let the correlation blow out a bit more before putting on a trade imo.






These bloody Macqaurie conferences are tiring me out. I like to find out more about companies I pair trade, but so many at once is  :bonk:


----------



## skc

VSntchr said:


> These bloody Macqaurie conferences are tiring me out. I like to find out more about companies I pair trade, but so many at once is  :bonk:




Yes... and some companies hide little outlook and update slide in there somewhere so you have to read them.

Traded JBH beautifully on the presentation release marked non-sensitive.


----------



## SilverRanger

skc said:


> Yes... and some companies hide little outlook and update slide in there somewhere so you have to read them.
> 
> Traded JBH beautifully on the presentation release marked non-sensitive.




I had JBH on with DSH as a pair trade as well, not bad for just 1 day of holding time. Today flipped to short it with SUL.

Looking at today's standout, QAN went up 7% following an investor presentation release. Looking at the headlines I can't see anything specific to QAN that won't flow through to VAH. Am I missing something?


----------



## skc

SilverRanger said:


> I had JBH on with DSH as a pair trade as well, not bad for just 1 day of holding time. Today flipped to short it with SUL.
> 
> Looking at today's standout, QAN went up 7% following an investor presentation release. Looking at the headlines I can't see anything specific to QAN that won't flow through to VAH. Am I missing something?




I don't do VAH/QAN pair anymore. VAH is majority owned by 3 other airlines and it's not a company that necessarily act in the best interest of all shareholders. QAN annoucned the possible return to dividend so that gave it a boost. VAH is still a long way off.


----------



## VSntchr

I have been busy scaling out of FDC/NVN all week in the hopes of it diverging again, but not to be. It seems that midnight is approaching and convergence has arrived . As of the close I am completely out. 
I feel after 3 months and 5 successful in/outs that this merger has been milked out. 

Just did the sums and over those 5 trades I managed to reclaim 95% of the loss on the AMM/VOC breakdown.
Speaking of AMM/VOC - I would have reclaimed a large chunk of that loss by holding on and riding the hopes of the t/o getting through scheme arrangement as their is still a slim hope which has slimmed the premium somewhat, but I am trying to hard-wire strict discipline into my trading. Price-sensitive news for a pairs trade = get out, and in this instance, merger altering news = get out. In the short run this might cost me a few % points - but it will certainly save me having to endure sleepless nights and frantic weekends sitting and hoping for things to go my way. 
The longer I trade, the more I am starting to see that there is at least a decent correlation between making decisions which are good for the psyche and overall performance.


----------



## VSntchr

This week started quite slow for me, with somewhat of an empty portfolio. However, it certainly revved up yesterday in the afternoon session and into today. Now I am quite busy 

I actually have a nice spread of sectors open at the moment too, with trades in transport infrastructure, healthcare, retail, REITs, and financials. Diversifying away from being so heavily reliant on the REIT sector has been a goal of mine, so this is pleasing. 

Oh and managed to get in for another trade on FDC/NVN , target getting thinner now but aiming to scrape out 1.9% before this time next week when it goes to vote. Already 40% towards the target so looking good!


----------



## skc

VSntchr said:


> This week started quite slow for me, with somewhat of an empty portfolio. However, it certainly revved up yesterday in the afternoon session and into today. Now I am quite busy
> 
> I actually have a nice spread of sectors open at the moment too, with trades in transport infrastructure, healthcare, retail, REITs, and financials. Diversifying away from being so heavily reliant on the REIT sector has been a goal of mine, so this is pleasing.
> 
> Oh and managed to get in for another trade on FDC/NVN , target getting thinner now but aiming to scrape out 1.9% before this time next week when it goes to vote. Already 40% towards the target so looking good!




Very nice.. I am maxed out on pairs at the moment with a skew towards long $US earners. Today was a step in the right direction.


----------



## VSntchr

skc said:


> Very nice.. I am maxed out on pairs at the moment with a skew towards long $US earners. Today was a step in the right direction.




Also very nice.

Are you referring to a limit for max no. of pairs open, or $ exposure?


----------



## skc

VSntchr said:


> Also very nice.
> 
> Are you referring to a limit for max no. of pairs open, or $ exposure?




Number of pairs... once it gets above 15 you get a smooth equity curve, offset by the fact that you can't optimise every trade anymore.

P.S. Just saw CHC equity raising.  Why can't they do rights issue these days? These REITs are certainly raising as a cohort.


----------



## SilverRanger

skc said:


> Number of pairs... once it gets above 15 you get a smooth equity curve, offset by the fact that you can't optimise every trade anymore.
> 
> P.S. Just saw CHC equity raising.  Why can't they do rights issue these days? These REITs are certainly raising as a cohort.




From what I recall ABP did go through a rights issue, while GPT & DXS is SPP, now CHC has similar timing as DXS, which is not good for me.


----------



## VSntchr

Managed to squeeze in one last FDC/NVN trade today. Nailed 0.65% less brokerage ...essentially it was a game of managing the execution to ensure the risk-free profit.

2.5% for me in the month of May, my best in a little while after a few bad periods. Good to get the equity curve heading north again. I need 3.3% next month to finish the year on a new equity high for this portfolio. I have 7 open trades, so that gives me some fuel to start


----------



## skc

VSntchr said:


> Managed to squeeze in one last FDC/NVN trade today. Nailed 0.65% less brokerage ...essentially it was a game of managing the execution to ensure the risk-free profit.




End of month, MSCI rebalance + end of trading for NVN.

NVN matched way low and, based on FDC's close, should be around $2.50? And this after spending the majority of the month trading at a premium to the offer ratio. Definitely not something you see a lot of.

And just to end all this silliness...NVN made an announcement at 3:59pm so that no one could trade it on the closing match. I would have bought a few $B worth for a free 2.4%.


----------



## VSntchr

skc said:


> End of month, MSCI rebalance + end of trading for NVN.
> 
> NVN matched way low and, based on FDC's close, should be around $2.50? And this after spending the majority of the month trading at a premium to the offer ratio. Definitely not something you see a lot of.
> 
> And just to end all this silliness...NVN made an announcement at 3:59pm so that no one could trade it on the closing match. I would have bought a few $B worth for a free 2.4%.




I couldn't understand it either. My thinking was either MSCI related or some big holders who don't want to wait until the 11th June?

So I can get my head around this exactly, what occurs if your holding the pair into the deal? Your longs of NVN convert at a ratio of 0.8225 into FDCDA (or similar code), which net off against your shorts in FDC? And then any residual shares represent your profit - which you must close off immediately after conversion to eliminate market risk? 
If this understanding is correct, then perhaps I should have held - it would have saved me brokerage on the closing! thats 0.16% on a big size :


----------



## skyQuake

skc said:


> End of month, MSCI rebalance + end of trading for NVN.
> 
> NVN matched way low and, based on FDC's close, should be around $2.50? And this after spending the majority of the month trading at a premium to the offer ratio. Definitely not something you see a lot of.
> 
> And just to end all this silliness...NVN made an announcement at 3:59pm so that no one could trade it on the closing match. I would have bought a few $B worth for a free 2.4%.




It did match at 4:12pm... lol

At first I thought it was PIR all over again!

Arbs can't play the close because there's too much risk. Its too easy to miss 1 leg of a trade and if ppl pull an order you can suddenly be set at a very bad price.


----------



## skc

skyQuake said:


> It did match at 4:12pm... lol
> 
> At first I thought it was PIR all over again!
> 
> Arbs can't play the close because there's too much risk. Its too easy to miss 1 leg of a trade and if ppl pull an order you can suddenly be set at a very bad price.




Yes I saw that... I thought trading at the ASX is run by computers 

Yes you can't really arb $1B at the close... but a smaller retail position would have done well.



VSntchr said:


> So I can get my head around this exactly, what occurs if your holding the pair into the deal? Your longs of NVN convert at a ratio of 0.8225 into FDCDA (or similar code), which net off against your shorts in FDC? And then any residual shares represent your profit - which you must close off immediately after conversion to eliminate market risk?
> 
> If this understanding is correct, then perhaps I should have held - it would have saved me brokerage on the closing! thats 0.16% on a big size :




There shouldn't be any excess shares... say you long 10,000 NVN @ $2.44 and you should have shorted 8,225 FDC @ $3.04 on the close. You paid $24,400 for your long, and you received $25,004 for your short. You gained a net cash flow of $600 by entering the transaction.

When the scheme is implemeted, you receive 8,225 FDC for your NVN shares which nets off your FDC shorts. There are no further cashflows... so you pocket the $600.


----------



## SilverRanger

Taking another punt at AMM/VOC today after reading about AMM's substantial holder statements from BTT and WBC. Some they think the deal will go through, maybe it will


----------



## skc

Guess who was holding some QUB long overnight when the market depth showed this after a trading update this morning!!




No Bid!  I don't think I've ever seen that in an ASX200 company. I read the announcement in the morning and thought it'd be a 3-5% hit...I never expected no bid!

Anyhow... managed to trade my way out of it. Still lost plenty of money, and missed heaps of opportunity to actually go long on that panic. It actually went all the way back to being just 2% down. 

Still ended up being positive overall for the day... but this was a bit crazy.

P.S. Overall market is pulling back quite sharply so should be plenty of divergences.


----------



## VSntchr

skc said:


> Guess who was holding some QUB long overnight when the market depth showed this after a trading update this morning!!
> 
> View attachment 62869
> 
> 
> No Bid!  I don't think I've ever seen that in an ASX200 company. I read the announcement in the morning and thought it'd be a 3-5% hit...I never expected no bid!
> 
> Anyhow... managed to trade my way out of it. Still lost plenty of money, and missed heaps of opportunity to actually go long on that panic. It actually went all the way back to being just 2% down.
> 
> Still ended up being positive overall for the day... but this was a bit crazy.
> 
> P.S. Overall market is pulling back quite sharply so should be plenty of divergences.




Duuuuuuuuude!
I've been working hard on my directional stuff so I was super busy this morning looking at QUB, MTS and AGI. 

Had a plan to short QUB if it opened >260 given that I previously tried to short it based on this information and it barely moved, but thought it was worth another go given the official catalyst for flat FY16 was here. Did not expect it to drop that far!!! Put in a bid but missed it and to be honest I freaked a little by how wild it was and just didn't act...big missed opportunity. I did manage to get some short at 265 which was nice for a calmer ride back down...

How did you actually manage to trade your way out of it? 
Impressive effort to end the day in the black - I had a shocker today. The only saving grace was FDC/SCG which gave a nice intra-day pairs trade. 
Financial sector is smoking me this week...AMP/IFL and CGF/CPU both way out.


----------



## skc

VSntchr said:


> Had a plan to short QUB if it opened >260 given that I previously tried to short it based on this information and it barely moved, but thought it was worth another go given the official catalyst for flat FY16 was here. Did not expect it to drop that far!!! Put in a bid but missed it and to be honest I freaked a little by how wild it was and just didn't act...big missed opportunity. I did manage to get some short at 265 which was nice for a calmer ride back down...
> 
> How did you actually manage to trade your way out of it?




Yeah... would have been a great trade. It's funny how, holding a position makes you think differently if you were just a bystander. I tried so hard to tell myself not to panic, it will bounce... and I just flick out 5% of my holding every time it runs up another 4-5 ticks. Ended up average exit of $2.48 which is still 10c lower than the VWAP. But at least I didn't sell at $2.16. I did spend most of the first hour in the morning constantly swearing at the market.



VSntchr said:


> Impressive effort to end the day in the black - I had a shocker today. The only saving grace was FDC/SCG which gave a nice intra-day pairs trade.
> Financial sector is smoking me this week...AMP/IFL and CGF/CPU both way out.




Thankfully, the QUB/AIO pair was only opened yesterday and I have only readed about 40% of the full size. I had 20 pairs going into today so I made it up with gains in pairs like DUE/APA, SHL/CSL (sold the early SHL spike) and HVN/PMV. 

I had CGF/IFL earlier in the week but closed it for a small loss yesterday. I thought CGF is giving an investor update today, but in fact I think it might be Monday according to UBS. I have AMP/PTM which is down a bit at the moment. But this is a re-entry of the same trade I closed profitably yesterday.

I am holding some SKE/PRG in hope of a takeover deal being announced. The old merger ratio was 0.5092PRG + 25c cash per SKE, valuing SKE @ $1.72 per share thanks to a strong PRG run post report. The renewed talk is supposed to be on improved terms but nothing is guaranteed yet. So only a smallish position.


----------



## VSntchr

skc said:


> Yeah... would have been a great trade. It's funny how, holding a position makes you think differently if you were just a bystander. I tried so hard to tell myself not to panic, it will bounce... and I just flick out 5% of my holding every time it runs up another 4-5 ticks. Ended up average exit of $2.48 which is still 10c lower than the VWAP. But at least I didn't sell at $2.16. I did spend most of the first hour in the morning constantly swearing at the market.



I think you did pretty good  
One more question: did you wait for AIO to catch on a bit - or were you firing off 5% at the same times? Personally I think I'd be holding the AIO position and waiting for a bit of intra-day catchup - although once QUB started flying back up that may have been a bit too risky.



> Thankfully, the QUB/AIO pair was only opened yesterday and I have only readed about 40% of the full size. I had 20 pairs going into today so I made it up with gains in pairs like DUE/APA, SHL/CSL (sold the early SHL spike) and HVN/PMV.



SHL was the one to take today for sure, I had it with PRY but PRY moved up 4 ticks quickly while I had a half fill - so I scratched the trade. Disapointing as it reverted intra-day..I did still get 1% although only on half size SHL and quarter size PRY...!



> I had CGF/IFL earlier in the week but closed it for a small loss yesterday. I thought CGF is giving an investor update today, but in fact I think it might be Monday according to UBS. I have AMP/PTM which is down a bit at the moment. But this is a re-entry of the same trade I closed profitably yesterday.



Yes, I did think CGF was doing the update yesterday and got prepared to close it, then I saw UBS said Monday so I allowed myself a few more days to close...hopefully tomorrow gives reversion. 
AMP backtests well with both PTM and IFL so I still have confidence for the both of us. 



> I am holding some SKE/PRG in hope of a takeover deal being announced. The old merger ratio was 0.5092PRG + 25c cash per SKE, valuing SKE @ $1.72 per share thanks to a strong PRG run post report. The renewed talk is supposed to be on improved terms but nothing is guaranteed yet. So only a smallish position.



I bought SKE in the investment portfolio at $1.30 a few weeks back so was luckily enough to have a bit of a read on the situation given my research. Added to the position with an equal sized trade when it opened the first morning below $1.38 which is what the deal was worth at the time when PRG previously tried. Ended up closing a bit early at $1.47 after a bit of a rush of blood due to reading PRG's report which showed that the divisions that SKE is exposed to performed horribly. I started to think that perhaps the negotiating power is heading further in the direction of PRG. Maybe we need craft for an insight here 
I haven't considered pairing the two. Although may put a position on depending how coming events play out. 


As an aside, have spent a few hours tonight reviewing this weeks trading and getting ready for tomorrow. Lots of opportunities at present - really want to make sure I convert a few more.


----------



## skc

VSntchr said:


> I think you did pretty good
> One more question: did you wait for AIO to catch on a bit - or were you firing off 5% at the same times? Personally I think I'd be holding the AIO position and waiting for a bit of intra-day catchup - although once QUB started flying back up that may have been a bit too risky.




No. I closed AIO in 2 clicks. I thought it'd rub off a bit from QUB's comment so a caught the 1% move down. But it didn't have much of my attention. One of the most precious and limited resource in trading is your eyeball/gaze/attention. QUB was the one to watch. It had a 20% range. AIO had 1.5%. Make sure you spend your limitied resource on something that's the best bang for buck. You can't always get it right but in this case it was a no brainer which one you should focus on. 

This morning, MTS had big news today so deserved close watching... but it ended up with a pretty small range and was hard to trade. While something like GUD would have been much more fruitful.



VSntchr said:


> Yes, I did think CGF was doing the update yesterday and got prepared to close it, then I saw UBS said Monday so I allowed myself a few more days to close...hopefully tomorrow gives reversion. AMP backtests well with both PTM and IFL so I still have confidence for the both of us.




Yes... although I feel that IFL still has a bit of aura from a good quarterly update, while PTM still has the stench from a very poor half year report. 

I have so rarely made a profitable trade with CGF. I just don't feel that I have good grasp of its drivers. It's always half size when I trade it.



VSntchr said:


> I bought SKE in the investment portfolio at $1.30 a few weeks back so was luckily enough to have a bit of a read on the situation given my research. Added to the position with an equal sized trade when it opened the first morning below $1.38 which is what the deal was worth at the time when PRG previously tried. Ended up closing a bit early at $1.47 after a bit of a rush of blood due to reading PRG's report which showed that the divisions that SKE is exposed to performed horribly. I started to think that perhaps the negotiating power is heading further in the direction of PRG. Maybe we need craft for an insight here
> I haven't considered pairing the two. Although may put a position on depending how coming events play out.




Yes it's a bit of a gamble. Don't size it like a merger arb. Size it like it's a small cap explorer.


----------



## VSntchr

skc said:


> This morning, MTS had big news today so deserved close watching... but it ended up with a pretty small range and was hard to trade. While something like GUD would have been much more fruitful.



Yeah, I had no moves on MTS. I have been watching GUD ever since the t/o. However didn't see it yesterday until after close - as you say, eyeballs can only see so much. I do have it on my list for today though. Some interesting levels at 900 and 920 which might offer a good trade. 




> I have so rarely made a profitable trade with CGF. I just don't feel that I have good grasp of its drivers. It's always half size when I trade it.



We all have our tricky stocks. For me in the fin sector it seems to be ASX.


----------



## VSntchr

Anyone heard anything around FDC or SCP today? Both outperforming. CQR hasn't followed so not sure if it's retail related or not?!


----------



## SilverRanger

VSntchr said:


> Anyone heard anything around FDC or SCP today? Both outperforming. CQR hasn't followed so not sure if it's retail related or not?!




Nope haven't heard anything either, but I doubt anything would have happened (especially FDC), so I put on shorts on SCP and closed my FDC.

Other than that didn't get much time for new trades, only put on NHF/HSO, and watched SIP coming back from 0.77 all the way back to 0.82!


----------



## skc

skc said:


> Guess who was holding some QUB long overnight




Guess who was holding some NEC long overnight?!?!

The good news is, the market depth stayed very tradable despite the sell off, and I think I really gained some good experience on the QUB situation last week. Again, it was only a smaller position (I could exit it in one click without destroying the bids).

Plus the fact that I had a short against SWM which got hammered as well (the natural hedge works!!!), plus that it was a no brainer to double up on the SWM short on open, plus there made some nice short and long trades in NEC ...I actually came out well ahead overall in these two names for the day 

2 profit downgrades in 3 days.... haven't had that before!

P.S. Also caught a full size TAH short overnight. Bonus.


----------



## VSntchr

skc said:


> Guess who was holding some NEC long overnight?!?!
> 
> The good news is, the market depth stayed very tradable despite the sell off, and I think I really gained some good experience on the QUB situation last week. Again, it was only a smaller position (I could exit it in one click without destroying the bids).
> 
> Plus the fact that I had a short against SWM which got hammered as well (the natural hedge works!!!), plus that it was a no brainer to double up on the SWM short on open, plus there made some nice short and long trades in NEC ...I actually came out well ahead overall in these two names for the day
> 
> 2 profit downgrades in 3 days.... haven't had that before!
> 
> P.S. Also caught a full size TAH short overnight. Bonus.




Yikes, you've copped a few lately - good to see your seeing the positive side of it and coming out of it even better.
By the sounds of it your on track for a VERY nice month - and you've held through 2 nasty downgrades...that's some serious alpha poking it's head out I think.

As for the no-brainer SWM on open. I am furious on that one. Iress was down so couldn't take it on my #1 broker - opened my secondary broker to take the trade and they didn't offer borrow...nothing worse than watching trades you had planned to hit hard work...without you..! By the time I came back online around 11am I as a bit flustered to go taking directional plays so I focused on the pairs portfolio. I opened quite a few and now have 13 open (new record for me). 
I did take a tiny position on the SWM reaffirmation announcement, but closed for a small loss when it appeared that the words meant nothing!


----------



## skc

VSntchr said:


> Yikes, you've copped a few lately - good to see your seeing the positive side of it and coming out of it even better.
> By the sounds of it your on track for a VERY nice month - and you've held through 2 nasty downgrades...that's some serious alpha poking it's head out I think.
> 
> As for the no-brainer SWM on open. I am furious on that one. Iress was down so couldn't take it on my #1 broker - opened my secondary broker to take the trade and they didn't offer borrow...nothing worse than watching trades you had planned to hit hard work...without you..! By the time I came back online around 11am I as a bit flustered to go taking directional plays so I focused on the pairs portfolio. I opened quite a few and now have 13 open (new record for me).
> I did take a tiny position on the SWM reaffirmation announcement, but closed for a small loss when it appeared that the words meant nothing!




Yes... the Iress problem was a terrible thing esp when I know there was potential carnage with one of my positions.

I was still short a small SWM when the annoucnement came out. So I covered shortly after but should have held till the close. But by then I feel I have already used up my luck for the day on these stocks.

As to a very nice month... early days yet. This month is moving at a good pace but things can easily go backwards and turn a great start into an average month. I have learned not to extrapolate...


----------



## skyQuake

skc said:


> Yes... the Iress problem was a terrible thing esp when I know there was potential carnage with one of my positions.
> 
> I was still short a small SWM when the annoucnement came out. So I covered shortly after but should have held till the close. But by then I feel I have already used up my luck for the day on these stocks.
> 
> As to a very nice month... early days yet. This month is moving at a good pace but things can easily go backwards and turn a great start into an average month. I have learned not to extrapolate...




More iress issues for me today


----------



## skc

skyQuake said:


> More iress issues for me today




No problems here... using desktop version.


----------



## skyQuake

skc said:


> No problems here... using desktop version though.




Desktop too, getting random intervals of unresponsiveness. Thought it was related to the outage yest, IRESS is looking into it...


----------



## SilverRanger

skyQuake said:


> Desktop too, getting random intervals of unresponsiveness. Thought it was related to the outage yest, IRESS is looking into it...




Got the same issue here, but seems working as of now


----------



## VSntchr

Announcement for SCP this morning that they are conducting a "material" capital raising for 3 neighbourhood shopping centres. Looks like the trend of capital raising continues..

I'm short a full position, would like to think a material raising will be conducted at somewhat of a discount and create a price drag...but when it's for transformational purposes sometimes the price can run. We'l have to see tomorrow.


----------



## VSntchr

VSntchr said:


> Announcement for SCP this morning that they are conducting a "material" capital raising for 3 neighbourhood shopping centres. Looks like the trend of capital raising continues..
> 
> I'm short a full position, would like to think a material raising will be conducted at somewhat of a discount and create a price drag...but when it's for transformational purposes sometimes the price can run. We'l have to see tomorrow.




EDIT - more news out, just a couple of centres in Tasmania and $50m being raised  Certainly not as "material" as I expected.
Slight earnings upgrade may somewhat offset any pull towards the $2.02 issue price.


----------



## SilverRanger

VSntchr said:


> EDIT - more news out, just a couple of centres in Tasmania and $50m being raised  Certainly not as "material" as I expected.
> Slight earnings upgrade may somewhat offset any pull towards the $2.02 issue price.




They are certainly more active in taking advantage of their share price strength, this is their second raising this year (and a bit too generous to give a 5% discount without the retail investors). I had a double shot of short on it but closed half yesterday, oh well...

P.S Almost had a heart attack after seeing MND going on a trading halt, lucky it wasn't a takeover


----------



## skc

SilverRanger said:


> P.S Almost had a heart attack after seeing MND going on a trading halt, lucky it wasn't a takeover




You short I guess? Nice.



VSntchr said:


> EDIT - more news out, just a couple of centres in Tasmania and $50m being raised  Certainly not as "material" as I expected.
> Slight earnings upgrade may somewhat offset any pull towards the $2.02 issue price.




I think the FTSE index inclusion (mentioned in the piece) probably explained most of the buying. Stocks tend to outperform prior to inclusion then underperform shortly after the actual inclusion date.


----------



## SilverRanger

skc said:


> You short I guess? Nice.




Yes I'm on MRM/MND atm, but as usual a modest half size position. The timing of the trading halt was kind of nice, as it just missed out the rally today.

There's not much info so far, but if I have to guess then my money is on its contract with JKC’s Ichthys project, which is apparently 30% complete. Not long ago UGL had some delays and cost blowout issues there and MND is in it as well.


----------



## VSntchr

SilverRanger said:


> Taking another punt at AMM/VOC today after reading about AMM's substantial holder statements from BTT and WBC. Some they think the deal will go through, maybe it will






Happy day for you my friend!


----------



## SilverRanger

VSntchr said:


> Happy day for you my friend!




Added another dose at market open today, still 2.5% to be milked at the time


----------



## VSntchr

SilverRanger said:


> Added another dose at market open today, still 2.5% to be milked at the time




I re-initiated on that basis today too.


----------



## skc

SilverRanger said:


> Added another dose at market open today, still 2.5% to be milked at the time




I have no borrow!!


----------



## VSntchr

skc said:


> I have no borrow!!




Likewise for me now too, I went to double the position after starting it on the open and couldn't


----------



## VSntchr

One clear disadvantage of using CFD's for pairs trading is the limited ability to participate in corporate actions.

For example, the BTT capital raise at the moment. Without the ability to participate in the discounted offer price I lose the opportunity to arb back some of the loss that will occur on the pair. While some raisings are fine with CFD's, others are not possible to be a part of. Frustrating, but that's the opportunity cost of the leverage I guess!


----------



## skc

VSntchr said:


> One clear disadvantage of using CFD's for pairs trading is the limited ability to participate in corporate actions.
> 
> For example, the BTT capital raise at the moment. Without the ability to participate in the discounted offer price I lose the opportunity to arb back some of the loss that will occur on the pair. While some raisings are fine with CFD's, others are not possible to be a part of. Frustrating, but that's the opportunity cost of the leverage I guess!




BTT is not raising capital. It's just a sell down by WBC. No new capital raised, no one is diluted, there's no TERP or anything like that. It's just free cheap shares that you miss out on, but I doubt you'd take too much of a hit on the pair.

It'd be a strong trading buy if it opens anywhere near the discount price.


----------



## VSntchr

skc said:


> BTT is not raising capital. It's just a sell down by WBC. No new capital raised, no one is diluted, there's no TERP or anything like that. It's just free cheap shares that you miss out on, but I doubt you'd take too much of a hit on the pair.
> 
> It'd be a strong trading buy if it opens anywhere near the discount price.




Yes. Poor choice of terminology from me, but the 'missing out' factor remains 
Ended up cutting the pair and copped a 4.7% loss as it was already slightly in the red before today.

I don't want to hang around in hopes of BTT regaining the lost ground after seeing what has happened with CTX after the Chevron sell-down. Obviously alot of different factors at play, but happy to sit out and see how it unfolds.


----------



## SilverRanger

VSntchr said:


> Yes. Poor choice of terminology from me, but the 'missing out' factor remains
> Ended up cutting the pair and copped a 4.7% loss as it was already slightly in the red before today.
> 
> I don't want to hang around in hopes of BTT regaining the lost ground after seeing what has happened with CTX after the Chevron sell-down. Obviously alot of different factors at play, but happy to sit out and see how it unfolds.




Took a long in BTT @ 8.35, as I think the market reacted irrationally to this sell down, which should be a good news (and more free floats to trade!)

And apparently WBC shareholders can get a slice of the cake as well, bonus


----------



## skc

VSntchr said:


> Yes. Poor choice of terminology from me, but the 'missing out' factor remains
> Ended up cutting the pair and copped a 4.7% loss as it was already slightly in the red before today.
> 
> I don't want to hang around in hopes of BTT regaining the lost ground after seeing what has happened with CTX after the Chevron sell-down. Obviously alot of different factors at play, but happy to sit out and see how it unfolds.




Fair enough. CTX has been way weak since (although a good bounce today).

All the other WM's are pretty weak yesterday and today. PPT and MFG down 4% mid day. So hopefully your short leg is doing well.


----------



## skyQuake

skc said:


> Fair enough. CTX has been way weak since (although a good bounce today).
> 
> All the other WM's are pretty weak yesterday and today. PPT and MFG down 4% mid day. So hopefully your short leg is doing well.




But Chevon's selldown left buyers underwater/flat for nearly a month.

Whereas BTT is positive from the get go. Couple of algo held the bids and absorbed all weak hands. So I think this ones a slightly different situation.

Disc: hold BTT


----------



## VSntchr

skyQuake said:


> But Chevon's selldown left buyers underwater/flat for nearly a month.
> 
> Whereas BTT is positive from the get go. Couple of algo held the bids and absorbed all weak hands. So I think this ones a slightly different situation.
> 
> Disc: hold BTT




Good point skyQ. Guess I exited a bit hastily here. Hard to know when to be strict with the "exit on news" rule, and when to relax it. The CTX experience clouded my judgement here and I didn't recognise the differences in how participants were feeling in their positions. Guess I was the weak hand today 

All good, not a massive loss for me - but it does dampen my chances of finishing FY15 with the pairs in equity high.
Need approx 3.3% for the month and currently sitting on 0.7% (open + closed). I have PMV/HVN which is taking a bit of a hammering (HVN seems to be not a good stock for me / is probably a bit too housing related to be paired with PMV), but other than that the open portfolio is quite young so I still have a good chance!


----------



## skc

VSntchr said:


> Good point skyQ. Guess I exited a bit hastily here. Hard to know when to be strict with the "exit on news" rule, and when to relax it. The CTX experience clouded my judgement here and I didn't recognise the differences in how participants were feeling in their positions. Guess I was the weak hand today
> 
> All good, not a massive loss for me - but it does dampen my chances of finishing FY15 with the pairs in equity high.
> Need approx 3.3% for the month and currently sitting on 0.7% (open + closed). I have PMV/HVN which is taking a bit of a hammering (HVN seems to be not a good stock for me / is probably a bit too housing related to be paired with PMV), but other than that the open portfolio is quite young so I still have a good chance!




You should contact your CFD guys to see if you can participate in the BTT sell down 



skyQuake said:


> But Chevon's selldown left buyers underwater/flat for nearly a month.
> 
> Whereas BTT is positive from the get go. Couple of algo held the bids and absorbed all weak hands. So I think this ones a slightly different situation.
> 
> Disc: hold BTT




Traded long today but barely made anything. The market was hammered and hammered some more. Very hard to hold the long in the face of the that. I was a pretty weak hand too!


----------



## VSntchr

skc said:


> You should contact your CFD guys to see if you can participate in the BTT sell down



I did, no bueno!



skc said:


> Traded long today but barely made anything. The market was hammered and hammered some more. Very hard to hold the long in the face of the that. I was a pretty weak hand too!



The market did tank, and tank all day...I picked WOW as a bit of a second day play to try and find some downward momentum...pretty bad choice! I should have removed the short bias and acknowledged the support at $26.30 then maybe I could have made some money long.


----------



## skc

Crazy period for pairs this month.

After getting hit on 2 profit downgrades (QUB and NEC), I scored a trifecta today.

Had a 3/4 size short on SEK
SKE/PRG going into trading halt
and a nice ANN downgrade selloff

Of course, I took profits too early as usual... but still nice to have the chips fall your way for a change.



VSntchr said:


> Financial sector is smoking me this week...AMP/IFL




You still in this?


----------



## SilverRanger

skc said:


> Crazy period for pairs this month.
> 
> After getting hit on 2 profit downgrades (QUB and NEC), I scored a trifecta today.
> 
> Had a 3/4 size short on SEK
> SKE/PRG going into trading halt
> and a nice ANN downgrade selloff
> 
> Of course, I took profits too early as usual... but still nice to have the chips fall your way for a change.
> 
> 
> 
> You still in this?




Glad to hear, I only managed a double, happen to short full size SEK and IFL. Looks like IFL is in trading halt now, will it drop further? I don't know, I'm out


----------



## VSntchr

skc said:


> Crazy period for pairs this month.
> 
> After getting hit on 2 profit downgrades (QUB and NEC), I scored a trifecta today.
> 
> Had a 3/4 size short on SEK
> SKE/PRG going into trading halt
> and a nice ANN downgrade selloff
> 
> Of course, I took profits too early as usual... but still nice to have the chips fall your way for a change.



NICE! I am short SEK from open, will see how we go there.

Good to see the mean reversion of events working against you is occurring. I bet you didn't expect it to level up so quickly!



skc said:


> You still in this?



Nope   Got out for a small loss at time stop a while ago. Tried to trade IFL directionally today, but didn't pull the trigger..then it ran off down without me so left it alone.


----------



## skc

SilverRanger said:


> Glad to hear, I only managed a double, happen to short full size SEK and IFL. Looks like IFL is in trading halt now, will it drop further? I don't know, I'm out




Nice. I almost had a IFL long with my pairs so sort of dodged one here.

I am long IFL now... entry not to different to current price. 

I read the long expose' last night and thought they'd be hit 3-5%. They lost some $600m in market cap, but knowing ASIC they'd probably be fined $2m at the end of a 3 year investigation. A 20% fall seems like an overkill.

It's only a directional trade however... will stop reasonably tight. 

One thing I am unsure of, however, is whether the reputational damage affect some of their funds in terms of insto flows.


----------



## VSntchr

SilverRanger said:


> Glad to hear, I only managed a double, happen to short full size SEK and IFL. Looks like IFL is in trading halt now, will it drop further? I don't know, I'm out




Good work mate! Full size on those two would be a nice month - even put you in place for a nice quarter!


----------



## SilverRanger

skc said:


> Nice. I am long IFL now... entry not to different to current price.
> 
> I read the long expose' last night and thought they'd be hit 3-5%. They lost some $600m in market cap, but knowing ASIC they'd probably be fined $2m at the end of a 3 year investigation. A 20% fall seems like an overkill.
> 
> It's only a directional trade however... will stop reasonably tight.
> 
> One thing I am unsure of, however, is whether the reputational damage affect some of their funds in terms of insto flows.
> 
> I almost had a IFL long with my pairs so sort of dodged one here.




Yes I agree it's overdone, but I wasn't willing to catching a falling knife and there was nothing from IFL at the time. In hindsight should have gone long on the back of the announcement.


----------



## skc

skc said:


> Nice. I almost had a IFL long with my pairs so sort of dodged one here.
> 
> I am long IFL now... entry not to different to current price.
> 
> I read the long expose' last night and thought they'd be hit 3-5%. They lost some $600m in market cap, but knowing ASIC they'd probably be fined $2m at the end of a 3 year investigation. A 20% fall seems like an overkill.
> 
> It's only a directional trade however... will stop reasonably tight.
> 
> One thing I am unsure of, however, is whether the reputational damage affect some of their funds in terms of insto flows.




Pretty much all out now. What a range for the day! Didn't do nearly as well considering the range on offer.


----------



## VSntchr

skc said:


> Pretty much all out now. What a range for the day! Didn't do nearly as well considering the range on offer.




Another day, another wild range. FLT this time! Managed to trade it both ways for a profit ...although not smiling too much as I hold this one in the SMSF 

Back on pairs, VOC is to pay a special div to those on the register on the 29th June - so would I be correct in saying that you had to exit today to avoid paying this on shorts? 
This one has been very tricky to trade without much chance to jump in and out - alot harder than FDC/NVN was. Both can go very thin, especially AMM, and because A and V open at different times trading the open is not safe. Looks like holding through to implementation will be the easy way out here!

Some big and quick moves around this week, this has allowed me to exit a few pairs for nice targets...but accruing a few stagnant trades at the moment. 
I have noticed I have been leaving a little too much on the table at the moment too - although this comes part and parcel with a more volatile environment, I think I do need to give trades going my way a little extra time. I will monitor the win-rate and ratio of avg win to avg MFE to see how this works.


----------



## SilverRanger

VSntchr said:


> Back on pairs, VOC is to pay a special div to those on the register on the 29th June - so would I be correct in saying that you had to exit today to avoid paying this on shorts?
> This one has been very tricky to trade without much chance to jump in and out - alot harder than FDC/NVN was. Both can go very thin, especially AMM, and because A and V open at different times trading the open is not safe. Looks like holding through to implementation will be the easy way out here!




Good pick up there, I literally forgot about it. But if the record date is 29th June then the ex-div date should be 25th, so hopefully I can still get out if I choose to. But then the pair hasn't fully converge yet (there's still 2.2% of fat out there!), so taking a 0.9% dividend for the full convergence isn't too bad after all. 

And yes this pair is definitely much harder to trade than FDC/NVN, let's hope SKE/PRG will be easier


----------



## VSntchr

SilverRanger said:


> let's hope SKE/PRG will be easier




Yes, looking forward to seeing the terms on that one.
You trading the IIN/TPM play?


----------



## skc

VSntchr said:


> Yes, looking forward to seeing the terms on that one.
> You trading the IIN/TPM play?




I have a small position on this... probably some lingering issue from ACCC, but it doesn't apepar to be a show stopper.



VSntchr said:


> Another day, another wild range. FLT this time! Managed to trade it both ways for a profit ...although not smiling too much as I hold this one in the SMSF




Nice work. I like how it basically ran $4 down so smoothly. I didn't trade the up leg however.


----------



## SilverRanger

skc said:


> I have a small position on this... probably some lingering issue from ACCC, but it doesn't apepar to be a show stopper.
> 
> 
> 
> Nice work. I like how it basically ran $4 down so smoothly. I didn't trade the up leg however.




IIN/TPM or TPM/IIN? (long leg first) 

IIN is trading at a premium to both $9.55 and the script offer as far as I know.


----------



## skc

SilverRanger said:


> IIN/TPM or TPM/IIN? (long leg first)
> 
> IIN is trading at a premium to both $9.55 and the script offer as far as I know.




IIN/TPM. The script deal is 0.969 TPM per IIN, plus 75c dividend. So that's $9.82 per IIN at last TPM close of $9.36.
There's also ~26c franking credits. 

So IIN about 1.4% under the offer without considering the franking credit.

Or am I delusional? (Entirely possible as I have averaged 5 hr broken sleep in the last 2 weeks)


----------



## SilverRanger

skc said:


> IIN/TPM. The script deal is 0.969 TPM per IIN, plus 75c dividend. So that's $9.82 per IIN at last TPM close of $9.36.
> There's also ~26c franking credits.
> 
> So IIN about 1.4% under the offer without considering the franking credit.
> 
> Or am I delusional? (Entirely possible as I have averaged 5 hr broken sleep in the last 2 weeks)




Nope I missed the dividend part, thought it only applies to the cash offer. Hope that didn't break your sleep more =)
But looking at where TPM is trading at, it might be safer to use 0.178 share + $7.18 for the implied price


----------



## VSntchr

0.55 PRG shares and 25c cash (reduced by any SKE divs). More generous than I was expecting.
This should certainly be accepted by SKE holders. 

Nice trade available on the open...PRG hasn't fallen at all, actually it has risen. Given the non-certainty of the deal and the time premium SKE is trading at probably a fair level at 1.71. 
If the deal falls over it would be SKE falling too 110-130 level, so some sizeable downside here to keep in mind.


----------



## skc

VSntchr said:


> 0.55 PRG shares and 25c cash (reduced by any SKE divs). More generous than I was expecting.
> This should certainly be accepted by SKE holders.
> 
> Nice trade available on the open...PRG hasn't fallen at all, actually it has risen. Given the non-certainty of the deal and the time premium SKE is trading at probably a fair level at 1.71.
> If the deal falls over it would be SKE falling too 110-130 level, so some sizeable downside here to keep in mind.




It's a done deal. It has SKE board apporval already. The only thing that can derail it is if SKE comes out with a big profit downgrade (entirely possible). 

With expected completion around mid Oct (<4 months away)... a <2% gap should be about right. The franking is worth another 10c as well.


----------



## VSntchr

skc said:


> It's a done deal. It has SKE board apporval already. The only thing that can derail it is if SKE comes out with a big profit downgrade (entirely possible).
> 
> With expected completion around mid Oct (<4 months away)... a <2% gap should be about right. The franking is worth another 10c as well.




Am I correct in thinking the franking will depend on the level of actual dividends that are declared to replace the 25c cash component?
Also PRG ex-div next Wed for 11.5c + franking.


----------



## SilverRanger

Looks like some arb opportunity for AMM/VOC still at market close!


----------



## VSntchr

SilverRanger said:


> Looks like some arb opportunity for AMM/VOC still at market close!




Yeah, I tried to get out around lunch time but it was too hard. By the time my AMM leg was about to get filled VOC would move...ended up just holding on. Will cost a bit more in financing, but save on the brokerage.


----------



## skyQuake

Closed at around 3.4%

Interesting for a 'free money' till Oct trade.

1.711
=2.82*0.55+0.25-(0.115*0.55*1.42)

(Div paid @ 142% thanks to franking)

PRG borrow is still pretty darn cheap


----------



## SilverRanger

skyQuake said:


> Closed at around 3.4%
> 
> Interesting for a 'free money' till Oct trade.
> 
> 1.711
> =2.82*0.55+0.25-(0.115*0.55*1.42)
> 
> (Div paid @ 142% thanks to franking)
> 
> PRG borrow is still pretty darn cheap




I would strip out the franking credit part unless you get charged for the short, most brokers don't.

My broker's margin on the pair isn't that great unfortunately =(


----------



## SilverRanger

VSntchr said:


> Yeah, I tried to get out around lunch time but it was too hard. By the time my AMM leg was about to get filled VOC would move...ended up just holding on. Will cost a bit more in financing, but save on the brokerage.




The position should settle tomorrow (assuming you went with CFDs), that's what I would expect anyway. Roughly 2% net return for holding overnight and risk-free, can it be any easier?


----------



## VSntchr

SilverRanger said:


> The position should settle tomorrow (assuming you went with CFDs), that's what I would expect anyway.



 Tomorrow would be nice, but I think that tomorrow we just get VOCDA shares...then we will have VOCDA longs and VOC shorts until the 8th July - then implementation occurs and they offset each other. So a bit of sitting around to do. Happy to be wrong though!



SilverRanger said:


> Roughly 2% net return for holding overnight and risk-free, can it be any easier?



 Would have been nice to triple the size this afternoon, pitty my broker didn't have any borrow left...(not too mention the tricky depth).

Also, I had to go to IG to get some borrow on PRG...


----------



## skc

skyQuake said:


> Closed at around 3.4%
> 
> Interesting for a 'free money' till Oct trade.
> 
> 1.711
> =2.82*0.55+0.25-(0.115*0.55*1.42)
> 
> (Div paid @ 142% thanks to franking)
> 
> PRG borrow is still pretty darn cheap




I think this is the first day of the pair so perhaps the sellers in SKE simply overwhelmed the arb'ers. It should move back soon enough. 

Having said that, the last few merger arbs have really been strange. AMM/VOC, TAN/WBA and NVN/FDC all ended with meaningful premium, and traded pretty far apart during the process.

Nonetheless, this pair should be a good arb. We have only a very limited amount of PRG borrow, unfortunately.


----------



## skyQuake

skc said:


> I think this is the first day of the pair so perhaps the sellers in SKE simply overwhelmed the arb'ers. It should move back soon enough.
> 
> Having said that, the last few merger arbs have really been strange. AMM/VOC, TAN/WBA and NVN/FDC all ended with meaningful premium, and traded pretty far apart during the process.
> 
> Nonetheless, this pair should be a good arb. We have only a very limited amount of PRG borrow, unfortunately.




For a small fee, I can return some of my hoard... 

I expect more availability once it goes ex-div


----------



## VSntchr

SilverRanger said:


> The position should settle tomorrow (assuming you went with CFDs), that's what I would expect anyway. Roughly 2% net return for holding overnight and risk-free, can it be any easier?




I was wrong. All done!


----------



## SilverRanger

VSntchr said:


> I was wrong. All done!




That's what my broker told me as well, but I'm still seeing the AMM and VOC positions intact. Have they been netted off for you?


----------



## VSntchr

SilverRanger said:


> That's what my broker told me as well, but I'm still seeing the AMM and VOC positions intact. Have they been netted off for you?




Yep, did this with FP. All gone from my screen...


----------



## skc

skyQuake said:


> For a small fee, I can return some of my hoard...
> 
> I expect more availability once it goes ex-div




And my borrow is domestic so got to pay for franking 

I might close half and see how it all goes after ex-div.


----------



## SilverRanger

VSntchr said:


> Yep, did this with FP. All gone from my screen...




It turned out to be a stuff-up on their side, hope it's sorted now. 

No idea what's happening to WOW today, putting on WES/WOW for now


----------



## VSntchr

SilverRanger said:


> It turned out to be a stuff-up on their side, hope it's sorted now.
> 
> No idea what's happening to WOW today, putting on WES/WOW for now




Saw something about KKR running numbers on a t/o.
I would think this is highly unlikely, but explains the outperformance...


----------



## VSntchr

One of the more wild days I've seen in a while. REITs going ex-div combined with a near 100pt down day.


----------



## skc

VSntchr said:


> Saw something about KKR running numbers on a t/o.
> I would think this is highly unlikely, but explains the outperformance...




I don't know if it's that unlikely. I think WOW is unlikely to sell at current price, but a private equity is quite likely to want to buy.

Anyhow... WOW is now one of the most shorted stocks on the ASX (and biggest short by $ value in Asia apparently), so a t/o rumour and some short covering rally can easily create outperformance for some time. 



VSntchr said:


> One of the more wild days I've seen in a while. REITs going ex-div combined with a near 100pt down day.




Definitely. I was too busy looking at all the ex-divs amongst my pairs and totally forgot about the WOW rumour. Would have just put a slb on open and make chops.

Oh well.


----------



## VSntchr

skc said:


> Definitely. I was too busy looking at all the ex-divs amongst my pairs and totally forgot about the WOW rumour. Would have just put a slb on open and make chops.
> Oh well.



slb? 

I had a few pairs going ex-div too, didn't really work out too well as I had LLC in there which collapsed this morning despite being one of the stocks that wasn't ex-div.


----------



## sinner

Here is an idea I had last night, haven't had time to test it out yet but thought it'd be fun to share.

Each day/week/month generate volatility adjusted pairs for each of the 300 stocks in the S&P ASX300 against the index (ETF proxied) itself (e.g CBA:VAS, WOW:VAS, BHP:VAS, etc) with the baseline vol being the index historical volatility. 

e.g. if VAS is running 15% annualised historical volatility and BHP has 30% annualised historical volatility you would weight the pair as: $0.5 in BHP for every $1 in VAS.

Hold 100% of equity in long VAS and each day/week/month form a portfolio of (for example) the top 10% (30 stocks) that are the most prime for mean reversion to short on leverage such that the shorts correctly match the long index position.

As a random example, I calculate the 21 day annualised historical volatility for VAS (using yesterdays close) to be 14.0%. The same measure for QAN is 24.8%. So we will look to short $0.56 (divided by 30) of QAN for every $1 of VAS we hold long. How do we rank those stocks? I think most short term oscillators would do a fine job, for example you could rank the pairs by their 2-5 day RSI or "percent ranked" 2-5 day ROC, etc. So assuming the pair is QAN:VAS then you would short when the RSI went above, e.g., 50% or look to short the 30 pairs with the highest ranked RSI.


----------



## SilverRanger

sinner said:


> Here is an idea I had last night, haven't had time to test it out yet but thought it'd be fun to share.
> 
> Each day/week/month generate volatility adjusted pairs for each of the 300 stocks in the S&P ASX300 against the index (ETF proxied) itself (e.g CBA:VAS, WOW:VAS, BHP:VAS, etc) with the baseline vol being the index historical volatility.
> 
> e.g. if VAS is running 15% annualised historical volatility and BHP has 30% annualised historical volatility you would weight the pair as: $0.5 in BHP for every $1 in VAS.
> 
> Hold 100% of equity in long VAS and each day/week/month form a portfolio of (for example) the top 10% (30 stocks) that are the most prime for mean reversion to short on leverage such that the shorts correctly match the long index position.
> 
> As a random example, I calculate the 21 day annualised historical volatility for VAS (using yesterdays close) to be 14.0%. The same measure for QAN is 24.8%. So we will look to short $0.56 (divided by 30) of QAN for every $1 of VAS we hold long. How do we rank those stocks? I think most short term oscillators would do a fine job, for example you could rank the pairs by their 2-5 day RSI or "percent ranked" 2-5 day ROC, etc. So assuming the pair is QAN:VAS then you would short when the RSI went above, e.g., 50% or look to short the 30 pairs with the highest ranked RSI.
> 
> View attachment 63151




Interestingly, I've done something along these lines previously, except:

I paired the top x% against the bottom x%
Not adjusted for volatility 
The back-test result turned out that the % of winning was high, but the ones which don't revert screwed the pay-off, so it's now in the bin. But this got me thinking again so maybe I will give it another go.

Another note, I think you can start off with a sector as well (e.g. AREIT vs SLF), maybe that will be easier.


----------



## SilverRanger

Not a good day, got burnt by AIO's takeover proposal, but from the implied offer price, things could have been worse, oh well..


----------



## skc

SilverRanger said:


> Not a good day, got burnt by AIO's takeover proposal, but from the implied offer price, things could have been worse, oh well..




I bet you I lost more than you   I actually read the AFR article which came out late last night... so I lost a night's sleep as well.

Anyway... as you said, I was bracing for worse but happy to get out on the open.

There's very little about the deal and I guess it's questionable whether Brookfield is actually big enough to swallow AIO. But in the moment, with a big line on the wrong side, I wasn't going to hang around for see if I can reduce my loss by 1%. I am also happy that they came out of the halt today. I would really hate to be left in limbo any longer.

I only opened the trade yesterday. It's always the case for some reason...  It's always the very next day.  

Thankfully, this came after my most profitable month. Just when I was feeling really good and confident about myself... I get the worst day ever in the first day of the new financial year. I hate Canadians!!! (No actually I love them).



	

		
			
		

		
	
 :bad:


----------



## Trembling Hand

skc said:


> Just when I was feeling really good and confident about myself... I get the worst day ever in the first day of the new financial year.




Looks like you gave back four days profit from the last week. That sucks but as far as disasters go thats a good one.


----------



## skc

Trembling Hand said:


> Looks like you gave back four days profit from the last week. That sucks but as far as disasters go thats a good one.




yes... 5 days to be precise. It's really quite a loss.. it's just that I've been trading out of my skin last month so the impact on the "time wasted" scale isn't nearly that bad. It could easily have been 2 months of P&L.

It just sucks because I was extrapolating my profits from last month... Moral of the story, as always, is that NEVER extrapolate. the market will smell it and smack some sense into you.

Pairs trading requires a lot of confidence. You have to be confident to take the short something that is clearly outperforming, and buy something that is underperforming. So something like this happens just makes me question my positions.

So the true test is actually how long it'd take me to recover and reach new equity high. I panic closed a number of trades that I don't have a good feeling about, so that's not a great start.


----------



## Trembling Hand

skc said:


> It just sucks because I was extrapolating my profits from last month... Moral of the story, as always, is that NEVER extrapolate. the market will smell it and smack some sense into you.




Oh you noticed that one too!!!    

Its probably the biggest stopper of good process based trading. 



skc said:


> So the true test is actually how long it'd take me to recover and reach new equity high. I panic closed a number of trades that I don't have a good feeling about, so that's not a great start.




And the rush to get back fast to new equity highs after a slip up is probably the next biggest danger. :cwm10:

Just saying....


----------



## skyQuake

Linear extrapolation is always fun


----------



## craft

skc said:


> Pairs trading requires a lot of confidence. You have to be confident to take the short something that is clearly outperforming, and buy something that is underperforming. So something like this happens just makes me question my positions.
> 
> So the true test is actually how long it'd take me to recover and reach new equity high. I panic closed a number of trades that I don't have a good feeling about, so that's not a great start.




**** happens.

Obviously I’m not very good with encouraging words but when I have suffered one of these hits that are inventible despite an overall profitable strategy this fellow SKC normally provides some insightful words. I would seek him out in a peaceful place and listen to what he has to say.

Cheers


----------



## VSntchr

craft said:


> **** happens.
> Obviously I’m not very good with encouraging words but when I have suffered one of these hits that are inventible despite an overall profitable strategy this fellow SKC normally provides some insightful words. I would seek him out in a peaceful place and listen to what he has to say.
> Cheers



You and me both Craft. In fact, in a troubled time recently for me SKC has done just that.. 
But cummon guys - who are we kidding....this was posted early afternoon...that red line is probably a third of the size by now given that SKC probably caught an afternoon move or two :


----------



## skc

Trembling Hand said:


> And the rush to get back fast to new equity highs after a slip up is probably the next biggest danger.




Not rushing anything... just trying to proceed as usual. I don't know whether to call it a slip up. 

It's just part and parcel of shorting any stock. Someone comes in with free money and pays a 40% premium.... what can you say to that.



craft said:


> **** happens.
> 
> Obviously I’m not very good with encouraging words but when I have suffered one of these hits that are inventible despite an overall profitable strategy this fellow SKC normally provides some insightful words. I would seek him out in a peaceful place and listen to what he has to say.






VSntchr said:


> You and me both Craft. In fact, in a troubled time recently for me SKC has done just that..
> But cummon guys - who are we kidding....this was posted early afternoon...that red line is probably a third of the size by now given that SKC probably caught an afternoon move or two :




Thanks guys. It really wasn't that bad. I am shakened slightly but not terribly stirred. 

I traded some AZJ and QUB but missed out on TCL and MQA. Probably should have gone gun-ho on those and be square for the day. Unfortunately I didn't have the right mindset nor enough sleep last night to push it. 



skyQuake said:


> Linear extrapolation is always fun


----------



## VSntchr

IIN/TPM has widened a bit recently. Read a piece on AFR last night about a 3% investor saying he plans to vote No.
I haven't touched this one as the deal is a bit complicated with cash offer, scrip offer and the issue of franking credits to contend with...still watching though. With IIN now trading decently below 955 the temptation is getting bigger, but obviously the further below 955 we go indicates that the market is pricing in some doubts in the success of the offer. 

On a side note, I double checked the scheme details to see if a position in IIN is entitled to recieve/pay the dividend, as the VOC/AMM merger actually worked out so that shorts in VOC missed the ex-date to due to the AMM netting off just in time    Unfortunately, I don't think that this is the same case with IIN.


----------



## skc

VSntchr said:


> IIN/TPM has widened a bit recently. Read a piece on AFR last night about a 3% investor saying he plans to vote No.
> I haven't touched this one as the deal is a bit complicated with cash offer, scrip offer and the issue of franking credits to contend with...still watching though. With IIN now trading decently below 955 the temptation is getting bigger, but obviously the further below 955 we go indicates that the market is pricing in some doubts in the success of the offer.
> 
> On a side note, I double checked the scheme details to see if a position in IIN is entitled to recieve/pay the dividend, as the VOC/AMM merger actually worked out so that shorts in VOC missed the ex-date to due to the AMM netting off just in time    Unfortunately, I don't think that this is the same case with IIN.




I think IIN is a great buy using real shares. $9.55 plus up to 26c franking credit... and all be done in about a month and a half. That's about 4% return. The risk of the deal not going through is pretty small, and there's always the consolation prize of MTU script.

You got to watch the 45 day rule though for the franking credits. It's getting close.


----------



## VSntchr

skc said:


> I think IIN is a great buy using real shares.




Especially for the SMSF with the franking....


Got hit with the PRY downgrade today 
But instead of weeping, Im making lemonade. Doubled up on the SHL short on open. Wont cover the entire hit but better than nothing.


----------



## SilverRanger

VSntchr said:


> Especially for the SMSF with the franking....
> 
> 
> Got hit with the PRY downgrade today
> But instead of weeping, Im making lemonade. Doubled up on the SHL short on open. Wont cover the entire hit but better than nothing.




Nice call on SHL, I also had double short on it too but closed early, also misplayed my BTT short, and should have been more patient  I think the sell-off might continue tomorrow (as more mums and dads get their allocation) and present a buying opportunity though.


----------



## skc

SilverRanger said:


> Nice call on SHL, I also had double short on it too but closed early, also misplayed my BTT short, and should have been more patient  I think the sell-off might continue tomorrow (as more mums and dads get their allocation) and present a buying opportunity though.






VSntchr said:


> Got hit with the PRY downgrade today
> But instead of weeping, Im making lemonade. Doubled up on the SHL short on open. Wont cover the entire hit but better than nothing.




The announcement by PRY was confusing... on the EBITDA line it's only a 4% downgrade on consensus. But the EPS downgrade was much worse (from guidance of up 5-12% to be down 5%). Reading the announcement it was due mostly to the high tax rate (of 39%). Otherwise it makes little sense for a 4% miss on EBITDA to translate into a 12% miss on EPS. I guess the market took a midpoint between the 2 financial metrics and marked PRY down ~8%. It remains to be seen whether the tax rate is just a once-off or something else funny going on. There were lots of accounting stuff in there that I couldn't quite assess.

I am surprised SHL got sold off so much. It had a pretty good run I guess... but PRY was citing GP visits below expectation which SHL has limited exposure. May be low GP visits lead to low pathology numbers. It was quite remarkable that the difference in % change between PRY and SHL at the end of the day was a mere 3.3%. 

I was hit as well (do we all have the same trades  ). But due to the SHL hedge (which I covered too early) the damage wasn't really that bad. But I did waste some money shorting HSO which didn't fall until after lunch, while the rest of my pairs performed like crap as well. So all in all a poor day for me


----------



## VSntchr

skc said:


> The announcement by PRY was confusing... on the EBITDA line it's only a 4% downgrade on consensus. But the EPS downgrade was much worse (from guidance of up 5-12% to be down 5%). Reading the announcement it was due mostly to the high tax rate (of 39%). Otherwise it makes little sense for a 4% miss on EBITDA to translate into a 12% miss on EPS. I guess the market took a midpoint between the 2 financial metrics and marked PRY down ~8%. It remains to be seen whether the tax rate is just a once-off or something else funny going on. There were lots of accounting stuff in there that I couldn't quite assess.



Agree, I took a deep breath last night and assessed the situation. My _diagnosis_ (see what I did there), was an open around $5.00 or perhaps a bit lower with a bottom around 4.50-4.70 if things got nasty



> I am surprised SHL got sold off so much. It had a pretty good run I guess... but PRY was citing GP visits below expectation which SHL has limited exposure. May be low GP visits lead to low pathology numbers. It was quite remarkable that the difference in % change between PRY and SHL at the end of the day was a mere 3.3%.



 I did expect SHL to come back after excellent run it has been having, but certainly agree that the differential in price change was less than I expected by close - Once SHL went down 5% for the day and PRY was rallying I started to wonder if it might over-take!



> I was hit as well (do we all have the same trades  ). But due to the SHL hedge (which I covered too early) the damage wasn't really that bad. But I did waste some money shorting HSO which didn't fall until after lunch,



 I had HSO ready to go but decided against it after remembering they sold the Aus Pathology business. But I ignored my own logic and took some CAJ shorts, which I obviously lost some money on too. 


> while the rest of my pairs performed like crap as well. So all in all a poor day for me



THIS! I have some gaming sector pairs on too which diverged today and ORI/CIM got further out - I think it's one of those ones that I should have trusted my gut and closed on the first day.

All in all I took 5.25% hit on PRY/SHL (after taking a 4.5% hit in June on the same pair), but made back ~35% directional trading. Frustrating, but not too bad.


----------



## VSntchr

Gee thanks Sonic for being second place with your downgrade...great timing guys


----------



## SilverRanger

VSntchr said:


> Gee thanks Sonic for being second place with your downgrade...great timing guys




I closed my PRY long and was looking for SHL short to take-off, doesn't look like it's happening, guess the fall from the last few days were enough.


----------



## VSntchr

SilverRanger said:


> I closed my PRY long and was looking for SHL short to take-off, doesn't look like it's happening, guess the fall from the last few days were enough.




Yeah priced in I'd say and they also gave FY16 guidance at 20% which will give some hope. I've been watching the chart and depth closely today...despite opening down another 3%+, it has looked pretty strong IMO...which is pretty obvious now since the 1pm run....even if your still holding it's better than what it was on Friday


----------



## SilverRanger

VSntchr said:


> Yeah priced in I'd say and they also gave FY16 guidance at 20% which will give some hope. I've been watching the chart and depth closely today...despite opening down another 3%+, it has looked pretty strong IMO...which is pretty obvious now since the 1pm run....even if your still holding it's better than what it was on Friday




Although trimming losses and making wins have the same effect on my P&L, it just doesn't feel the same..

I'm looking at EGP/CWN today, has all of that been priced in?

Edit: EGP decided to remind the market that this is a very good news!


----------



## VSntchr

SilverRanger said:


> Although trimming losses and making wins have the same effect on my P&L, it just doesn't feel the same..
> 
> I'm looking at EGP/CWN today, has all of that been priced in?
> 
> Edit: EGP decided to remind the market that this is a very good news!




I have taken both those trades, but rather than a pair I am trading them directionally with stops for both. EGP has run pretty hard and according to what I've heard was the front-runner - which makes sense given the situation of having 2 casino's in the one area. Still think it could have a bit more left in it so willing to give it a go. 
Don't know about you guys, but my pairs portfolio is crap this month...alot of mid range losers and not many quick winners to offset. Lucky there has been some good directional opportunities to bridge the gap.


----------



## SilverRanger

VSntchr said:


> I have taken both those trades, but rather than a pair I am trading them directionally with stops for both. EGP has run pretty hard and according to what I've heard was the front-runner - which makes sense given the situation of having 2 casino's in the one area. Still think it could have a bit more left in it so willing to give it a go.
> Don't know about you guys, but my pairs portfolio is crap this month...alot of mid range losers and not many quick winners to offset. Lucky there has been some good directional opportunities to bridge the gap.




Some profit taking on EGP after the news, but I decided to hold on a little longer. 

July is **** for me too, AIO ****ted on me on day 1, and now got to deal with a few big losers too, win rate for the month 55%, way below average...


----------



## skc

VSntchr said:


> Don't know about you guys, but my pairs portfolio is crap this month...alot of mid range losers and not many quick winners to offset. Lucky there has been some good directional opportunities to bridge the gap.




It I take AIO out of the equation (I will take a page out of ASX management accounting and call that a one-off non-recurring loss, I hope), July has been pretty flat, but not terrible. I am actually doing poorly on the direction stuff this month...

I am closing most of my pairs now, and will keep any new ones small and quick. I will take some days off and get ready for a cracking reporting season. My aim is to be as profitable during reporting season as my usual pairs trading months. My daughter starts school next year so I need to start taking breaks during school holidays and not reporting seasons!

Remember, there's the Investa platform sale result soon this week and I really don't know how it'd impact any of the half dozen REIT stocks that may or may not be involved (CMW, CHC, IOF, MGR, DXS?, GPT?, other readthru?). So trade carefully.


----------



## skc

Dodged 2 potential hazards today...

I had a short BLD (long DLX) and BLD kindly offered a late trading update which looked like a reasonable earnings upgrade. Thankfully it didn't have much of an impact (not sure why).

I was very close to putting on a DUE/APA trade last week just before the trading halt. DUE unveils a big cap raising and now 5% below ex-rights price (and 20c lower then before). That would have been a full size positive so would have definitely hurt.

I should be all out of pairs by the close today. Looking forward to a slightly less intense period before things pick up i the reporting season.


----------



## VSntchr

skc said:


> Dodged 2 potential hazards today...
> 
> I had a short BLD (long DLX) and BLD kindly offered a late trading update which looked like a reasonable earnings upgrade. Thankfully it didn't have much of an impact (not sure why).



Pretty sure it was because I bought the open : ...got out for a tiny loss so all good, but me buying is certainly why it didn't boom!



> I was very close to putting on a DUE/APA trade last week just before the trading halt. DUE unveils a big cap raising and now 5% below ex-rights price (and 20c lower then before). That would have been a full size positive so would have definitely hurt.



 Yeah I saw quite a few DUE trades, and was involved with APA a few times - but funnily enough I was on the long side.



skc said:


> I should be all out of pairs by the close today. Looking forward to a slightly less intense period before things pick up i the reporting season.



Well done mate, enjoy the calm before the storm!

I've still got a few on, not entering REITS for the aforementioned reason though.


----------



## SilverRanger

I'm still in the game of pairs trading and today is one of the better days. A number of losses trimmed and got a quick win from HVN/JBH. 

At close hopped on to DLS/BPT, massive drop on DLS, apparently due to broker downgrade. As a bonus, this is in the direction of the merger rumour, now let's see if SVW/BPT is quick to react


----------



## VSntchr

SilverRanger said:


> I'm still in the game of pairs trading and today is one of the better days. A number of losses trimmed and got a quick win from HVN/JBH.
> 
> At close hopped on to DLS/BPT, massive drop on DLS, apparently due to broker downgrade. As a bonus, this is in the direction of the merger rumour, now let's see if SVW/BPT is quick to react




Good stuff mate, hope you get a few reversions before reporting arrives in full swing.

I just took some IIN on the merger arb. Although not really a merger arb. As SKC suggested, using real shares it's quite compelling. Used the SMSF to better capture the franking. One more hurdle to pass with the ACCC, but I thought getting the shares after the shareholder vote at pretty much the same price as before was a good deal.


----------



## skc

VSntchr said:


> Good stuff mate, hope you get a few reversions before reporting arrives in full swing.
> 
> I just took some IIN on the merger arb. Although not really a merger arb. As SKC suggested, using real shares it's quite compelling. Used the SMSF to better capture the franking. One more hurdle to pass with the ACCC, but I thought getting the shares after the shareholder vote at pretty much the same price as before was a good deal.




You can't arb the IIN/TPM no more. Election to take TPM script has come and gone... any holder who haven't made their choice is deemed to take the cash.

So you are getting the cash offer + franking credit. Does the 45 day rule apply to franking credits earning in the SMSF? What about the "small investor" rule where <$5k in franking credit won't be subjected to the 45-day test? 

If it's all above board then 40c return on $9.40 over month and a half is not bad....


----------



## VSntchr

skc said:


> You can't arb the IIN/TPM no more. Election to take TPM script has come and gone... any holder who haven't made their choice is deemed to take the cash.



Yes, I was just referring to the arb as I still have it in my spreadsheet under that title. I am just buying IIN outright.



> So you are getting the cash offer + franking credit. Does the 45 day rule apply to franking credits earning in the SMSF? What about the "small investor" rule where <$5k in franking credit won't be subjected to the 45-day test?



I will not even come close to $5k franking credits so I figured according to that rule I can disregard the 45 day rule. 



> If it's all above board then 40c return on $9.40 over month and a half is not bad....



Yep, unless ACCC spoils the party!


----------



## skc

VSntchr said:


> YI will not even come close to $5k franking credits so I figured according to that rule I can disregard the 45 day rule.




Does that apply to SMSF?


----------



## Ves

skc said:


> Does that apply to SMSF?



DYOR,  but fairly sure you need to be a "natural person"  to qualify for the small shareholder exemption  (ie. the exemption for the first $5,000 of franking credits).


----------



## VSntchr

Ves said:


> DYOR,  but fairly sure you need to be a "natural person"  to qualify for the small shareholder exemption  (ie. the exemption for the first $5,000 of franking credits).



According to a few sources it appears you are correct.
Bummer, still a decent annualised return regardless. But not as 'compelling' as I thought.


----------



## skc

VSntchr said:


> According to a few sources it appears you are correct.
> Bummer, still a decent annualised return regardless. But not as 'compelling' as I thought.




You can't annualised the return. You need to consider return vs risk.

Your return is now most 15c, vs 40c before. Your risk is some large multiple of that with perhaps a lowish probability of occurrence. 

Depending on what probability of deal failure you have assumed... it may or may not still stack up.


----------



## VSntchr

skc said:


> You can't annualised the return. You need to consider return vs risk.
> 
> Your return is now most 15c, vs 40c before. Your risk is some large multiple of that with perhaps a lowish probability of occurrence.
> 
> Depending on what probability of deal failure you have assumed... it may or may not still stack up.



Yes, it is not a great trade anymore..
If ACCC blocks TPM then you would assume no other bidder would be successful either. The only thing on my side is that the chance of ACCC issues is very low. However, I may be a bit aggressive at 90%. Ill assume a downside of $8.00.

17/938     = 1.81%      @ 90%   = 1.63%
-138/938   = -14.71%   @ 10 % =-1.47%

= 0.16% in 1 month / 1.92% annualised expectancy.

Doesn't look very good now does it. Throw in some brokerage and it's likely a negative expectancy. Bit of an oversight by me here. 
On the plus side, a career based on taking this trade 10000000000 times (assuming correct probabilities) is better than buying some Swiss Government Debt.


----------



## VSntchr

On another note, just read that IPT has been sold by Morgan Stanley to CIC International. 
Will be interesting to see if there is any deviation from any of the AREITS tomorrow. A few perceived contenders may have a bit of a fall now that they have been officially ruled out.


----------



## SilverRanger

VSntchr said:


> On another note, just read that IPT has been sold by Morgan Stanley to CIC International.
> Will be interesting to see if there is any deviation from any of the AREITS tomorrow. A few perceived contenders may have a bit of a fall now that they have been officially ruled out.




Finally! That's gonna free up DXS and CMW to trade I think, while IOF and MGR are still in for the management rights.


----------



## SilverRanger

Hey guys,

Past the past week I've been thinking seriously about automating my pairs trading strategy. Some of you might think that this is not a good idea given the amount of knowledge required for each stock you trade, but I think this comes down to your pairs selection and the level of filters you apply. 

For example, you can at minimum filter out dividend dates, and reporting season, and even based on the type of announcements (this can be as basic as whether the announcement is marked as price sensitive, to as advance as applying machine learning algos to interpret the news). 

Now the question is, what platform do you know would be best suited for pair trading automation? For now, I have considered:

Excel - my strategy is currently in Excel so this is the least effort solution, but even now I'm running into massive performance issues so it definitely does not scale
Ninja trader - as far as I know it is not pairs trading friendly
Start from scratch - this is my fall-back option if I can't think of anything else, I know enough coding to implement the strategy, so the majority of the effort would be to set up the framework infrastructure - from fetching prices, data storage, building pairs, back-testing, trade management, you name it 

So...thoughts? ideas?


----------



## edman79

SilverRanger said:


> Hey guys,
> 
> Past the past week I've been thinking seriously about automating my pairs trading strategy. Some of you might think that this is not a good idea given the amount of knowledge required for each stock you trade, but I think this comes down to your pairs selection and the level of filters you apply.
> 
> For example, you can at minimum filter out dividend dates, and reporting season, and even based on the type of announcements (this can be as basic as whether the announcement is marked as price sensitive, to as advance as applying machine learning algos to interpret the news).
> 
> Now the question is, what platform do you know would be best suited for pair trading automation? For now, I have considered:
> 
> Excel - my strategy is currently in Excel so this is the least effort solution, but even now I'm running into massive performance issues so it definitely does not scale
> Ninja trader - as far as I know it is not pairs trading friendly
> Start from scratch - this is my fall-back option if I can't think of anything else, I know enough coding to implement the strategy, so the majority of the effort would be to set up the framework infrastructure - from fetching prices, data storage, building pairs, back-testing, trade management, you name it
> 
> So...thoughts? ideas?




By automation do you mean to automate the signals and you manually place them, or a full automated execution of trades?
Have you tried amibroker before? I think the pairs side can be quite cumbersome as you need to create a new symbol which is the ratio of the 2 stocks. But once you have this automated then you can run it like any other amibroker strategy. Issue might be getting real time updates but you can do this with a bit of elbow grease.

I wrote my own "PTF" software in dot net (that I no longer use) as I wanted to be able to do cross exchange pairs and backtest different time frames and add in different rules for entry and exit signals beyond the old std deviation entry exit. Was it worth it? probably not, I'd stick to excel if possible until you cant anymore, as anything else will take a lot of time and possibly amount to nothing.


----------



## SilverRanger

edman79 said:


> By automation do you mean to automate the signals and you manually place them, or a full automated execution of trades?
> Have you tried amibroker before? I think the pairs side can be quite cumbersome as you need to create a new symbol which is the ratio of the 2 stocks. But once you have this automated then you can run it like any other amibroker strategy. Issue might be getting real time updates but you can do this with a bit of elbow grease.
> 
> I wrote my own "PTF" software in dot net (that I no longer use) as I wanted to be able to do cross exchange pairs and backtest different time frames and add in different rules for entry and exit signals beyond the old std deviation entry exit. Was it worth it? probably not, I'd stick to excel if possible until you cant anymore, as anything else will take a lot of time and possibly amount to nothing.




My ultimate goal is to automate my trades, make money while you sleep as it says, but to able to generate signals is step 1. 

I haven't looked into amibroker, as I have a feeling that it's on the same boat as Ninjatrader - not pair trading friendly. If I try to fit pair trading to it, then I must make sure I can live with the constraints as it is not designed to do this task.

Excel is manageable for now, but it's definitely lacking scale, for the number of pairs I watch, I have to split them into 3 separate spreadsheets due to performance issues (and they can't be opened at the same time!)

A .NET solution is probably what I will be looking at if I start from scratch. Did you build yours from scratch? How did you store the data? SQL? And more importantly, why did you give up on it?


----------



## Trembling Hand

SilverRanger said:


> A .NET solution is probably what I will be looking at if I start from scratch. Did you build yours from scratch? How did you store the data? SQL? And more importantly, why did you give up on it?




Ninja trader would be a pretty easy setup to give you the signals. But maybe you should look at Multicharts. Seems to be where the nerdy geeks are moving to, especially .NET stuff.


----------



## edman79

SilverRanger said:


> A .NET solution is probably what I will be looking at if I start from scratch. Did you build yours from scratch? How did you store the data? SQL? And more importantly, why did you give up on it?




I used SQL server Express. I guess I gave up on it because I didn't find a significantly more profitable way to trade and PTF was fulfilling my needs. I also started trading some amibroker systems which were working well in the lower volatility environment we are currently in (compared with 2008-2013). I can send you my code if you want. It could be useful for taking bits and pieces out of although I have not commented it so its a bit of a dogs breakfast.


----------



## SilverRanger

Trembling Hand said:


> Ninja trader would be a pretty easy setup to give you the signals. But maybe you should look at Multicharts. Seems to be where the nerdy geeks are moving to, especially .NET stuff.




I just had a look at Multicharts .NET, looks very much Ninjatrader-like but coded in C# for both strategies and indicators, not a bad idea. But it too seems lacking native pairs trading support. 
If the use of other .NET libraries (thinking time series and co-integration here) is as easy as they advertise, then it's definitely a better choice than Ninjatrader.


----------



## SilverRanger

edman79 said:


> I used SQL server Express. I guess I gave up on it because I didn't find a significantly more profitable way to trade and PTF was fulfilling my needs. I also started trading some amibroker systems which were working well in the lower volatility environment we are currently in (compared with 2008-2013). I can send you my code if you want. It could be useful for taking bits and pieces out of although I have not commented it so its a bit of a dogs breakfast.




Yes that would help me a lot actually, particularly the bits on database storage and retrieval (still regretting why I didn't take any database classes back in Uni)


----------



## VSntchr

SKE has reported today and hasn't thrown a foul ball, which eliminates another risk of the takeover. They have declared a 9.5c div and then another 15.5c special div if T/O proceeds. Buying before 24th August (not forgetting this date again!) gives holders access to some solid franking credits taking the total proceeds to ~35.7c.
At current prices the arb looks very good now, especially factoring in franking. Too bad PRG is so hard to borrow! 
I've had a position on for a while (missed a few exits), but haven't been able to actively trade it due to the issue of re-borrowing PRG becoming unavailable.

Skilled Shareholders to receive:
PRG ($2.50 x 0.55) + $0.357 = ~$1.73.

Current situation with full franking benefit assumed:
SKE $1.58 / $1.73 = 8.7% discount, ~2 months to completion. 

Current situation without franking:
SKE $1.58 / $1.625= 2.85% discount, ~2 months to completion.


----------



## skyQuake

VSntchr said:


> SKE has reported today and hasn't thrown a foul ball, which eliminates another risk of the takeover. They have declared a 9.5c div and then another 15.5c special div if T/O proceeds. Buying before 24th August (not forgetting this date again!) gives holders access to some solid franking credits taking the total proceeds to ~35.7c.
> At current prices the arb looks very good now, especially factoring in franking. Too bad PRG is so hard to borrow!
> I've had a position on for a while (missed a few exits), but haven't been able to actively trade it due to the issue of re-borrowing PRG becoming unavailable.
> 
> Skilled Shareholders to receive:
> PRG ($2.50 x 0.55) + $0.357 = ~$1.73.
> 
> Current situation with full franking benefit assumed:
> SKE $1.58 / $1.73 = 8.7% discount, ~2 months to completion.
> 
> Current situation without franking:
> SKE $1.58 / $1.625= 2.85% discount, ~2 months to completion.




Can still get PRG borrow with IG: 500k @ 3.5%


----------



## skc

skyQuake said:


> Can still get PRG borrow with IG: 500k @ 3.5%




But then you going to need real $cash to buy the SKE leg to benefit from the franking...


----------



## skyQuake

Interestingly enough, IG doesn't make you pay (or receive) franking credits.
So in theory you can long stock, short via IG for some free credits...

p.s. don't tell the ATO


----------



## skc

skyQuake said:


> Interestingly enough, IG doesn't make you pay (or receive) franking credits.
> So in theory you can long stock, short via IG for some free credits...
> 
> p.s. don't tell the ATO




The 45-day rule states that investors must hold the stock "at risk" for 45 days to qualify for franking credits. I'd argue shorting equivalent in CFD would not be "at risk" but I am happy to be informed otherwise.



> This means that you must continuously own shares ‘at risk’ for at least 45 days (90 days for certain preference shares) not counting the day of acquisition or disposal, to be eligible for any franking tax offset.
> 
> Days on which *you have 30% or less of the ordinary financial risks of loss *and opportunities for gain from owning the shares cannot be counted in determining whether you hold the shares for the required period.
> 
> The financial risk of owning shares may be reduced through arrangements such as hedges, options and futures.




https://www.ato.gov.au/Individuals/...ications/You-and-your-shares-2013-14/?page=11

Reading the above, may be you can hedge 70%?


----------



## SilverRanger

skc said:


> The 45-day rule states that investors must hold the stock "at risk" for 45 days to qualify for franking credits. I'd argue shorting equivalent in CFD would not be "at risk" but I am happy to be informed otherwise.
> 
> 
> 
> https://www.ato.gov.au/Individuals/...ications/You-and-your-shares-2013-14/?page=11
> 
> Reading the above, may be you can hedge 70%?




30% in 45 days could still be a lot. What about you short, and your wife/mum/dad/dog long?


----------



## skc

I guess what you actually do is this....

Say you are holding $30k ANZ shares as a buy-and-hold parcel. You buy another $70k shares (or approx 2150 shares) and hedge $70k in CFDs. You satisfy the ATO rule for 30% exposure, which is at no additional risk to your original buy and hold.

With the ANZ 86c dividend you get 37c franking credit per share. So that's free franking of $795.

Total transaction is 4x$70k = $280k. Say you pay 8 points, that's $224 in commission. 

So all in all, this exercise delivers a profit of $795 - $224 = $571. Or <1% of the capital employed, over 45 days. And it's merely ~$270 more than what you'd earn in a bank @ 3.5%. 

So I think it's not a viable strategy at all (and probably disliked by the ATO).



SilverRanger said:


> 30% in 45 days could still be a lot. What about you short, and your wife/mum/dad/dog long?




I'd hate to have my dog answering an ATO audit.


----------



## VSntchr

SKE/PRG closed nicely this afternoon 

In fact it has had a few nice closes in the last week or so. Managed to scrape in a few trades..although it is pretty hard to whack it with a decent amount due to the chunky nature that PRG moves in and considering the target is ~1.5-2.0% at best. Takes a bit of timing and rag to draw away the sweat pouring from one's brow when the matching price is flicking around at 4:09pm


----------



## skc

VSntchr said:


> SKE/PRG closed nicely this afternoon
> 
> In fact it has had a few nice closes in the last week or so. Managed to scrape in a few trades..although it is pretty hard to whack it with a decent amount due to the chunky nature that PRG moves in and considering the target is ~1.5-2.0% at best. Takes a bit of timing and rag to draw away the sweat pouring from one's brow when the matching price is flicking around at 4:09pm




So much volatility and not just report related... I wish I am pairs trading!


----------



## VSntchr

skc said:


> So much volatility and not just report related... I wish I am pairs trading!




Well, it feels like forever - but its only been a few weeks, and it's time to rev up the pairs trading again. 
I am using this week to recalibrate the saved pairs and do a bit of database management. This was somewhat forced on me as I upgraded my IT over the break (old setup was getting quite slow). The new i7 core and 8gb ram seems to run backtests a little quicker which is nice. 

I noted last year that I jumped back into pairs a little too soon after reporting season, so this year I will be starting off at very tiny size and build my way up to full size once I get some confidence and evidence that it is appropriate to do so. Another reason for this is that the trading environment has altered significantly since we paused pairs - so it is probably a good idea to get the hang of increased volatility with small size first.

Hopefully this volatility sticks around and we can achieve some wider targets for a few weeks!


----------



## sinner

VSntchr said:


> Well, it feels like forever - but its only been a few weeks, and it's time to rev up the pairs trading again.
> I am using this week to recalibrate the saved pairs and do a bit of database management. This was somewhat forced on me as I upgraded my IT over the break (old setup was getting quite slow). The new i7 core and 8gb ram seems to run backtests a little quicker which is nice.
> 
> I noted last year that I jumped back into pairs a little too soon after reporting season, so this year I will be starting off at very tiny size and build my way up to full size once I get some confidence and evidence that it is appropriate to do so. Another reason for this is that the trading environment has altered significantly since we paused pairs - so it is probably a good idea to get the hang of increased volatility with small size first.
> 
> Hopefully this volatility sticks around and we can achieve some wider targets for a few weeks!




Isn't there still a month of reporting season? 

http://www.asx.com.au/documents/research/company_reporting_dates_2015.pdf


----------



## VSntchr

sinner said:


> Isn't there still a month of reporting season?
> 
> http://www.asx.com.au/documents/research/company_reporting_dates_2015.pdf




Most of the stocks I trade reported in early-mid August. I don't really pair up the miners too often.


----------



## skc

VSntchr said:


> Well, it feels like forever - but its only been a few weeks, and it's time to rev up the pairs trading again.
> I am using this week to recalibrate the saved pairs and do a bit of database management. This was somewhat forced on me as I upgraded my IT over the break (old setup was getting quite slow). The new i7 core and 8gb ram seems to run backtests a little quicker which is nice.
> 
> I noted last year that I jumped back into pairs a little too soon after reporting season, so this year I will be starting off at very tiny size and build my way up to full size once I get some confidence and evidence that it is appropriate to do so. Another reason for this is that the trading environment has altered significantly since we paused pairs - so it is probably a good idea to get the hang of increased volatility with small size first.
> 
> Hopefully this volatility sticks around and we can achieve some wider targets for a few weeks!




Lol. I echo every single point you've made. I even upgraded my computer over the break too! 

It's hard to resist the temptation of jumping back in too quickly... in fact, I think from now on I will actually trade the reporting season, and take the first 2 weeks afterwards off.


----------



## VSntchr

skc said:


> It's hard to resist the temptation of jumping back in too quickly... in fact, I think from now on I will actually trade the reporting season, and take the first 2 weeks afterwards off.




Interesting SKC, what's prompting the change of approach?



> I even upgraded my computer over the break too!



What did you go for? I'm still running Win8, perhaps I'll give 10 another go soon (free upgrade)..I was just put off by my horrible experience last time. I'v upgraded processesor from i5 to i7 and doubled the ram to 8gb. Was considering a solid state hard drive also, but decided I can add that later - maybe when the PC starts to run slow in about 12-18 months : 

My old machine was only 22 months old - I didn't feel like it was due to die yet....I guess slamming it hard over a couple of screens for 8-12 hours a day everyday is a bit more demanding than regular use. Will be good to keep as a backup, especially as it has all the relevant software and documents on it and ready to go.


----------



## skc

VSntchr said:


> Interesting SKC, what's prompting the change of approach?




1. Taking break during the actual reporting season is difficult. I need to read the reports etc so I build my knowledge of the companies that I am going to trade. It'd be a mammoth task to take 2 weeks off and try to catch up reading the reports and analysis of hundreds of companies.

2. Reporting season offers good directional trading opportunities.

3. Pairs trading is relatively quiet in the 2 weeks after reporting season, as most signals are generated by market response to the reports. So avoid trading these period is probably prudent. 

4. The few weeks after reporting is also a busy ex-div period which makes pairs trading trickier.


----------



## skc

VSntchr said:


> Interesting SKC, what's prompting the change of approach?
> 
> 
> What did you go for? I'm still running Win8, perhaps I'll give 10 another go soon (free upgrade)..I was just put off by my horrible experience last time. I'v upgraded processesor from i5 to i7 and doubled the ram to 8gb. Was considering a solid state hard drive also, but decided I can add that later - maybe when the PC starts to run slow in about 12-18 months :
> 
> My old machine was only 22 months old - I didn't feel like it was due to die yet....I guess slamming it hard over a couple of screens for 8-12 hours a day everyday is a bit more demanding than regular use. Will be good to keep as a backup, especially as it has all the relevant software and documents on it and ready to go.




My previous computer lasted me almost 5 years. It still worked OK but took a bit to boot up and can get a bit slow towards the end of the day (just like me). But what prompted the change was 3 BSOD in a year... so I couldn't trust it anymore. 

I went with a i5, a higher end case, 16GB ram, Win7 (I hated Win8 and not ready for Win10), and a 520GB SSD.
SSD is what you should have invested in. It will make a tonne of difference. My boot up time is <15 seconds. I am hoping this system will last another 5 years.

I chose to invest a bit more upfront for a longer lasting rig... I hate the trouble of switching and of getting rid of the old system. 

I also bought a 42in UHD recently. So far I am not loving it. But I will write about it more in the other thread where I asked about it.


----------



## edman79

skc said:


> I went with a i5, a higher end case, 16GB ram, Win7 (I hated Win8 and not ready for Win10), and a 520GB SSD.
> SSD is what you should have invested in. It will make a tonne of difference. My boot up time is <15 seconds. I am hoping this system will last another 5 years.




SSD Makes a HUGE difference. If you need loads of storage just run your operating system off a small SSD and add a 2nd hard drive for the storage.


----------



## VSntchr

edman79 said:


> SSD Makes a HUGE difference. If you need loads of storage just run your operating system off a small SSD and add a 2nd hard drive for the storage.




Sounds like a good idea.
I have heard some SSD have a short lifespan..I think I will opt for something with good reviews like the recent Samsung ones. 

Happy pairs trading guys!! Ive been pretty slow with opening trades as there hasn't been too many favourable signals for me...although this week has started to get a bit better. 
It looks as if GMG might be finally starting to come back into reality a little bit, the yield has been much smaller than every other REIT for a while now - and finally their is some big divergences going on with GMG breaking out of the ratio range.


----------



## skc

VSntchr said:


> Happy pairs trading guys!! Ive been pretty slow with opening trades as there hasn't been too many favourable signals for me...although this week has started to get a bit better.




Just waiting for the Fed meeting to finish up and I'd be fully back into pairs. I am expecting increased volatility immediately afterwards so keeping my powder dry for a few more days. I have however put on a few pairs at tiny sizes so I can keep a close watch on them.

FWIW... there'd be chaos if Fed doesn't raise imo. And we'd probably rally off a rate hike (at least a relief rally for half a week).


----------



## VSntchr

skc said:


> Just waiting for the Fed meeting to finish up and I'd be fully back into pairs. I am expecting increased volatility immediately afterwards so keeping my powder dry for a few more days. I have however put on a few pairs at tiny sizes so I can keep a close watch on them.
> 
> FWIW... there'd be chaos if Fed doesn't raise imo. And we'd probably rally off a rate hike (at least a relief rally for half a week).




Good discipline there mate.

I've been taking 1,2 or 3% leg-size based on my confidence of the pair..it's actually quite a good experience. It had allowed me to form trading discipline and get in the habit of making those hard choices when there is less $$ on the line. For example; if one leg gets filled and the other leg looks like it might step away from you...but your getting close to being hit at limit...normally I'd feel tempted to try and let it get hit, but with these smaller sizes I've been avoiding mucking around and just hitting the market once one leg gets filled. Makes for less stress and allows you to move on to the next trade without spending time "hoping".

Markets really slow today...probably an indication of tomorrow aswell as everyone just waits...


----------



## skc

VSntchr said:


> Good discipline there mate.
> 
> I've been taking 1,2 or 3% leg-size based on my confidence of the pair..it's actually quite a good experience. It had allowed me to form trading discipline and get in the habit of making those hard choices when there is less $$ on the line. For example; if one leg gets filled and the other leg looks like it might step away from you...but your getting close to being hit at limit...normally I'd feel tempted to try and let it get hit, but with these smaller sizes I've been avoiding mucking around and just hitting the market once one leg gets filled. Makes for less stress and allows you to move on to the next trade without spending time "hoping".




When I have my "portfolio" of pairs I am pretty much micro trading the various legs all day. Providing liquidity vs consuming liquidity probably explains a lot of the P&L if I were to really analyse the P&L.

BTW, what do you mean 1, 2 or 3%?



VSntchr said:


> Markets really slow today...probably an indication of tomorrow aswell as everyone just waits...




It's up 80 pts so not that slow... but I am struggling to understand the strength. I read something like the average trader on Wall Street has only 5 years experience and never faced a rate rise... makes you question whether the "market" actually knows anything!


----------



## VSntchr

skc said:


> BTW, what do you mean 1, 2 or 3%?



Leg size to % of trading account. When I'm in full swing I'm doing more like 6% - 20% depending on the pair.



> It's up 80 pts so not that slow... but I am struggling to understand the strength. I read something like the average trader on Wall Street has only 5 years experience and never faced a rate rise... makes you question whether the "market" actually knows anything!



Yeah, up a fair bit...but it did most of those 80 points pretty quickly...10:30am to 4pm was about a 10 point range - back to the good old boring days! 
I haven't traded in a rate rising environment, actually my only experience within a rate rising environment was when I was in high school and I remember getting excited that my ING savings account interest rate was going up every few months. 6% return from a bank account, that really had me feeling like a wheeler and dealer :cowboy:

I was watching the market with an early interest back in those days..and did have some small investments, but no proper trading experience...so the next market phase (as always) will be interesting for me.


----------



## skc

Pairs trading by Ellerston Capital hedge fund.

http://www.afr.com/business/banking...kes-banks-and-falling-markets-20150924-gjttqw



> In his pair trading strategy, Mr Drzewucki will pick two companies that tend to move up and down together simultaneously and take a "short" position in one and a "long" position in the other. The short or long selection will be made based on which company's shares appear to be outperforming or underperforming their potential at any given time.






> "Pairing gives us the opportunity to remove the industry risk and the market risk and focus on creating alpha based on which is the better of the two companies," he explained.
> 
> On average, an Ellerston trade will last only *20 days *and then it is onto the next pair.






> And perform it has: For the year to the end of August, Ellerston Australian Market Neutral Fund returned 12.94 per cent (9.6 per cent net of fees) while the ASX/S&P200 returned 2.3 per cent.
> 
> The Ellerston fund had produced a positive return 13 out of the 15 months the market had produced a negative return over the past four years, Mr Drzewucki said, highlighting the fund's ability to perform in falling markets.


----------



## DeepState

skc said:


> Pairs trading by Ellerston Capital hedge fund.
> 
> http://www.afr.com/business/banking...kes-banks-and-falling-markets-20150924-gjttqw




Paul is an awesome guy.  Had his own fund before joining Ashok Jacob. Monterey.  Glad you found him. You guys should meet...and I would like to be there. He leverages off  the fundamental team as well, run by Chris Kourtis.


----------



## VSntchr

skc said:


> Pairs trading by Ellerston Capital hedge fund.
> 
> http://www.afr.com/business/banking...kes-banks-and-falling-markets-20150924-gjttqw




I wonder what software they use for watching ratio and correlation. Likely something the in-house quants built I guess. 
Interesting read, thanks SKC.


----------



## sinner

VSntchr said:


> I wonder what software they use for watching ratio and correlation. Likely something the in-house quants built I guess.
> Interesting read, thanks SKC.




Most serious quants of any discipline are using MATLAB, or more recently adopting the open source R.

R has some open source packages you can install, like quantmod and PerformanceAnalytics.

That's what I use (R+quantmod+PA). With the packages installed, these days I can do in about 10 lines of R what used to take me at least 100-200 lines in python.


----------



## VSntchr

skc said:


> My guess is that nothing will really come of it for at least the immediate future (6-12 months)... so a short term oversold for me. FWIW I have a long CCP pairing with a short in CLH. CCP is down ~18% whiel CLH is only down ~6%.




Thought I'd bring this here. 
I am jealous you had borrow for this one. Was one of the main trades I wanted today! Also tried PNC for the short with no luck. Considered TGA but its already pretty battered on other issues.

That aside, finally got some momentum going with the pairs portfolio today. Despite the volatile market swings I've been pretty slow until today.


----------



## skc

VSntchr said:


> Thought I'd bring this here.
> I am jealous you had borrow for this one. Was one of the main trades I wanted today! Also tried PNC for the short with no luck. Considered TGA but its already pretty battered on other issues.
> 
> That aside, finally got some momentum going with the pairs portfolio today. Despite the volatile market swings I've been pretty slow until today.




Don't have a lot of CLH borrow so position is pretty small. Not to mention both CCP and CLH are thin at the best of times.


----------



## VSntchr

Article exploring pairs trading and the relevant parameters by head of Macro strategy from Saxo bank. 

Has Pairs Trading had its day?


----------



## skc

VSntchr said:


> Article exploring pairs trading and the relevant parameters by head of Macro strategy from Saxo bank.
> 
> Has Pairs Trading had its day?




Thanks for the link. They did a lot of work to reach a pretty useless conclusion.



> Pairs trading is arguably still alive, but the returns are not great and they vary quite a bit across time. Expressed more precisely, pairs trading worked reasonably well in the aggregate in the 2003-2015 period provided that you had selected the correct parameters. Parameters, mind you, *which may not be stable going forward.*




Especially the bold part. If that's the expectation (of stable parameters) then it is bound to disappoint! Markets are dynamic, sectors are dynamic, companies are dynamic, even the simple action of buying and selling changes over time. 

A pairs strategy study using a static set of parameters over 13 years is simply an incorrect way to approach trading imo.

As we both know, this pairs trade thread has been on this forum for over 6 years... it has attracted the interest of many over this time. Yet there are probably less than a dozen people who's made it work. It says clearly that there is more to trading pairs than just a set of numbers.


----------



## VSntchr

skc said:


> Thanks for the link. They did a lot of work to reach a pretty useless conclusion.



 Agree. If anything it gives the learning pairs trader an idea of what kind of parameters are involved. Beyond that, pretty useless.



skc said:


> Especially the bold part. If that's the expectation (of stable parameters) then it is bound to disappoint! Markets are dynamic, sectors are dynamic, companies are dynamic, even the simple action of buying and selling changes over time.
> 
> A pairs strategy study using a static set of parameters over 13 years is simply an incorrect way to approach trading imo.
> 
> As we both know, this pairs trade thread has been on this forum for over 6 years... it has attracted the interest of many over this time. Yet there are probably less than a dozen people who's made it work. It says clearly that there is more to trading pairs than just a set of numbers.



Do you change your parameters for each sector quite often?
Personally I do make small changes every few months depending on volatility. And I also make some changes to lookback around traditionally slower periods (where there are also a number of non trading days) such as Xmas and Easter. 

Also as you touched on, the other obvious read-through is that a big part of successful pairs trading is through knowing the market and your basket of stocks well in order to know when to avoid signals etc.


----------



## skc

VSntchr said:


> Do you change your parameters for each sector quite often?




No... but I think I sort of do it in my head. I apply discretion to how I enter... waiting for an extra tick or two, or layer in over a few days, when it looks like there could be more divergence etc. 

To be honest I don't know if what I do is optimal. If I ever get the time I should probably review it a bit more quantitatively.


----------



## skc

VSntchr said:


> Also as you touched on, the other obvious read-through is that a big part of successful pairs trading is through knowing the market and your basket of stocks well in order to know when to avoid signals etc.




LLC offers a great example today. It's been underperforming other REITs for quite some time... a benign investor update sparked a nice rally today, which generated a few signals to short the stock against other REITs.

But I didn't take the trades because I know that LLC is simply playing catch up. The PTF signal is based on the share price action of the past 2-3 weeks, but LLC is still underperforming over the last quarter. So there's potentially a lot of upside yet. I might even trade it long as a pair and ignoring the PTF ratio altogether. There isn't any PTF parameter you can change to help make these kinds of decisions.

P.S. I took a long trade this morning and it was THE easiest trade to hold and build. The bids kept stepping up and there was basically no pull back along the way. Just the perfect trend for 1.5 hours running 70c.


----------



## VSntchr

skc said:


> LLC offers a great example today. It's been underperforming other REITs for quite some time... a benign investor update sparked a nice rally today, which generated a few signals to short the stock against other REITs.
> 
> But I didn't take the trades because I know that LLC is simply playing catch up. The PTF signal is based on the share price action of the past 2-3 weeks, but LLC is still underperforming over the last quarter. So there's potentially a lot of upside yet. I might even trade it long as a pair and ignoring the PTF ratio altogether. There isn't any PTF parameter you can change to help make these kinds of decisions.
> 
> P.S. I took a long trade this morning and it was THE easiest trade to hold and build. The bids kept stepping up and there was basically no pull back along the way. Just the perfect trend for 1.5 hours running 70c.




Indeed a perfect example.
I got the first step correct by avoiding all of the LLC signals...knowing it was just playing catchup...but failed to think about a potential trade to the longside. 
A good example of Master and Apprentice perhaps, haha.

I did see the chart later in the day yesterday and noticed that lovely trend. Part of what puts me off with LLC presentations is the huge amount of content - I wonder, what will I miss in here?!
Looked good again today with a rising market and gap up, until the RBA came out and toppled the newly refound confidence in pre-sales  :bricks1:


----------



## skc

VSntchr said:


> I did see the chart later in the day yesterday and noticed that lovely trend. Part of what puts me off with LLC presentations is the huge amount of content - I wonder, what will I miss in here?!
> Looked good again today with a rising market and gap up, until the RBA came out and toppled the newly refound confidence in pre-sales  :bricks1:




Believe it or not I didn't read the whole thing either... but it was obvious that, once the uptrend started, whatever it was that market was concerned with LLC got alleviated. As I said, the trend was soooo perfect and it allowed me to pyramid into a solid position size (I think I bought 8-9 times over the first few minutes). If someone was to sweep it down 8c along the way then I would have thought "what did I miss in the presentation?".



VSntchr said:


> A good example of Master and Apprentice perhaps, haha.




We are just peers mate... from what I've seen you are just as good (if not better) a trader!


----------



## VSntchr

SilverRanger said:


> New on the list: BPT/DLS, been onto this one for over a month and finally caught it




Ummm - did the market forget that this opened at 11am today! 
That was easily my fastest pair of the year  

Probably still left too much on the table, but happy to take 6% in 6 minutes!


----------



## SilverRanger

VSntchr said:


> Ummm - did the market forget that this opened at 11am today!
> That was easily my fastest pair of the year
> 
> Probably still left too much on the table, but happy to take 6% in 6 minutes!




I'm lining up for more, this one has the potential to be the next AMM/VOC, but not sure about being another NVN/FDC though


----------



## VSntchr

SilverRanger said:


> I'm lining up for more, this one has the potential to be the next AMM/VOC, but not sure about being another NVN/FDC though




I blew up on AMM/VOC - dont say that! 
NVN/FDC, that one brings back sweet sweet reversion memories :dance:


----------



## skc

VSntchr said:


> Ummm - did the market forget that this opened at 11am today!
> That was easily my fastest pair of the year
> 
> Probably still left too much on the table, but happy to take 6% in 6 minutes!




I have had long DLS / short BPT on and off... but obviously the deal would be announced when I don't have any position.

But the open was just free money 

Closed half now but the gap is still 4.5% when it's probably a done deal due to close in 3 months.


----------



## craft

What are you guys thoughts on VOC/MTU?  The spread doesn’t yet seem to be narrowing as time passes.

Is it still within the realm of normal for an all stock merger or are there other issues weighing?

Doubts over ACCC approval?
Is VOC a potential target itself?
Shortage of VOC borrow?
Worries over MTU stand alone if it doesn’t proceed?

Thoughts appreciated.


----------



## VSntchr

craft said:


> What are you guys thoughts on VOC/MTU?  The spread doesn’t yet seem to be narrowing as time passes.
> 
> Is it still within the realm of normal for an all stock merger or are there other issues weighing?
> 
> Doubts over ACCC approval?
> Is VOC a potential target itself?
> Shortage of VOC borrow?
> Worries over MTU stand alone if it doesn’t proceed?
> 
> Thoughts appreciated.




I'll leave the insightful answers to the other guys. 
But for context here's the discount since offer announced. Based from 30m intra-day data.


----------



## skc

craft said:


> What are you guys thoughts on VOC/MTU?  The spread doesn’t yet seem to be narrowing as time passes.
> 
> Is it still within the realm of normal for an all stock merger or are there other issues weighing?
> 
> Doubts over ACCC approval?
> Is VOC a potential target itself?
> Shortage of VOC borrow?
> Worries over MTU stand alone if it doesn’t proceed?
> 
> Thoughts appreciated.




No the spread isn't where you'd expect it to be. 

I can't offer any more speculations than what you've posted... which are the same ones mentioned in this AFR piece

http://www.afr.com/street-talk/gran...bid-while-hedgies-steer-clear-20151026-gkicuo

Whilst the liquidity for either stock isn't great... the spread should be wide enough to entice hedge funds to make a play. 

As to VOC being a target... sure it's plausible but we haven't really seen any offshore players make a bid in the local Telco scene. Unless it's an established player (e.g. Singtel), hwo are they going to benefit and build further scale? And wouldn't you be better off let VOC buy MTU, then make a play for the enlarged VOC, especially if there were to be any indigestion?

Personally I have closed my merger arb trade over the past few days. I didn't lose much and it's not really blowing out further. But the fact that it hasn't converged makes me think there is something going on that I don't know about. Having said that, I have seen on some rare occasion that there is even a spread on the last day of trading (e.g. NVN/FDC merger) so one should always be mindful that the market isn't all knowing all the time.


----------



## craft

Thanks for your thoughts guys.



skc said:


> No the spread isn't where you'd expect it to be.




The spread looks attractive to me even if it was just long MTU - but then I like MTU and could live with the deal failing. 

~30% annualised or stuck with this dog. 



Obviously for a short term time frame the risk/reward would be totally different. 

Despite its performance MTU has never really attracted much intuitional interest so maybe it could just be slower than most to close in the absence of any heavy money conviction, especially if the usual suspects for Arb are shy about ACCC or Telco industry action as per the article you linked.

Time will tell I guess.




VSntchr said:


> I'll leave the insightful answers to the other guys.
> But for context here's the discount since offer announced. Based from 30m intra-day data.
> View attachment 64800




Hey VS what's the data source and charting program?


----------



## VSntchr

craft said:


> Hey VS what's the data source and charting program?



Nothing exciting mate, just streaming data from my Iress trading platform into excel and then organising into an excel chart.


----------



## craft

VSntchr said:


> Nothing exciting mate, just streaming data from my Iress trading platform into excel and then organising into an excel chart.





Thanks - 

If I tell you how awesome you are any chance of throwing up an occasional update of that chart?


----------



## VSntchr

craft said:


> Thanks -
> 
> If I tell you how awesome you are any chance of throwing up an occasional update of that chart?




No problem. Happy to throw an update up every week. Will help keep me tuned into the situation - which is probably wise given that MTU is in the SMSF


----------



## craft

VSntchr said:


> No problem. Happy to throw an update up every week. Will help keep me tuned into the situation - which is probably wise given that MTU is in the SMSF




u are awsome

Now pushing the flattery will get you everywhere theory. If I recall correctly you had some great charts/analysis tracking CCP PDL profitability - also wouldn't mind seeing them again. 

Cheers


----------



## VSntchr

See the CCP thread Craft 

As for pairs lately. I have been really struggling to fill the portfolio, however, the trades that I am finding have been absolute rippers! Bigger profit margins than usual and my win rate has been 85% since reporting season (vs. 79% for FY16 so far). It hasn't been smooth sailing though, alot of those winners have been big losers which reverted nicely after testing my patience :bowdown:


----------



## sinner

VSntchr said:


> It hasn't been smooth sailing though, alot of those winners have been big losers which reverted nicely after testing my patience :bowdown:




Purely out of curiosity, mind posting a chart of one of these spreads with the time and ratio axis annotated with where you entered and exit?


----------



## VSntchr

sinner said:


> Purely out of curiosity, mind posting a chart of one of these spreads with the time and ratio axis annotated with where you entered and exit?




PTF isn't the best for getting specific...but hopefully this does the trick.


----------



## sinner

VSntchr said:


> PTF isn't the best for getting specific...but hopefully this does the trick.
> View attachment 64887




Thanks. Dunno if you'll find this interesting or not but I pulled up a few charts based on that:

Ratio chart going back 2013, monthly bbands. IMHO one would be hard pressed to tell this apart from the chart of a single equity.




Above ratio divided by its SMA20, quarterly bbands.




Definitely not trying to pick holes or anything, purely curious. But looking at the above charts you have to wonder if it wouldn't be cheaper to trade single names against their SMA20 (or more ideally, a rolling optimised mean). Here's the broad market divided by it's SMA20, a bit narrower but otherwise essentially indistinguishable.


----------



## VSntchr

sinner said:


> Definitely not trying to pick holes or anything, purely curious. But looking at the above charts you have to wonder if it wouldn't be cheaper to trade single names against their SMA20 (or more ideally, a rolling optimised mean). Here's the broad market divided by it's SMA20, a bit narrower but otherwise essentially indistinguishable.
> 
> View attachment 64892




Thanks mate, very interesting indeed. Always looking for new ideas and tangents to take my trading to new areas. 
With that said - I like to stick to my knitting with my core strategies to avoid style drift..and I try to keep the open mindedness for any new strategies. 

I like the idea of what you are suggesting. I don't doubt the possibility your correct and that many of the pairs I trade would appear to be more favourably traded on a single-leg mean reverting basis. Perhaps that just shows that some of those pairs are pairs I should be avoiding and I should be focusing more on the nice rotating-around-the-flat-lining-rolling-mean type pairs 

There are certain characteristics of pairs trading that fit very well into my trading strategy portfolio, so sometimes (for me at least) it's not solely about the most efficient way to take a move from an instrument.  

Certainly something to spark the mind though, thanks.


----------



## VSntchr

As we can see in the chart below, craft is clearly a wizard.:taz:


----------



## VSntchr

Not sure how many pairs traders use FPmarkets - but they have just updated their platform to be able to access centre-point orders...**DARK POOLS**:vader:

Sure was annoying to sit in the queue on some of the REITS watching countless orders go through as CP trades while my line didn't move. 

I guess it comes down to "If you can't beat em, join em".

NOTE - they do attract an extra 0.5 bps of brokerage.


----------



## edman79

VSntchr said:


> Not sure how many pairs traders use FPmarkets - but they have just updated their platform to be able to access centre-point orders...**DARK POOLS**:vader:
> 
> Sure was annoying to sit in the queue on some of the REITS watching countless orders go through as CP trades while my line didn't move.
> 
> I guess it comes down to "If you can't beat em, join em".
> 
> NOTE - they do attract an extra 0.5 bps of brokerage.




Yes, 
I particularly like the way they used the word "revolutionary" in their email several times. Considering we have been watching these trades go through on their platform for many years. Add to the fact that it has been possible with IG for years. Other brokers like saxo also sometimes fill at centrepoint but don't allow you to place them specifically.

Better late than never FP


----------



## skc

VSntchr said:


> Not sure how many pairs traders use FPmarkets - but they have just updated their platform to be able to access centre-point orders...**DARK POOLS**:vader:
> 
> Sure was annoying to sit in the queue on some of the REITS watching countless orders go through as CP trades while my line didn't move.
> 
> I guess it comes down to "If you can't beat em, join em".
> 
> NOTE - they do attract an extra 0.5 bps of brokerage.




I don't know how you trade without CP liquidity anymore. They have been on the rise for a long time, especially for the <$2 stocks like most REITs. 0.5bps is a small price to pay (although there's no reason why it isn't free) for the better fills.

Have fun playing around with it. It adds a new consideration to trading.


----------



## VSntchr

skc said:


> I don't know how you trade without CP liquidity anymore. They have been on the rise for a long time, especially for the <$2 stocks like most REITs.* 0.5bps is a small price to pay* (although there's no reason why it isn't free) for the better fills.
> 
> *Have fun playing around with it. It adds a new consideration to trading*.



Yeah! Like f**ing up my spreadsheet commission column!!! 
LOL. 
That aside, it will give me an extra decision to make when its 3:55pm and Im mid-way through the queue and don't want to risk the price moving away in the closing auction.


----------



## skc

VSntchr said:


> Yeah! Like f**ing up my spreadsheet commission column!!!
> LOL.
> That aside, it will give me an extra decision to make when its 3:55pm and Im mid-way through the queue and don't want to risk the price moving away in the closing auction.




Does it automatically sweep any hidden liquidity? Or do you have to specifically place a CP order?


----------



## VSntchr

skc said:


> Does it automatically sweep any hidden liquidity? Or do you have to specifically place a CP order?




Well I was under the impression it was the latter. But after watching this it looks like it will sweep any hidden liquidity. 

A 5bps extra cost is offset by *potentially* saving around 14bps in something that is priced like MGR at ~174.
Something that is priced at 1.00 will save closer to 25bps. 

So the annoyance is worth the savings..now just have to make sure not to hit the CP prematurely :


----------



## SilverRanger

skc said:


> Does it automatically sweep any hidden liquidity? Or do you have to specifically place a CP order?




From what I read you will get it if you cross the spread, if available, or you can place a CP order specifically.


----------



## peter2

Why aren't the CP increments made a normal price step increment and therefore available to all? 
Why does the ASX continually maintain advantages for some? 

The ASX continually annoys me with their "old boys club" attitude and don't start me on what I think of Aust brokers.


----------



## skc

SilverRanger said:


> From what I read you will get it if you cross the spread, if available, or you can place a CP order specifically.






VSntchr said:


> Well I was under the impression it was the latter. But after watching this it looks like it will sweep any hidden liquidity.
> 
> A 5bps extra cost is offset by *potentially* saving around 14bps in something that is priced like MGR at ~174.
> Something that is priced at 1.00 will save closer to 25bps.
> 
> So the annoyance is worth the savings..now just have to make sure not to hit the CP prematurely :




There are CP liquidity in the higher priced stocks as well. Say ANZ @ $26.245. You save nothing yet pay 0.5bps...

Indeed FP should be the market maker enabling the fill while charging you 0.5bps for it!


----------



## VSntchr

VSntchr said:


> View attachment 59572




Why is it always the important days when stuff like this re-occurs!

Lucky I know how to fix it these days...
Thanks Edman!

I don't have an exorbitant amount of pairs (300-400) - but it always seems to happen after a certain amount of time once more price data is stored progressively...there must be some kind of data limit that is causing the problem.


----------



## ThirtysixD

VSntchr said:


> Not sure how many pairs traders use FPmarkets - but they have just updated their platform to be able to access centre-point orders...**DARK POOLS**:vader:
> 
> Sure was annoying to sit in the queue on some of the REITS watching countless orders go through as CP trades while my line didn't move.
> 
> I guess it comes down to "If you can't beat em, join em".
> 
> NOTE - they do attract an extra 0.5 bps of brokerage.




how much do they usually charge to borrow stock?


----------



## skc

Has anyone been having problems with PTF recently?

My copy seem to only update prices intermittently. I am not sure if the problem is on my end, yahoo or the PTF server.

Obviously my internet is working...


----------



## VSntchr

skc said:


> Has anyone been having problems with PTF recently?
> 
> My copy seem to only update prices intermittently. I am not sure if the problem is on my end, yahoo or the PTF server.
> 
> Obviously my internet is working...




Yep. On Friday my pairs stopped updating after about the first hour. Yesterday seemed to stop in the early afternoon too...

I have just recently had to redo the entire database so I thought the problem was my-end..looks like its a bit wider than that.


----------



## CanOz

Pairs trade finder is for sale....


----------



## VSntchr

CanOz said:


> Pairs trade finder is for sale....




First reaction: 
Second reaction: 
Maybe the new owner might actually put some time into maintaining and improving this thing!


----------



## skc

VSntchr said:


> First reaction:
> Second reaction:
> Maybe the new owner might actually put some time into maintaining and improving this thing!




Interesting to see how this develops. 

PTF is not a bad piece of tool, despite some of its shortcomings. The software isn't hugely expensive and I think the relative simplicity is actually a plus - the learning curve on the software itself is very short. Which means users can have more time to focus on the actual trading and implementation of the signals. 

I think as a business it can improve a lot by adopting a monthly subscription model after the first year or something. Those who are starting off trading small pairs won't like a subscription model, while those who actually make profit using the tool probably wouldn't mind. Obviously the charge needs to be in line with what competitions are out there - but it could be a low hanging fruit for the new owner. It will help fund ongoing maintenance and improvement of the software, and make it a better product and hence more initial sale.

Ideally it'd suit someone who trades, knows IT, and knows about internet sales and marketing. But I think the latter two are probably more important than trading itself.


----------



## Gringotts Bank

The PTF guy never responded to emails I sent.  He would just ignore them.  Is that still his way of doing business?


----------



## skc

Managed to hit the IOF/DXS pair today... This rumour has been around since the dawn of time and actually came to fruition. Gain on the spread is pretty small for a takeover though. 

Now IOF is trading at a tiny premium to the implied offer price for some reason. I closed it when it was @ 1% discount.

Let's see if the spread would move back out and offer further trading opportunities.



Gringotts Bank said:


> The PTF guy never responded to emails I sent.  He would just ignore them.  Is that still his way of doing business?




I don't know. Why don't you try emailing him again? I'd be surprised if he doesn't answer emails now given that he's selling the business.

P.S. From memory you had him and another poster with similar nickname mixed up at one stage? Just check you are using the correct email. e.g. your email client might auto-complete the wrong address?


----------



## VSntchr

skc said:


> Managed to hit the IOF/DXS pair today... This rumour has been around since the dawn of time and actually came to fruition. Gain on the spread is pretty small for a takeover though.
> 
> Now IOF is trading at a tiny premium to the implied offer price for some reason. I closed it when it was @ 1% discount.
> 
> Let's see if the spread would move back out and offer further trading opportunities.



The IOF shareholders get the ~9.7c distribution though and from what I can see this will not reduce the cash component? If I am right then the total return is still positive for new buyers. Could be wrong though, I tend to struggle with the details on these things.


----------



## skc

VSntchr said:


> The IOF shareholders get the ~9.7c distribution though and from what I can see this will not reduce the cash component? If I am right then the total return is still positive for new buyers. Could be wrong though, I tend to struggle with the details on these things.




Dividend impact is much of a wash when you consider that you have to pay dividend (~20c a share) on the DXS short borrow.

I'd just work out what IOF is worth after DXS goes ex-div, then add back the 9.7c dividend that you will collect on the long.

So on the script deal, with DXS @ $7.76 and 20c dividend, IOF is worth $4.0068 + 9.7c dividend = ~$4.1. 
On the mixed deal, IOF is worth 0.424 x ($7.76-$0.2) + $0.8229 + $0.097 = $4.125. 

IOF is trading @ $4.13 as we speak so a tiny premium - I'd have thought a 2-3% gap to be more appropriate.

Mind you DLS went slight premium to BPT offer on the first day or two. Now the gap is ~2-3%.


----------



## VSntchr

skc said:


> Dividend impact is much of a wash when you consider that you have to pay dividend (~20c a share) on the DXS short borrow.



Yes your spot on.


skc said:


> Mind you DLS went slight premium to BPT offer on the first day or two. Now the gap is ~2-3%.



Ahhh, that one brings back good memories


----------



## Gringotts Bank

skc said:


> I don't know. Why don't you try emailing him again? I'd be surprised if he doesn't answer emails now given that he's selling the business.
> 
> P.S. From memory you had him and another poster with similar nickname mixed up at one stage? Just check you are using the correct email. e.g. your email client might auto-complete the wrong address?




Yes, good memory you have.  The email was correct, I just lost interest after a while.

Maybe I'll check in when the new owner appears.  I've noticed the market for this type of product has taken off - lots of softwares out there.


----------



## VSntchr

Bummer to close my last pair of the year for a loss. Biggest ever loss % wise, although was only a small size so not too much account damage. I had a pretty good run over the last few months with my pairs, although I struggled to consistently have a full portfolio so activity levels were substantially down on last year. 
Closing the pairs down now for the year as I do not want to get stuck in anything over the low-volume holiday period - last year was a bit tough to trade through.


----------



## VSntchr

VSntchr said:


> View attachment 64914




Update to the MTU/TPM deal.
A bit of a while since the last chart as I had an unexpected week off last week :bowser:


MTU has been in consolidation and pushing a little higher, while the discount continues to blow out and is now back to the 6%+ level..


----------



## skc

VSntchr said:


> Bummer to close my last pair of the year for a loss. Biggest ever loss % wise, although was only a small size so not too much account damage. I had a pretty good run over the last few months with my pairs, although I struggled to consistently have a full portfolio so activity levels were substantially down on last year.
> Closing the pairs down now for the year as I do not want to get stuck in anything over the low-volume holiday period - last year was a bit tough to trade through.




Great stuff. I have shut down pairs for the year as well. The last few months have been pretty bad for my pairs trading. Still profitable overall the but gains were tiny. The problem probably came down to a lack a patience... I entered too quickly, took small profits to quickly and closed when faced with drawdown too quickly. Hopefully these are all fixable come the new year.



VSntchr said:


> Update to the MTU/TPM deal.
> A bit of a while since the last chart as I had an unexpected week off last week :bowser:
> 
> MTU has been in consolidation and pushing a little higher, while the discount continues to blow out and is now back to the 6%+ level..




MTU/*VOC*. Took a trade earlier in the week when it came out of the trading halt... thinking that the ratio might converge a bit. It did for 48 hours only and I closed the for some lunch money. Wasn't going to hold this over the holidays. It remains to be seen whether it's just a tiny quirk in the market or there's something else at play.


----------



## VSntchr

skc said:


> Great stuff. I have shut down pairs for the year as well. The last few months have been pretty bad for my pairs trading. Still profitable overall the but gains were tiny. The problem probably came down to a lack a patience... I entered too quickly, took small profits to quickly and closed when faced with drawdown too quickly. Hopefully these are all fixable come the new year.



Always good to have an understanding of what is driving performance, rather than just knowing its down. 


skc said:


> MTU/*VOC*



 think I'm still on holiday


----------



## VSntchr

Welcome to 2016 pairs traders 

Has anyone got a handle on any affected REITS re: the Masters sale process?

Already seen APD delay the release of their latest fund, although the wording looks like Woolies is pretty tied up by the agreement so they will be financially liable to get out of it. 

Obviously SCP is heavily involved with Woolies, but not sure if they had much to do with the Masters stores? 
A bit of digging around probably necessary before putting on any big REIT pair positions.


----------



## skc

VSntchr said:


> Welcome to 2016 pairs traders
> 
> Has anyone got a handle on any affected REITS re: the Masters sale process?
> 
> Already seen APD delay the release of their latest fund, although the wording looks like Woolies is pretty tied up by the agreement so they will be financially liable to get out of it.
> 
> Obviously SCP is heavily involved with Woolies, but not sure if they had much to do with the Masters stores?
> A bit of digging around probably necessary before putting on any big REIT pair positions.




Here's an Australian article on this.
http://www.theaustralian.com.au/bus...t/news-story/bfded253fba2ab528b4a470ef3629f64



> Newly listed Aventus has exposure to one Masters store in Victoria’s Cranbourne in its portfolio of 15 bulky goods centres.
> 
> SCA has one store in Mount Gambier’s town centre, which could be turned into a supermarket or bulky goods centre.
> 
> Charter Hall has two stores in Sydney and Melbourne, and has a contract to buy a third Masters site. Funds run by APN and Cromwell are also exposed to Masters developments.




Doesn't sound like there'd be major implications.


----------



## VSntchr

VSntchr said:


> Update to the MTU/VOC deal.
> MTU has been in consolidation and pushing a little higher, while the discount continues to blow out and is now back to the 6%+ level..



Another update:


Well the discount to the deal has evaporated since mid-Jan. Any traders keeping an eye on the chart could have traded the ratio once it "broke-out" to a <3.5% discount.
Note: data switched to 30min from 15min for this update.


----------



## VSntchr

Final update - MTU ceased trading Friday 8th Feb.


----------



## VSntchr

The above should read: Monday 8th Feb.
Long day


----------



## craft

VSntchr said:


> Final update - MTU ceased trading Friday 8th Feb.
> View attachment 65846




Thnks V

Interesting once we know how this finished up to revisit the anxiety raised by the market providing an outsized return at one stage.  Possible there was something brewing that never came to light. maybe the market just had it wrong for a while.


----------



## skc

craft said:


> Thnks V
> 
> Interesting once we know how this finished up to revisit the anxiety raised by the market providing an outsized return at one stage.  *Possible there was something brewing that never came to light. *maybe the market just had it wrong for a while.




The market is full of mysteries... I would really have like to know if there was a real reason behind it.


----------



## craft

skc said:


> The market is full of mysteries...




yep. me thinks the market might be female.


----------



## VSntchr

I am sure other PTF users have been recieving emails from the new owners.

It is fantastic that they have chosen to honor our lifetime licenses and perhaps even better news is that they are taking feedback for an upcoming reinvestment into improvements for the program.

Over on another misplaced thread, an ASF user suggested IQfeed would be available sometime this year. Live prices for our pairs would be a massive step up and something I would certainly pay the data fee for. 
Interestingly, I can imagine that it will reduce the profitability of the theoretical system - as quite often I find that the backtests/trades on the signal page are riddled with trades that were advantageously taken due to the staggered open.

As a side note, I downloaded the book that they offered to us for free via email...however I never found out how to access it! Not sure if it was just me being drained after a long day, or if there was some little trick that I missed after the checkout proces  :dunno:

P.S Just closed my first trade since reporting season :dance:


----------



## Freddy

*Re: PTF, IQFEED*

I am Freddy, just found this thread courtesy of old thread.  I have been in touch with new owners - they respond within 24 hours.  My problem is not being able to get the "Alerts" working; CSV or Email.  PTF has agreed with me that the Email part fails due to their software not issuing an SSL security parameter.  They are attending to this with a new release soon.  If you want to get in touch use this email address: support@pairtradefinder.com.  They do not sign their emails with a person's name.

Is anyone else having my problem?  I use Windows 7 Professional SP1 and Thunderbird email through Bigpond.

Have just completed a sequence of test trades from 2 Dec 2015 through the reporting season to 7 Mar 2016.

IQFEED has informed me that they hope to have a service for the ASX running before June 2016.  That would provide us with more timely pricing.


----------



## VSntchr

As per the email today, looks like we have a "PRO" version on the way.
I'll certainly be interested to see if it's worth the money...


----------



## skc

VSntchr said:


> As per the email today, looks like we have a "PRO" version on the way.
> I'll certainly be interested to see if it's worth the money...




I am not sure I like the latest promotional email... buy an old version of the PTF for $99 so you can get 30% discount on the new PRO version.

Given that the PRO version hasn't actually been released, it doesn't seem like that good a deal!? If I already have PTF installed, why would I buy another copy? If I haven't got PTF installed, why would I buy a soon-to-be-outdated version now?

I think the PRO version sounds promising... but I'd like test it after the release rather than pre-purchase some discount.


----------



## VSntchr

skc said:


> I am not sure I like the latest promotional email... buy an old version of the PTF for $99 so you can get 30% discount on the new PRO version.
> 
> Given that the PRO version hasn't actually been released, it doesn't seem like that good a deal!? If I already have PTF installed, why would I buy another copy? If I haven't got PTF installed, why would I buy a soon-to-be-outdated version now?
> 
> I think the PRO version sounds promising... but I'd like test it after the release rather than pre-purchase some discount.



Exactly my thoughts after reading the repeat email I just received. It doesn't take long to notice that the over-the-top marketing is influenced by the previous owner which occasionally sent some crazy marketing schemes through...lol.

Your reasoning is spot on, it's pretty clear that all they are offering is the ability to "buy" a discount coupon for the new version.
I guess only a bunch of financial types could come up with such a scheme - perhaps what they have failed to realise is that we are cut from the same cloth!

FWIW, I had a look at the website and even went to the order page for the license offer... if you can beleive it theres a check box that must be ticked that asks if you want ANOTHER two licenses for an extra $49


----------



## VSntchr

Every f**ng public holiday and Yahoo data goes crazy.
Heres hoping the PRO version gives us a live data option...!

I guess this gives me a chance to upgrade to the latest version. I am running v3.22 and one of the spammy emails received from PTF said the latest is v3.25.


----------



## edman79

VSntchr said:


> View attachment 66150
> 
> Every f**ng public holiday and Yahoo data goes crazy.



Have you tried refreshing the pair? 
It may revert to EOD data (remove not the intraday signals) but at least you keep your pairs (if it works)


----------



## skc

edman79 said:


> Have you tried refreshing the pair?
> It may revert to EOD data (remove not the intraday signals) but at least you keep your pairs (if it works)




That's the way to re-set it. I have been doing that after every public holiday for the last N years...


----------



## VSntchr

edman79 said:


> Have you tried refreshing the pair?
> It may revert to EOD data (remove not the intraday signals) but at least you keep your pairs (if it works)




Ahh of course. Yep. Works fine! Cheers


----------



## Freddy

Here is an official reply from PTF re this problem.

"I would suggest you to refresh pairs. This should solve the problem.
Also we are working on getting aboard different and better data vendors that would remove this issue under product PTF Pro.
For the time being and if you are on Yahoo feeds, refreshing pairs is the way to fix the problem.

Regards,
PTF Support"

It looks like they are actually working on a new release.


----------



## Freddy

Have you guys been checking the update times of each pair int PTF's Home page?  There is something very bad going on.

For instance SRX In Trade shows 10:30am and $29.14  but SRX Watching has $29.00 at 2:31pm

It is now 3:27pm.

I hope an upgrade is coming soon.


----------



## Freddy

More problems.  I have SRX/VRT that shows as a selected pair for trading but stops prematurely when viewing the Pair Charts - see attachment.  This pair appears as "Watching" on the Home" page.

Any experience with this anomaly?  

I have other pairs showing the same thing  Even a Refresh does not fix it.


----------



## skc

Freddy said:


> More problems.  I have SRX/VRT that shows as a selected pair for trading but stops prematurely when viewing the Pair Charts - see attachment.  This pair appears as "Watching" on the Home" page.
> 
> Any experience with this anomaly?
> 
> I have other pairs showing the same thing  Even a Refresh does not fix it.
> View attachment 66183




It is showing 2 rows of prices for 21/3/2016 which it shouldn't.
Try delete, close PTF, re-start and add the pair again.


----------



## VSntchr

CMW buying just under 10% of IOF as the shareholder vote was scheduled for this Friday. That combined with Morgan Stanley being allowed to vote their 8.9% stake has vastly diminished the chances of the 75% needed for approval. 
Will be interesting to see what CMW intentions are. As a group they are smaller than IOF by market cap, although they do have access to some big money via their South African 25% owner. 

I haven't been trading this pair, but noted that the discount to the offer did expand a little today (2.22%) as DXS went up on the news, while IOF lagged a bit - despite being much more wild.


----------



## skc

VSntchr said:


> CMW buying just under 10% of IOF as the shareholder vote was scheduled for this Friday. That combined with Morgan Stanley being allowed to vote their 8.9% stake has vastly diminished the chances of the 75% needed for approval.
> Will be interesting to see what CMW intentions are. As a group they are smaller than IOF by market cap, although they do have access to some big money via their South African 25% owner.
> 
> I haven't been trading this pair, but noted that the discount to the offer did expand a little today (2.22%) as DXS went up on the news, while IOF lagged a bit - despite being much more wild.




Remember there's a 7c special dividend if the deal goes through. So the gap at close is ~4.4%. The discount blew out today at one stage to ~6%, with IOF @ 4.06 and DXS @ 8.07. 

I think CMW just wants a seat at the table... may be it can carve out a few assets from IOF the way GPT did to CPA.

But who knows...


----------



## VSntchr

skc said:


> Remember there's a 7c special dividend if the deal goes through. So the gap at close is ~4.4%. The discount blew out today at one stage to ~6%, with IOF @ 4.06 and DXS @ 8.07.



Did not know about the special div. Shows my ignorance for the deal, I haven't really watched it until now! Not sure why, as Im sure theres been a few opportunities along the way..



> I think CMW just wants a seat at the table... may be it can carve out a few assets from IOF the way GPT did to CPA.
> But who knows...



That would be the most logical answer I think.


----------



## VSntchr

skc said:


> Remember there's a 7c special dividend if the deal goes through. So the gap at close is ~4.4%. The discount blew out today at one stage to ~6%, with IOF @ 4.06 and DXS @ 8.07.




Over 7% now.
Anyone want to have a stab at downside for IOF if deal falls through? 

CMW statement this morning was a bit hilarious..obviously not giving their full intentions in the announcement...
A side note, the market seems to be discounting CMW as if they will make an offer ...98c v 103.5c earlier in the week. A downgrade by CLSA today probably influencing that a bit too..


----------



## skc

VSntchr said:


> Over 7% now.
> Anyone want to have a stab at downside for IOF if deal falls through?
> 
> CMW statement this morning was a bit hilarious..obviously not giving their full intentions in the announcement...
> A side note, the market seems to be discounting CMW as if they will make an offer ...98c v 103.5c earlier in the week. A downgrade by CLSA today probably influencing that a bit too..




Yes the CMW announcement is very funny... they seem pleased that their share raid caught DXS by surprise.

I shorted CMW as soon as it opened after the news yesterday, but closed it when it didn't move... another case of being too quick for the market (and my own good)!

I don't think IOF will have much to fall... there'd be a bit of flow as people close their takeover long. But now there's CMW lurking in the shadows, plus the NTA @ $3.98. For comparison DXS trades @ 13% premium to IOF. Anything much below NTA would be a good opportunity imo.


----------



## Freddy

Do either of you, VNC, VSNATCHER, use Alerts in PTF for sending emails?

I want to use it but have had no success with my ISP - bigpond.com.

I would appreciate any feedback.


----------



## skc

Freddy said:


> Do either of you, VNC, VSNATCHER, use Alerts in PTF for sending emails?
> 
> I want to use it but have had no success with my ISP - bigpond.com.
> 
> I would appreciate any feedback.




No I do not use the email function under alert. It's not really suitable for active trading. Best to ask the support guys to resolve your question.


----------



## VSntchr

Freddy said:


> Do either of you, *SKC*, VSNATCHER, use Alerts in PTF for sending emails?
> 
> I want to use it but have had no success with my ISP - bigpond.com.
> 
> I would appreciate any feedback.




I don't use emails either, I have the program open constantly!

BTW, not sure who VNC is..but I think I fixed it


----------



## Freddy

Sorry, I meant 'skc'. I traded through from Dec 2016 to yesterday (includes the reporting season) using pairs from ASX200 and turned a nice profit regardless.  Nothing going at present though - patience required I suppose.  Nice to link up with others using PTF.


----------



## VSntchr

Freddy said:


> Sorry, I meant 'skc'. I traded through from Dec 2016 to yesterday (includes the reporting season) using pairs from ASX200 and turned a nice profit regardless.  Nothing going at present though - patience required I suppose.  *Nice to link up with others using PTF.*




Indeed, the more the merrier in here - nice to see new users posting.

I have actually had a fairly quiet year also. Have only made 130 trades vs ~190 at this time last year. I have actually started to really ramp it up since last week with a bit of volatility and divergence occurring in multiple sectors that I follow.


----------



## Freddy

From Dec 1 to Apr 6 I have only had 32 trades.  I am only following 34 pairs at present from the ASX 200, so slow.
Profit is 20% on $40,000 bank.  Is that good or bad?


----------



## skc

Freddy said:


> From Dec 1 to Apr 6 I have only had 32 trades.  I am only following 34 pairs at present from the ASX 200, so slow.
> Profit is 20% on $40,000 bank.  Is that good or bad?




On the surface, and assuming that you are placing sensible position size to manage your risks, not bad at all!  Especially if you are just getting started.

You now can learn to build up the size and build up the number of pairs you are monitoring... and it's not hard to double your activity level in a short time.

Well done and best of luck.


----------



## Freddy

Trades are done through use of CFDs with $10,000 per leg of a pair.  However, that amount is used to obtain the number of shares to be bought but as you probably know, you are buying for between 10 and 25% of the value using CFDs.  Biggest exposure was $38,000 when I had 11 trades open.  So my $40,000 bank was nearly gone.  I have increased it since.


----------



## SilverRanger

Freddy said:


> Trades are done through use of CFDs with $10,000 per leg of a pair.  However, that amount is used to obtain the number of shares to be bought but as you probably know, you are buying for between 10 and 25% of the value using CFDs.  Biggest exposure was $38,000 when I had 11 trades open.  So my $40,000 bank was nearly gone.  I have increased it since.




Yes I'm pretty in the same boat with my margin, usually hovers around 90% and occasionally going into margin call.
 Getting access to multiple brokers and trading with the lowest margin for a particular stock can help. Earlier this week I've just refreshed my spreadsheet comparing the major DMA providers' margin, happy to share it around. (just drop me a pm)


----------



## VSntchr

Mr. Yahoo forgetting to turn on data for the second session in a row now.
I had my pairs update overnight but back in stall mode. Anyone else affected?


----------



## skc

VSntchr said:


> Mr. Yahoo forgetting to turn on data for the second session in a row now.
> I had my pairs update overnight but back in stall mode. Anyone else affected?




Working on this end... and it was working yesterday as well.

This like appears to be working as well.

https://au.finance.yahoo.com/q?s=BHP.AX


----------



## VSntchr

skc said:


> Working on this end... and it was working yesterday as well.
> 
> This like appears to be working as well.
> 
> https://au.finance.yahoo.com/q?s=BHP.AX




Thanks mate, I am back on now. Wonder why mine was off!?


----------



## SilverRanger

VSntchr said:


> Thanks mate, I am back on now. Wonder why mine was off!?




Now that PTF is in new owner's hands, you may try testing their customer service, see if they can send you a SQL script to manually update the prices, that will be useful when Mr Yahoo really gone down


----------



## VSntchr

SilverRanger said:


> Now that PTF is in new owner's hands, you may try testing their customer service, see if they can send you a SQL script to manually update the prices, that will be useful when Mr Yahoo really gone down



Good point on the script. Although, I am pretty sure that they have retained the same service staff..it's just a freelancer type setup with a guy named Aman I think


----------



## VSntchr

Back in "pending" mode for all pairs 
Have emailed admin to see what they can do for me.


----------



## VSntchr

VSntchr said:


> Back in "pending" mode for all pairs
> Have emailed admin to see what they can do for me.



This is from the error file (which is now 170mb!!!)


> System.FormatException: Input string was not in a correct format.
> at System.Number.StringToNumber(String str, NumberStyles options, NumberBuffer& number, NumberFormatInfo info, Boolean parseDecimal)
> at System.Number.ParseDecimal(String value, NumberStyles options, NumberFormatInfo numfmt)
> at System.Convert.ToDecimal(String value)
> at PairTradeFinder.dataGrabber.GetStockItem(String code, Int64 portfolio)


----------



## Freddy

As an old programmer, this looks like a orrult database. Suggest you try a refresh of all pairs. Not sure if you can do this at Stock List level.


----------



## Freddy

Sorry, that word is "corrupt".


----------



## Freddy

Watch Selfwealth - article in AFR today suggesting a commission of only $9.50 per trade regardless of size. They don't say if this is for CFD trades though.


----------



## VSntchr

Freddy said:


> As an old programmer, this looks like a orrult database. Suggest you try a refresh of all pairs. Not sure if you can do this at Stock List level.



Thanks for the suggestion.
I have tried reinstalling PTF and SQL, and even starting with a completely fresh database.
I found an old error that SKC had that was around the way that windows set the date format - so I tried switching to US format, still no fix though.

When I ran process monitor I found that it was having some trouble finding the registry key - 
HKCU\Control Panel\International\Calendars\TwoDigitYearMax
As it said "NAME NOT FOUND".

So perhaps it is a date/calendar issue, but I am not sure how to fix.
In any case, PTF support is offering me a remoteview session tomorrow to try and fix.
Certainly has been a difficult week - spent half the time troubleshooting IT issues, which is not good for the PnL, or the stress levels!


----------



## SilverRanger

Freddy said:


> Watch Selfwealth - article in AFR today suggesting a commission of only $9.50 per trade regardless of size. They don't say if this is for CFD trades though.




Doesn't sound like they offer margin lending either, presumably no shorts too. But even then the flat rate commission will be quite attractive to some.


----------



## Freddy

IQFEED finally got back to me after two emails to them.  Here is the content of their email relating to provision of real time feed of ASX prices..

"Unfortunately we will not be obtaining this data as the decision was made based on customer demand to add the LSE London Stock Exchange Instead. This data will be added in the next week or so.

Sorry about that."

So that possibility is dead.  Unless we make up a petition to see how many people we can get on board.


----------



## VSntchr

skc said:


> I think there are alternatives out there already. Have you done a google search on pairs trading software?
> - *ArbMaker *- demo available to have a play. I've downloaded but not yet tested it.




Did you ever get around to trying it SKC?


----------



## mjim

Does the "pair" of 2 futures months  like June/ Sept on ASX index futures ( SPI) move at all? worth trading?


----------



## skc

VSntchr said:


> Did you ever get around to trying it SKC?




Probably spent 1-2 hours on it and didn't get very far. The only impression I'd share is that the learning curve was longer than 1-2 hours... that's probably also saying that there's a fair bit of customisation and options available that take time to not only explore, but probably a week or 2 to forward walk and see how it react to prices.

P.S. It was a long time ago I can't even remember if it was ASX friendly.



mjim said:


> Does the "pair" of 2 futures months  like June/ Sept on ASX index futures ( SPI) move at all? worth trading?




There aren't any pairs futures traders here I don't think.


----------



## VSntchr

skc said:


> Probably spent 1-2 hours on it and didn't get very far. The only impression I'd share is that the learning curve was longer than 1-2 hours... that's probably also saying that there's a fair bit of customisation and options available that take time to not only explore, but probably a week or 2 to forward walk and see how it react to prices.
> 
> P.S. It was a long time ago I can't even remember if it was ASX friendly.



Ive spent about 2 hours so far and my conclusions are similar...so your memory is good!

It is ASX friendly, although I am struggling to successfully add and backtest pairs and am coming close to the "too hard basket". With that said, the communications I've had with the co-founder have been positive and he seems like a good guy.


----------



## Freddy

Today was a real winner with EHE dropping dramatically and initiating multiple pairs.  With 6 trades going, EHE finally put up an announcement saying that the rumour they were under investigation by government was untrue and "voila" up went the shares from buy at 4.70 to sell at 5.25.  Good old PTF.  Sell side shares were RMD, SHL, VRT, SRX, REG and ANN.


----------



## VSntchr

Freddy said:


> Today was a real winner with EHE dropping dramatically and initiating multiple pairs.  With 6 trades going, EHE finally put up an announcement saying that the rumour they were under investigation by government was untrue and "voila" up went the shares from buy at 4.70 to sell at 5.25.  Good old PTF.  Sell side shares were RMD, SHL, VRT, SRX, REG and ANN.




Nice work Freddy, glad you had some good profitable trades.
I have been watching the sector closely for a little while and actually had JHC/REG in mind and only just missed out on taking it yesterday  - would have been a very quick trade! I did however take EHE once it stabilised today and paired it against JHC. Mostly out now though - so got my quick trade in the sector after all.

I'm quite disappointed in having not traded the sector more actively, however I tend to tread with extreme caution when a sector is under attack as things could get quite wild and unexpected things could happen. 

If your not sure what's going on with EHE (REG, JHC also), then perhaps check out the EHE thread where McLovin and VES are posting some great opinion on the situation. I would be very careful pairing up anything in aged care against peers which are not directly aligned (despite being in the health sector) such as the ones you have listed, especially while their is heightened perception of regulator risk. However, just my opinion and based on previous posts what you've been doing is working well - so keep at it


----------



## Freddy

Vsnthcr, if you still have access to PTF, would you kindly do me a favour?

Top Left Button(Pear)>>Alerts >> and set it up and send yourself a test message.  Then let me know if it actually works on your system.  It fails on mine.

I have noted your recommendation for health sector and will be careful.  Currently running 8 pairs in this sector but only in theory to see what happens.  Balance is a small loss right now of -$0.59.  That is based on $10k per leg.


----------



## VSntchr

Freddy said:


> Vsnthcr, if you still have access to PTF, would you kindly do me a favour?
> Top Left Button(Pear)>>Alerts >> and set it up and send yourself a test message.  Then let me know if it actually works on your system.  It fails on mine.
> .



I don't have alerts set up and not exactly sure how to do so. I tried to send a test email, but without the settings regarding "outgoing email server" etc, I expect (and it hasn't) it not to work.


----------



## Freddy

I have just taken a snapshot of my Home page, then deleted all pairs and rebuilt from scratch.

I did this as Yahoo became stuck on a date of 10/6/2016 being a long weekend.

The results are alarming.

There are now pairs I should NOT have been on.
There are values that don't come near the values I started trades (taking note of 20 minute delay).

I am at the point where I feel I cannot feel confident in using PTF any more.

I have sent this information off to Aman at PTF, so let's see what result I receive.


----------



## skc

Freddy said:


> I have just taken a snapshot of my Home page, then deleted all pairs and rebuilt from scratch.
> 
> I did this as Yahoo became stuck on a date of 10/6/2016 being a long weekend.
> 
> The results are alarming.
> 
> There are now pairs I should NOT have been on.
> There are values that don't come near the values I started trades (taking note of 20 minute delay).
> 
> I am at the point where I feel I cannot feel confident in using PTF any more.
> 
> I have sent this information off to Aman at PTF, so let's see what result I receive.




PTF always have problems on holidays. 

The trick is to always check the pairs chart after a public holiday. If you get data that's "stuck" etc, refresh the pair.

Indeed I refresh all pairs after public holiday as a matter of course.

You should then shut down PTF, and re-start it. All pairs will be reloaded with signals through the last 12 moths going off. It should be back to normal.


----------



## Freddy

PTF has just got back to me and asked me for some screen dumps and they will get their programmers to rectify this problem we experience after long weekends.

As I have just rebuilt, I do not have any examples to show them.

Do any of you have some pair charts that I could send them?  Alternatively, send to support@pairtradefinder.com.

Here is a copy of the return email I received from them.

We are sorry that you have to had this experience that questions your trust in our product. We definitely would like to make things better and for that would appreciate the help that you could provide us here. I am sure that there would be an explanation of whatever you are experiencing. To straighten things out we would request you to send us screen shots with your inputs so we can take this up with our developer on priority and get it sorted out. We do hope to make it up to you and appreciate your feedback and time.

Best,
Aman 

Let's see what they come back with.


----------



## VSntchr

skc said:


> PTF always have problems on holidays.
> 
> The trick is to always check the pairs chart after a public holiday. If you get data that's "stuck" etc, refresh the pair.



+1. Worked for me too. I remembered the advice you have given me previously.



Freddy said:


> PTF has just got back to me and asked me for some screen dumps and they will get their programmers to rectify this problem we experience after long weekends.
> 
> As I have just rebuilt, I do not have any examples to show them.
> 
> Do any of you have some pair charts that I could send them?  Alternatively, send to support@pairtradefinder.com.



Interested to see what they come up with for you - if anything.
My recent issues with PTF were extremely frustrating. I was essentially operating with the data feed updating once or twice a day for two weeks.
After working with PTF support, Optus support and a friend who is A+ with SQL...no one could ultimately identify the problem. It randomly resolved itself the other day and has been working (no more error messages in the log file) ever since. Ultimately the experience was not completely worthless as I expanded my IT knowledge considerably!


----------



## skc

Freddy said:


> PTF has just got back to me and asked me for some screen dumps and they will get their programmers to rectify this problem we experience after long weekends.
> 
> As I have just rebuilt, I do not have any examples to show them.
> 
> Do any of you have some pair charts that I could send them?  Alternatively, send to support@pairtradefinder.com.
> 
> Here is a copy of the return email I received from them.
> 
> We are sorry that you have to had this experience that questions your trust in our product. We definitely would like to make things better and for that would appreciate the help that you could provide us here. I am sure that there would be an explanation of whatever you are experiencing. To straighten things out we would request you to send us screen shots with your inputs so we can take this up with our developer on priority and get it sorted out. We do hope to make it up to you and appreciate your feedback and time.
> 
> Best,
> Aman
> 
> Let's see what they come back with.




My PTF has been cleaned so sorry can't help you with the screen dump there.


----------



## VSntchr

Sometimes the analyst up/downgrades really just like to kick you in the butt...

BLD/CSR got me good this week with a downgrade on BLD and upgrade on CSR 
Then
CHC/DXS also got me with CHC downgraded while DXS had a positive note released


----------



## skc

VSntchr said:


> Sometimes the analyst up/downgrades really just like to kick you in the butt...
> 
> BLD/CSR got me good this week with a downgrade on BLD and upgrade on CSR
> Then
> CHC/DXS also got me with CHC downgraded while DXS had a positive note released




Yes I had BLD/CSR too and closed it on the BLD downgrade. Could have held the CSR short for the rest of the day much better than I did.

The overall impact of analyst changes are typically short term... but when you get double hit on both sides it hurts a lot!

I only have 3 small pairs now with Brexit, school holidays and REIT ex-div coming up.


----------



## Freddy

Here is a reply to my query re PTF and "after long weekend" problems:

We're testing our next product with the development team this week and next. Will get back to you asap.
Best
Paul
Pairtradefinder.com

Finally, something is happening.  So will post updates as I receive.


----------



## VSntchr

Freddy said:


> Here is a reply to my query re PTF and "after long weekend" problems:
> 
> We're testing our next product with the development team this week and next. Will get back to you asap.
> Best
> Paul
> Pairtradefinder.com
> 
> Finally, something is happening.  So will post updates as I receive.




Keep us posted Fred!
I also have been in touch with them regarding a problem I have been having - hoping their updates can fix this too.

Anyone having much luck with the current environment? Ive had some very big swings going on and mostly in my favour 
BTT for example was just a gift on the open. Massive spike! A bit weary trading this sector given the situation, but some research into geographical exposures can give a basic roadmap. 
One more day for the financial year to get the equity curve point northeast!


----------



## skc

VSntchr said:


> Anyone having much luck with the current environment? Ive had some very big swings going on and mostly in my favour
> BTT for example was just a gift on the open. Massive spike! A bit weary trading this sector given the situation, but some research into geographical exposures can give a basic roadmap.
> One more day for the financial year to get the equity curve point northeast!




I only have 2 small pairs on at the moment. The market is better for silly outright momentum trading imo.... so I've been focusing on that. I haven't tried to pair any stock with UK exposure at all.... as you say, big swings and I am not that confident that they'd all be in my favour.

I saw that BTT bot running wild this morning... I shorted it on the way up, when I saw HGG wasn't moving. Had to take some heat but was quite profitable in the end. Mean reversion rules!


----------



## Freddy

Latest from PTF after I asked if they are using my database for testing.  Luckily, I found a 29 Dec 2015 that would have been corrupt due to Christmas.

Hi Leigh, yes we would soon be rolling out the latest version so you can use it. The more precise timeline I will let you know by next few hours. Will that be ok?

Fingers crossed.....


----------



## edman79

skc said:


> Yes I had BLD/CSR too and closed it on the BLD downgrade. Could have held the CSR short for the rest of the day much better than I did.




Hi SKC,
I think you've mentioned where you get your broker down/upgrade info before but to save half an hour searching can you remind me? 

Cheers.


----------



## skc

edman79 said:


> Hi SKC,
> I think you've mentioned where you get your broker down/upgrade info before but to save half an hour searching can you remind me?
> 
> Cheers.




FNArena subscription will get you the morning emails before open. There used to be a mid day free version which I don't think exist anymore.

Fin Review does spot mentions here and there.


----------



## Freddy

Latest from PTF.

"We should have v3.27, a debugged and streamlined version of the current app, ready in the next week.  We are looking at launching PTF Pro in October." That was dated 26 July 2016.


----------



## VSntchr

Freddy said:


> Latest from PTF.
> 
> "We should have v3.27, a debugged and streamlined version of the current app, ready in the next week.  We are looking at launching PTF Pro in October." That was dated 26 July 2016.




Interesting. My data still having massive issues so hopefully this is fixed in the update...
I wont be subscribing to PRO unless I see some substantial improvements in either support function or an outright fix.


----------



## Freddy

VSntchr said:


> Interesting. My data still having massive issues so hopefully this is fixed in the update...
> I wont be subscribing to PRO unless I see some substantial improvements in either support function or an outright fix.




Here is the latest from PairTradeFinder:

----------------------------
Yes, the PTF Pro will be a new product.
Yes, you will be eligible for upgrade/ bug fixes with your current life time license.

Some of the feature for PTF Pro are:
Among many improvements to the user interface and experience, backtester accuracy, and reporting statistics - will also include an integration with Interactive Brokers' IB Gateway for data and Trader Workstation for semi-automatic trading. If you open an account at Interactive Brokers through us and integrate PTF Pro with that account, you should be able to get historic and real-time NSE and Bombay data for use in PTF Pro.
----------------------------
Vsntchr - if you have bugs you can identify, please send details and error log to support@pairtradefinder.com


----------



## VSntchr

Thanks Freddy. Although I think my problem is external to PTF.
I have realised that when PTF stops importing data, that I simultaneously cannot access finance.yahoo.com - which is where the data is pulled from.
I can access au.finance.com  - so I think the problem is that Yahoo7 (the Australian version of yahoo) is blocking access to the US version, thus causing me data problems. I cannot fathom that I am the only user having this issue, although it seems that way


----------



## Freddy

VSntchr said:


> Thanks Freddy. Although I think my problem is external to PTF.
> I have realised that when PTF stops importing data, that I simultaneously cannot access finance.yahoo.com - which is where the data is pulled from.
> I can access au.finance.com  - so I think the problem is that Yahoo7 (the Australian version of yahoo) is blocking access to the US version, thus causing me data problems. I cannot fathom that I am the only user having this issue, although it seems that way




I have forwarded this to my contact at PTF.  Here's hoping he has a solution for you.


----------



## KAO

Like several others over the past few years, I've just spent the past couple of weeks working through this thread in it's entirety. I've been slowly pulling together a pairs system for the past few months and it's a treasure trove of meaningful implementation advice that's not readily covered in the literature.

Massive respect to you guys who have taken the time to post and answer questions here, particularly skc, SilverRanger and VSntchr 

I'm down to implementation now and wondered if any of you could offer guidance on the following things:

1. Technical - When your systems trigger a trade based on the BB/Z-Score/Ratio indicators, but the price series has actually converged, do you take the trade betting on divergence, or do you skip it? For example...

View attachment 68223


... Here you can see that the 21 day Z-Score has blown out to 2.3, but the actual spread of the price series has converged to 0.28. In this scenario would you short BWP (Blue) long CQR (Red) regardless, or call it a spurious signal?

2. Fundamental - I'm curious about the limits of what you guys would consider valid fundamental linkage (forgetting Cap., P/E, P/B etc., just talking about core business activities), for example...

2.1. SLK / SGR - Both consumer discretionary, both heavily tied to tourism etc., but clearly not as good a pair as something like SKC / SGR.

2.2. ARF / AOG - ARF hold child care and AOG retirement villages. By the numbers they cointegrate nicely at 99% with a half life of 13.9, correlation of 0.91 and the time series match up reasonably enough, but is the fundamental business enough to keep you away?

2.3. FET / Everything - Another good example like 2.2 is FET versus everything, where it cointegrates nicely with a number of office, retail and industrial REITs, but has a core business around child care facilities.

2.4. BWP / Everything - Similar to above.

Any feedback you guys have would be awesome.


----------



## skc

KAO said:


> Like several others over the past few years, I've just spent the past couple of weeks working through this thread in it's entirety. I've been slowly pulling together a pairs system for the past few months and it's a treasure trove of meaningful implementation advice that's not readily covered in the literature.
> 
> Massive respect to you guys who have taken the time to post and answer questions here, particularly skc, SilverRanger and VSntchr




KAO... welcome to the thread and the forum. Answers below in blue.



KAO said:


> I'm down to implementation now and wondered if any of you could offer guidance on the following things:
> 
> 1. Technical - When your systems trigger a trade based on the BB/Z-Score/Ratio indicators, but the price series has actually converged, do you take the trade betting on divergence, or do you skip it? For example...
> 
> ... Here you can see that the 21 day Z-Score has blown out to 2.3, but the actual spread of the price series has converged to 0.28. In this scenario would you short BWP (Blue) long CQR (Red) regardless, or call it a spurious signal?
> 
> The attachment didn't show probably but I am going to guess what you are asking...The Z-score is the only number that PTF uses to generate a signal, but it certainly doesn't mean it should be the only criteria (criterion?) for you in your trade decisions. One number you should always check is the profit potential... i.e. what profit (in % terms) can be achieved if the Z-score was to mean-reverse? This will vary depending on the pair's volatility. But if it's too small then it may not be a trade worth taking.
> 
> 2. Fundamental - I'm curious about the limits of what you guys would consider valid fundamental linkage (forgetting Cap., P/E, P/B etc., just talking about core business activities), for example...
> 
> 2.1. SLK / SGR - Both consumer discretionary, both heavily tied to tourism etc., but clearly not as good a pair as something like SKC / SGR.
> 
> Not a pair I'd trade. Tourism seems to be a decent enough common driver, but I won't trade it because the vastly different size and liquidity of the 2 stocks
> 
> 2.2. ARF / AOG - ARF hold child care and AOG retirement villages. By the numbers they cointegrate nicely at 99% with a half life of 13.9, correlation of 0.91 and the time series match up reasonably enough, but is the fundamental business enough to keep you away?
> 
> Again not something I monitor because ARF/AOG's borrow availability aren't always there for me. Childcare is always a regulatory risk but the stats from what you've said sounds OK.
> 
> 2.3. FET / Everything - Another good example like 2.2 is FET versus everything, where it cointegrates nicely with a number of office, retail and industrial REITs, but has a core business around child care facilities.
> 
> As above
> 
> 2.4. BWP / Everything - Similar to above.
> 
> I have traded this a lot with other REITs, but not since the recent news about several Bunnings closures.
> 
> FWIW, I tend to stick with the larger REITs which have good liquidity and viewed by the market as yield play with low earnings volatility. There are many second tier names in REITs and they all have slightly higher risks due to sector concentration, lack of liquidity, lack of shorts, asset concentration risks etc. And because they are in the second tier they often aren't as responsive as the major REITs in terms of interest rate expectations.
> 
> Having said all that, your pairs trading will evolve continuously, adding new pairs, new entry criteria, discovering new niche etc. May be there's a good niche in the second tier REITs for the sole reason that not too many people are looking.
> 
> Start your new pairs short, get to know it's traits, click through it's report in reporting seasons and expand your trade candidates Ask questions here but ultimately *own *your own pairs database and trades.
> 
> Any feedback you guys have would be awesome.




Best of luck with your pairs adventure.


----------



## VSntchr

Did anyone else get the "valued member" email offering the new version at "no cost"?
Obviously this offer could come in any shape or form - but right now if I had have bought into their last offer (buy another license to get 50% off the new version)...id be feeling a bit cranky. 

As someone who didn't take up that offer, I hope this offer is completely free 

I actually just updated yesterday to the v3.27 from v3.25. It did't really offer much difference other than some GUI changes as far as I can see. 
I am quite interested to see what the new version offers that is giving "much more profitable back test results". I always thought that if the backtester was more realistic it would become less profitable due to some of the big backtest profits coming from divs not being accounted for, staggered open causing closes at yesterdays prices for one leg etc. 

On a slightly unrelated note, I am looking at getting an IQ Feed subscription set up which will allow me to get LIVE prices for LSE stocks into PTF. PTF provides a discount for the first 3 months of 50% off.


----------



## Sir Burr

VSntchr said:


> Did anyone else get the "valued member" email offering the new version at "no cost"




No not "no cost" but $99 for a limited time offer! 

I bought it ages ago and gave it away (the pairs idea). Can't remember why, maybe just shorting too hard or whatever.


----------



## VSntchr

VSntchr said:


> Did anyone else get the "valued member" email offering the new version at "no cost"?
> Obviously this offer could come in any shape or form - but right now if I had have bought into their last offer (buy another license to get 50% off the new version)...id be feeling a bit cranky.
> .




So the much waited for email came through yesterday - although in true PTF fashion it wasnt just one email, rather it was a blast of emails within an hour. 
I thought Jarred had sold the business? But he was narrating the video?
The video was basically just a sales pitch for IGmarkets - nothing was mentioned relating to improvements to the software and how they are justifying the "improved backtests" ????

Receivers of the email are allegedly 'special members' meaning that we are already paid license holders - so why would we need access to existing software that we already have access too??? I don't think they are respecting the intelligence of their customer base.

Maybe I am just a bit jaded as my issues have never been resolved by the support team...unlike what the video suggests.

Aren't we supposed to have a PRO version on the way?


----------



## Sir Burr

Strange, I only received one email and for fun watched the video.

Maybe I missed it but I heard nothing about IG Markets and he went through the list of improvements and bug fixes.

Your post makes me wonder if we are talking about the same software.

Also see I'm a "valued member" too so guess we would/should have received the same email. Actually, you can see here the video I watched:

http://special.pairtradefinder.com/upgrade/


----------



## VSntchr

Sir Burr said:


> Strange, I only received one email and for fun watched the video.
> 
> Maybe I missed it but I heard nothing about IG Markets and he went through the list of improvements and bug fixes.
> 
> Your post makes me wonder if we are talking about the same software.
> 
> Also see I'm a "valued member" too so guess we would/should have received the same email. Actually, you can see here the video I watched:
> 
> http://special.pairtradefinder.com/upgrade/




Okay yep, different video!
I saw this video: http://special.pairtradefinder.com/offer/

I retract some of my statements above based on this! My apologies. However, it doesnt change the fact that support has been weak and the program is still very laggy for me.


----------



## Sir Burr

VSntchr said:


> Okay yep, different video!
> I saw this video: http://special.pairtradefinder.com/offer/
> 
> I retract some of my statements above based on this! My apologies. However, it doesnt change the fact that support has been weak and the program is still very laggy for me.




Ahhh I see what you mean about IG Markets.

Yeah at the time I used it, found the same as you and tried having it coded into Amibroker but gave that idea away. Too hard


----------



## Freddy

I have received the email for the new version 3.27.  A lot of bug fixes but little else at this stage.  I am hoping the "Pro" version has more.  I am in constant touch with the owners and they are apparently monitoring this thread, so point them in the right direction with constructive bug fixes you need.  Then we all benefit.


----------



## KAO

On the tools discussion - I dropped a couple of notes HERE about it so won't re-post them, but if you're looking for a more robust tool than PTF, I've had success with ArbMaker.

The documentation is published HERE and is fairly comprehensive.

Totally not trying to rubbish any tool, but it's definitely worth a look if you're staring down the barrel of forking out for a 'pro' version of PTF.

FWIW - I spent a couple of months developing a pairs framework in R with a Shiny web front-end and started to trade using that a little over a month back.

After reading this thread and seeing you guys all using commercial tools (it hadn't actually occurred to me there might be a COTS option and I started writing code before I even looked...) I did some research and cut over to AM. It has some convenience functions I like and wanted to focus on trading instead of spending more time coding.

Recently started to integrate my R framework with AM via it's SQL DB so will eventually end up with the convenience functions of AM and the flexibility to add features via the R framework.

Currently in GMG / ARF. Liquidity on the ARF side is a lot lower but have that as the short leg with an OTC CFD so it's less of an issue.

Watching WSA / IGO for a potential open at the start of the week with a 7.66% target on the table.


----------



## KAO

Slow couple of weeks due home relocation, getting back to some sort of routine now...

*Closed L GMG / ARF* on 26/10 for + 2.18% - ARF sold down to 1.808 for a brief moment on 24/10, had an opportunity to close the trade at ~1.90 and didn't take it. Tech issues on 25/10 prevented access from work location, missed further opportunity to close out during market hours.

*Opened L ORI / RIO* just now at 1.86 sigma, the pair back tests at 84% W/L over 25 trades with 1.82 ROIC and 3.8% reversion target currently on offer.


----------



## skc

KAO said:


> Slow couple of weeks due home relocation, getting back to some sort of routine now...
> 
> *Closed L GMG / ARF* on 26/10 for + 2.18% - ARF sold down to 1.808 for a brief moment on 24/10, had an opportunity to close the trade at ~1.90 and didn't take it. Tech issues on 25/10 prevented access from work location, missed further opportunity to close out during market hours.
> 
> *Opened L ORI / RIO* just now at 1.86 sigma, the pair back tests at 84% W/L over 25 trades with 1.82 ROIC and 3.8% reversion target currently on offer.




FYI ORI reporting this Friday 4 Nov.


----------



## KAO

skc said:


> FYI ORI reporting this Friday 4 Nov.




Thanks... I've been using the Morningstar Corporate Calendar (http://www.morningstar.com.au/Stocks/CorpCalendar) which lists 16/11 as the Ann. Report, but doesn't carry anything for 04/11.

Yahoo.com (US) (http://finance.yahoo.com/quote/ORI.AX?p=ORI.AX) lists 05/11 as the Earnings Date, which makes sense given the TZ delta.

Yahoo.com.au (AU) (https://au.finance.yahoo.com/q?s=ORI.AX) lists N/A for Next Earnings Date, which is obscure... you'd think they'd match up.

The Orica Investors calendar (http://www.orica.com/Investors/Shareholder-Calendar) correctly lists as 04/11...

Out of interest, can you recommend a single, collated, reference source for earnings and corporate actions, or do you typically check the investor website for each company individually?


----------



## VSntchr

KAO said:


> Out of interest, can you recommend a single, collated, reference source for earnings and corporate actions, or do you typically check the investor website for each company individually?



Fn arena. Pretty commonly used for traders.


----------



## skc

KAO said:


> Out of interest, can you recommend a single, collated, reference source for earnings and corporate actions, or do you typically check the investor website for each company individually?




Yes you'd think that in the 21st Century, in a developed market like ASX, something like this would be available. 

I read quite a few analyst reports daily and many of them have a calendar or weekly "what's ahead" type of section. You also build more knowledge over time so you will get to know some of the companies that report out of cycle like ORI. Lastly if you are not trading too many pairs, then a quick check to confirm the absence of scheduled announcements is probably prudent (either before putting on the trade, or certainly before close). You can simply scroll down announcements from the year before to know roughly when that particular company reports.


----------



## KAO

VSntchr said:


> Fn arena. Pretty commonly used for traders.






skc said:


> Yes you'd think that in the 21st Century, in a developed market like ASX, something like this would be available.
> 
> I read quite a few analyst reports daily and many of them have a calendar or weekly "what's ahead" type of section. You also build more knowledge over time so you will get to know some of the companies that report out of cycle like ORI. Lastly if you are not trading too many pairs, then a quick check to confirm the absence of scheduled announcements is probably prudent (either before putting on the trade, or certainly before close). You can simply scroll down announcements from the year before to know roughly when that particular company reports.




Thanks guys... I've been checking them beforehand but probably not thoroughly enough. Started to check the corporate calendar on individual stocks investor websites as well as a couple of other sources. I consumed a FN Arena trial a couple of months back and will have to revisit it.

Opened a number of new trades this morning.

OPEN L PGH / ORA - 13 / 69.2 / 1.13, 0.0521
OPEN L SGP / FET - 5 / 80 / 1.17, 0.0302
OPEN L ORI / RIO - 24 / 83.3 / 1.68, 0.0283

The stats are: Trades in backtest window, Winning percentage, Net ROIC, % Deviation from 21 Obs. Mean.

The simple backtest configuration I'm using to screen is enter where 21 obs. Z-Score is 1.6-2.4 sigma and has been under reversion for at least one observation.

EDIT: I'd closed the earlier position in ORI / RIO prior to the ORI earnings for -0.6216%. This is a new position.


----------



## KAO

*CLOSED L PGH / ORA* +3.7040% ROIC (Net of commissions)


----------



## KAO

OPEN L ARF / VCX - 10 / 100 / 2.08 / 0.0526

There's basically no liquidity in ARF so I took it as an OTC CFD then wound up ordering in the middle of the VCX spread to get a match before having to leave the desk for a little while. I wouldn't have taken the trade given the liquidity and cap mismatch unless the backtest results and ratio delta were as good as they are.

Half closed the SGP / FET position in profit but couldn't get a fill on the SGP side without crossing the spread again and wound up staring the book down until 15:58 then dumping it in the middle. Didn't get a fill before close so I'm carrying the uncovered long overnight... we'll see how that winds up in the morning.

I spent some time today refining my trading workflow to identify opportunities to automate more where appropriate and refine the manual bits - particularly around being able to efficiently disqualify signals as early on in the process as possible where no trade will result.

I'm struggling a little taking signals / assessing opportunities out of a large-ish pool of mined pairs. Presumably the answer to this is to refine the list of pairs down to a manageable portfolio of 15-20 that I've already performed fundamental checks on in advance.

Some of you guys seem to be taking signals from quite large lists of pairs - I'd be really keen to understand how you manage signal qualification and pre-trade check workflows in a little more detail.

Happy to share mine in more detail if that's not talking out of school / useful...


----------



## skc

KAO said:


> I'm struggling a little taking signals / assessing opportunities out of a large-ish pool of mined pairs. Presumably the answer to this is to refine the list of pairs down to a manageable portfolio of 15-20 that I've already performed fundamental checks on in advance.
> 
> Some of you guys seem to be taking signals from quite large lists of pairs - I'd be really keen to understand how you manage signal qualification and pre-trade check workflows in a little more detail.
> 
> Happy to share mine in more detail if that's not talking out of school / useful...




Can you better define what you meant by fundamental checks / pre-trade check workflow? What are you actually checking?

There are several times of the year when you know the fundamentals are definitely / potentially at play. Reporting seasons, ex-dividend dates, AGM season. A quick check of company announcement in last 2-4 weeks should show you if there was any major news explaining recent share price movements.

On the more core fundamentals (like is BHP or RIO better leveraged to I/O prices)... it's not possible to have in-depth understanding of every company... but with experience and longer exposure to the market you can certainly develop better "working knowledge" that works well enough.


----------



## KAO

The attachment is basically how I'm working right now.

0. Signal Enrichment & Shortlisting - Update all the pairs in the list and dump those that are +2/-2 SD from 21 observation mean to CSV. I've written a pricing tool in R that takes the delta of the ratio from the mean and uses it to calculate a rough trade potential dollar amount with my leg sizes and brokerage factored in. I take the trades that are worth looking at (generally anything 2.5%+ net brokerage), import them to a portfolio and backtest them with a simple strategy.

1. - Signal Validation - For signals with worthwhile potential and acceptable backtest results, I manually eyeball a bunch of statistical output to make sure the Z-Score is aligned with the spread/ratio (eg, reversion isn't just due to time decay, spread is actually reverting), PACF and Q-Q Normality (checking for normally distributed returns to validate the Engle-Granger results), manually validating the log price series over a couple of time frames to see if the price action makes sense.

2. Event Risk - Checks company announcements, news digest, corporate and dividend calendars for upcoming events. I'm basically just using Morningstar for this - still learning what sort of events will impact price movement (eg. AGM before or after reports being released etc...). I'll disqualify a trade with a significant event in the trade horizon. I'll also stay out of a trade with a fundamental trigger, for example the IOF announcement on 14/11 that triggered a load of REITs.

3. Fundamental Fit - Checks company summary description / Morningstar analyst report for validation of fundamental thesis (eg. general stuff like avoiding miners in different locations / metals, pairs like PGH and ORA that are a statistical fit with JHX and BLD but a poor fundamental one..).

Review basic ratios like P/E, P/B, and checking out DCF to avoid taking a long/short position in a relatively over or under valued leg. I've started using SimplyWall.St to quickly form a position on whether one leg is fundamentally stronger or weaker / over or under valued than the other and using this as a filter to avoid trades that aren't on the correct side of the assessment. 

4. News Flow - Quick check of a bunch of open news sources (I totally need to sign up for FN Arena... actually... I'm gonna go do this tonight) for anything that would keep me out / wasn't apparent in the announcements.

5. Trade Execution - General execution and pre-trade management.

As you call out, getting speed is probably more a function of longer term market exposure (I've only been at it a few weeks...), but anything to improve the workflow / process is a bonus...


----------



## skc

KAO said:


> The attachment is basically how I'm working right now.




KAO, when you said "workflow" I thought you were using too strong a word... but from what you've posted it is very well structured and comprehensive. Hats off to you.

FWIW, it's way more than anything I've ever done whether from the beginning (due to ignorance) or years down the track (due to experience/laziness). 

My comments below in blue.



KAO said:


> 0. Signal Enrichment & Shortlisting - Update all the pairs in the list and dump those that are +2/-2 SD from 21 observation mean to CSV. I've written a pricing tool in R that takes the delta of the ratio from the mean and uses it to calculate a rough trade potential dollar amount with my leg sizes and brokerage factored in. I take the trades that are worth looking at (generally anything 2.5%+ net brokerage), import them to a portfolio and backtest them with a simple strategy.
> 
> I am not totally sure what this means but it sounds like you are just making sure the potential profits in the trade is worth taking. I am guessing this doesn't take a lot of time and it's something I do as well. However, a quick eyeball of the ratio chart in Pairs Trade Finder will suffice most of the time.
> 
> 1. - Signal Validation - For signals with worthwhile potential and acceptable backtest results, I manually eyeball a bunch of statistical output to make sure the Z-Score is aligned with the spread/ratio (eg, *reversion isn't just due to time decay*, spread is actually reverting), PACF and Q-Q Normality (checking for normally distributed returns to validate the Engle-Granger results), manually validating the log price series over a couple of time frames to see if the price action makes sense.
> 
> This seems sound and I like the bold part. Perhaps another quick way to check is a simple "Total return" comparison (see image) of the 2 stocks in question plus any other applicable peers over a week and month timeframe. So you get a sense of how the current divergent compares to longer timeframes.
> 
> 
> 
> 
> Again, eyeballing the ratio chart will reveal much of this information at a glance.
> 
> 2. Event Risk - Checks company announcements, news digest, corporate and dividend calendars for upcoming events. I'm basically just using Morningstar for this - still learning what sort of events will impact price movement (eg. AGM before or after reports being released etc...). I'll disqualify a trade with a significant event in the trade horizon. I'll also stay out of a trade with a fundamental trigger, for example the IOF announcement on 14/11 that triggered a load of REITs.
> 
> A must do and it will get done quicker over time.
> 
> BTW, not sure if the announcement by IOF on 14/11 is that meaningful for the sector...
> 
> 3. Fundamental Fit - Checks company summary description / Morningstar analyst report for validation of fundamental thesis (eg. general stuff like avoiding miners in different locations / metals, pairs like PGH and ORA that are a statistical fit with JHX and BLD but a poor fundamental one..).
> 
> Much of this should be done before the pair are backtested. Once you are comfortable enough to put the pair into your pairs monitor, you don't need to do these again everytime you get a signal. So this process seems to be in the wrong place of the workflow.
> 
> Review basic ratios like P/E, P/B, and checking out DCF to avoid taking a long/short position in a relatively over or under valued leg. I've started using SimplyWall.St to quickly form a position on whether one leg is fundamentally stronger or weaker / over or under valued than the other and using this as a filter to avoid trades that aren't on the correct side of the assessment.
> 
> I am not sure this is helpful considering the timeframe and size of movements you are trading. Is there any reason to suggest that a higher / lower PE stock will over/underperform over a random period of 3 to 15 days?
> 
> And if you are caught on the wrong side occasionally... that's what a stop loss is for.
> 
> 4. News Flow - Quick check of a bunch of open news sources (I totally need to sign up for FN Arena... actually... I'm gonna go do this tonight) for anything that would keep me out / wasn't apparent in the announcements.
> 
> May be... but I don't do it during the trading day. Analyst reports (or summary of them) are often useful and they should be skim read to build up knowledge on particular stocks. You will catch things like... there's an government inquiry into private hospital charges, or XYZ has a blockbusting drug trial results due next month, or OPEC has a meeting next week, or a big overseas takeover in similar sector etc etc. It's not possible to know everything, but the more you know the better the outcome over the long term.
> 
> This protects you mostly from any known unknowns. You will still get caught by the unknown unknowns... and that's what your positions sizing strategy is for.
> 
> 5. Trade Execution - General execution and pre-trade management.
> 
> This is something that will take a long time to improve as well. What is the market doing? What's the depth doing? Should I cross the spread, take the centre point or wait on the bid/ask? Should I take 10,000 shares in one hit or 5 x 2,000 shares? Can I go long first and sell the short leg after it moves up another 2 ticks?
> 
> Master this and you are almost better off as a day trader!






KAO said:


> As you call out, getting speed is probably more a function of longer term market exposure (I've only been at it a few weeks...), but anything to improve the workflow / process is a bonus...




It's a balance between what is ideal and what is practical... plus what pairs style you are actually trying to achieve.

Are you are doing 50 trades a year part time using end of day prices? Or are you doing 200 pairs a month arbing some short term noises? Or are you trading fundamentally over 3-6 months using statistics as a trigger? These different styles will impact where you should aim for on the spectrum of perfect signal and practicality.


----------



## VSntchr

KAO said:


> The attachment is basically how I'm working right now.



This is impressive. A great road-map that aspiring pairs traders would do well to take note of. 



skc said:


> It's a balance between what is ideal and what is practical... plus what pairs style you are actually trying to achieve.
> 
> Are you are doing 50 trades a year part time using end of day prices? Or are you doing 200 pairs a month arbing some short term noises? Or are you trading fundamentally over 3-6 months using statistics as a trigger? These different styles will impact where you should aim for on the spectrum of perfect signal and practicality.



Some great comments in your reply SKC. Reading through KAO's post and then your reply had me reflecting on how many different tools/sources are actually required in the pairs trading process. 
Just reading some of these made me realise that I am already doing many of these things, but can probably improve the efficiency. By clearly understanding the goal I am trying to achieve with each process I can then select the best tool for the job rather than just using the tool I have always used as a matter of habit.


----------



## SilverRanger

Hi guys, 

Since for the month of December I'm a full time trader I thought I should try to be more active here.

I'll start with some interesting pair trades I took recently:

VOC/TPM - Decided to catch this falling knife at the start of the month, as I wasn't sure all the VOC troubles were all that VOC-specific. Closed yesterday for a good profit (TPM fell more than VOC), and glad I did! Plenty of trading opportunity for these two today as well (went long for both at open, following TPM's report).

AHG/APE - This one is still on-going, more of a merger arbitrage trade than technical (although I did get a signal when I bought). One pending risk out there is the ACCC decision on the car insurance commission anytime, but since this is gonna hit both so I'm not too concerned, and the change itself can be another reason for consolidation. APE currently holds 20% of AHG, but haven't done anything for a few years.

SLF/GPT - Nothing special other than SLF, quite an useful instrument to couple with a single strong/weak AREIT stock. The downside, SLF is not shortable most of the time, and can't really trade it in open/close auctions.


----------



## SilverRanger

Interestingly, Iron Mountain (INM) is now part of the A-REIT index (XPJ)!  

Maybe this could be a good buddy to WFD and GMG due to its international footprint (69% revenue in US, 17% Europe)


----------



## skc

SilverRanger said:


> Interestingly, Iron Mountain (INM) is now part of the A-REIT index (XPJ)!
> 
> Maybe this could be a good buddy to WFD and GMG due to its international footprint (69% revenue in US, 17% Europe)




INM has always been a REIT in US and pays quarterly dividend... perhaps it's a trust of industrial properties with a business attached!


----------



## SilverRanger

skc said:


> INM has always been a REIT in US and pays quarterly dividend... perhaps it's a trust of industrial properties with a business attached!




Apparently their steel racking structures for record keeping are classified as "real estate", and roughly 70% of their revenue comes from that. Given this is a non-cyclical and stable revenue, plus a 90% payout, you have a synthetic REIT!


----------



## SilverRanger

The goldies had a pretty hard run during the last 2 weeks, that seemed to have created some good PT opportunities:

NST @ 3.62/EVN @2.12
Technical:
Support: 1.7
RSI: 20
Correlation: 97.5




Similar fundamentals from my limited understanding of goldies




Target: 1.8? Will see


----------



## edman79

Hi SKC,
Are you still pair trading? If so in what capacity and how are you finding it, if not what are you concentrating on at the moment?
Personally I am pair trading very little compared to 5 years ago. I have found that either the edge has been arbed away or I need the volatility we had closer to the GFC. 

Ed.


----------



## skc

edman79 said:


> Hi SKC,
> Are you still pair trading? If so in what capacity and how are you finding it, if not what are you concentrating on at the moment?
> Personally I am pair trading very little compared to 5 years ago. I have found that either the edge has been arbed away or I need the volatility we had closer to the GFC.




Hi edman,

I am still pairs trading but I am doing 4-5x more volume in directional stuff these days. It illustrates where my focus has been although it is not a fair comparison given the much shorter term nature of my directional trading. In terms of P&L on each strategy, it swings around a bit but it's probably 20-30% pairs on average, although month-to-month variations can be quite big.

I agree that the trades on offer don't seem to be as good these days - but I am comparing it to say 2-3 years ago rather than 5. One thing I haven't done much of late is data analysis on my trades... like comparing prices traded vs signal, average % gained etc (like the stuff that I used to do on my journal 4 years ago). So I don't know for sure if my feeling of declining pair profitability was in fact supported by real data as opposed to just bad trading. For instance, when the strategy isn't performing well and you develop a low expectation per trade, you end up taking any quick profits you see so the impact from the occasional extended divergence is exacerbated, which makes the profitability look worse than the actual underlying system.

However, there are a few observations that I think is true though without resorting to data.

- The REITs was great stable income for a while but the edge is definitely thinner. 3-4% was a good solid trade which 2% is probably more the norm today. The divergence between different REITs (retail vs office vs residential, passive vs active mangers) have been strong and persistence, especially in 2017, although this has certainly happened before.

- Quite a few sectors have "thinned out" in tradable ranks. Utilities used to be a good sector but now there's really only 3 names (AST, APA, SKI) left - noting that 4 names give you 6 possible pair candidates which 3 names give you only 2. Same with telco (IIN, MTU, AMM out), mining services (every one is a takeover risk), media (all $hit), age care (all $hit) and selected commodities (energy, nickle, iron ore etc) thanks to the decline in second tier names (AGO/MGX used to be a trade). But off the top of my head I can't think of any meaningful addition to my favourites list.

- The rise of ETFs and other indexers are most likely impacting pairs trading. Gold in particular is dominated by GDX/GDXJ and some volatility can be huge and lasts longer than the typical pairs holding period. There is most likely a way to profit on the back of them but I am not there yet.

- The rise in "shockers" frequencies which I think increases the tail risks - although one could argue that you can just as easily be on the right side. 

It's probably worth maintaining a certain low level of activity as long as pairs trading remain profitable... and as long as it doesn't impact your other trading. That's the best way to keep a pulse on the strategy itself and give you the opportunity to explore new niches (e.g. how to deal with ETF?) whilst waiting for volatility to return.


----------



## Freddy

PTF has PRO version almost ready.  I asked for a list of improvements and they sent the following:

- integration with Interactive Brokers for real-time and historic data and to enable greybox trading.
- Real-time data is available to Pro user at no extra cost above their Interactive Brokers' cost, covering over 50 markets, equities, ETFs, bonds, options, futures, FX, CFDs
- expanded and improved backtester output set to easily screen for smooth equity curves including CAGR%, Max DD%, Profit Factor etc.
- ability to input estimated commissions and slippage into every backtest, improved backtester accuracy
- a new RSI filter for backtesting and trade signal generation
- built-in links to News, Earnings Calendars/Corporate Actions and detailed Fundamentals on each symbol
- one-click ability to view historic backtest results for Watchlist pairs
- Addition of Comments section on all Watchlist pairs to allow priority ranking of pairs and Trading Signals
- expanded price charting and relative performance comparison capability for each pair
- standalone PTF email server for client email alerts, working off of AWS USA
- increased speed and reliability, continual debugging
- some autoloaded pairs, ability for Event Driven Investor Ltd. (PTF owner) to autoload pairs files to users directly
- clear and simple Trade Alerts wording
- ability to customise the look and feel of PTF with nine available skins
- We will also have a full suite of How To videos covering all the basics of getting started in pairtrading and how to use all of the new features

I hope this may help some of you who have waited a long time, including me, to receive news of the PRO version.


----------



## edman79

Hi All,
Is anyone still using PTF?
I noticed mine was playing up so I tried re-installing and the new install would not pick up any stock history from yahoo feed. I then saw the other thread regarding amiquote issues with the yahoo feed... http://www.amibroker.com/devlog/2017/05/17/amiquote-3-14-released/

It would seem something has changed in the yahoo service.
Is anyones PTF working at the moment?


----------



## VSntchr

edman79 said:


> Hi All,
> Is anyone still using PTF?
> I noticed mine was playing up so I tried re-installing and the new install would not pick up any stock history from yahoo feed. I then saw the other thread regarding amiquote issues with the yahoo feed... http://www.amibroker.com/devlog/2017/05/17/amiquote-3-14-released/
> 
> It would seem something has changed in the yahoo service.
> Is anyones PTF working at the moment?



Ahhhhh!!!
For once its not an issue specific to me it seems. Yes my watchlist is not populating.
Frustrating times continue...
Lucky my trading has moved away from pairs in that now it is only 10-20% of my overall activity - although with several pairs currently open this is not ideal.


----------



## skc

edman79 said:


> Hi All,
> Is anyone still using PTF?
> I noticed mine was playing up so I tried re-installing and the new install would not pick up any stock history from yahoo feed. I then saw the other thread regarding amiquote issues with the yahoo feed... http://www.amibroker.com/devlog/2017/05/17/amiquote-3-14-released/
> 
> It would seem something has changed in the yahoo service.
> Is anyones PTF working at the moment?




Still worked for me today.


----------



## edman79

skc said:


> Still worked for me today.



Hey SKC, since yours is still working, when you get some time can you just add a new stock (any stock) to PTF and then check on the security list whether the stock history exists?


----------



## ducati916

Just looked at the GLD/GDXJ spread. It is large at 21%. That is definitely worth a trade as it is already starting to move to close the spread.

jog on
duc


----------



## skc

edman79 said:


> Hey SKC, since yours is still working, when you get some time can you just add a new stock (any stock) to PTF and then check on the security list whether the stock history exists?




Nope. It is unable to load the history of the new stock. BTW I am still running v3.22 which may or may not explain why the existing pairs are still running.



ducati916 said:


> Just looked at the GLD/GDXJ spread. It is large at 21%. That is definitely worth a trade as it is already starting to move to close the spread.
> 
> jog on
> duc




Interesting. ETFs are not something I trade but pairing ETFs have good advantages over shares...


----------



## VSntchr

Somewhat stating the obvious, but a quick read on the current market state here written by the guys at Arb Maker.


----------



## Freddy

edman79 said:


> Hi All,
> Is anyone still using PTF?
> I noticed mine was playing up so I tried re-installing and the new install would not pick up any stock history from yahoo feed. I then saw the other thread regarding amiquote issues with the yahoo feed... http://www.amibroker.com/devlog/2017/05/17/amiquote-3-14-released/
> 
> It would seem something has changed in the yahoo service.
> Is anyones PTF working at the moment?




I am currently beta testing PTF Pro.  They have just sent an email with notification about changes within Yahoo - 
"Since 17th May 2017, Yahoo! Finance's Free Datafeed has experienced issues.
Recent statements by a Yahoo employee suggest that the service will be curtailed
as a result the Verizon/Yahoo merger, expected to close shortly.

This unfortunate occurrence has left many third-party software providers without
a feed. This event is fully out of our control.

In the meantime, delayed intraday data seems to be still flowing through
the Yahoo API, however the historic data has stopped.

We are currently studying possible solutions to maintain a free datasource that
can meet the rigours of pair trading analysis, including workarounds to the new
Yahoo configuration.  We do not have a timeline or certainty of a replacement
at this point in time.

Fortunately, Pairtrade Finder has datafeed redundancy through a built-in
integration with IQ Feed for high-quality real-time and historic data."

The new Pro version has the ability to access Interactive Brokers' feed for pricing, if you use their broking.


----------



## Freddy

How many of you have/did have PTF?  I would like to know.

If you are using PTF you should be on version 3.27.


----------



## skc

Freddy said:


> How many of you have/did have PTF?  I would like to know.
> 
> If you are using PTF you should be on version 3.27.




I am using PTF, albeit version 3.22. I last tried to update 3.27 and somehow my anti virus thought it was malicious and deleted my .exe file. Haven't got around to doing it again....

Why do you want to know how many here are using PTF?


----------



## Freddy

skc said:


> I am using PTF, albeit version 3.22. I last tried to update 3.27 and somehow my anti virus thought it was malicious and deleted my .exe file. Haven't got around to doing it again....
> 
> Why do you want to know how many here are using PTF?



Just a matter of interest.  I am beta testing the new PRO version to assist in ironing out the last of the bugs.  The alert system now works well as PTF has solved the problem by routing messages back through their server.  With Yahoo feed stopping soon we need to move over to Interactive Brokers I believe.  PTF apparently has a deal going with IB as they are known and PRO has a link to access the IB data feed so it may be the only way to update PTF PRO.  I have started to apply to IB for an account but am not happy with their service.  20 minute waits and so I have given up calling them and use email instead.  Waiting to see why I can't just call them and get through quickly to talk to a human.  Will report further progress here in future.


----------



## skc

Freddy said:


> Just a matter of interest.  I am beta testing the new PRO version to assist in ironing out the last of the bugs.  The alert system now works well as PTF has solved the problem by routing messages back through their server.  With Yahoo feed stopping soon we need to move over to Interactive Brokers I believe.  PTF apparently has a deal going with IB as they are known and PRO has a link to access the IB data feed so it may be the only way to update PTF PRO.  I have started to apply to IB for an account but am not happy with their service.  20 minute waits and so I have given up calling them and use email instead.  Waiting to see why I can't just call them and get through quickly to talk to a human.  Will report further progress here in future.




IB would be a decent partner because it's platform may be capable of running the PTF automated. The telephone service is not great and Australian clients are supported offshore. The ticket message system is pretty good but it may only be available once it's operational.

What do you think is a realistic timeframe for the release of PTF Pro?


----------



## skc

A question..

In the last few days my PTF is really slowing down my computer. It's not doing anything out of the ordinary, but it seems to be taking up most of my CPU usage (fluctuating between 80-95%) according to Windows Task Manager.

This doesn't feel normal. Any suggestion as to the cause and the solution? 

Thanks.


----------



## Gringotts Bank

skc said:


> A question..
> 
> In the last few days my PTF is really slowing down my computer. It's not doing anything out of the ordinary, but it seems to be taking up most of my CPU usage (fluctuating between 80-95%) according to Windows Task Manager.
> 
> This doesn't feel normal. Any suggestion as to the cause and the solution?
> 
> Thanks.




Go to task manager / details and see exactly which process is using up all the processing power and memory.  Try disabling it to see if it's necessary for the running of the program.  Save work first.  Download a clean version.


----------



## VSntchr

skc said:


> A question..
> 
> In the last few days my PTF is really slowing down my computer. It's not doing anything out of the ordinary, but it seems to be taking up most of my CPU usage (fluctuating between 80-95%) according to Windows Task Manager.
> 
> This doesn't feel normal. Any suggestion as to the cause and the solution?
> 
> Thanks.



You are 1 step ahead in that your PTF is still actually working!
Regarding the performance, mine has been burdening my system for around 12 months now..and it got severly worse as these latest data issues arose a week or so ago - so I think it might be related to importing the data?


----------



## edman79

VSntchr said:


> You are 1 step ahead in that your PTF is still actually working!
> Regarding the performance, mine has been burdening my system for around 12 months now..and it got severly worse as these latest data issues arose a week or so ago - so I think it might be related to importing the data?




Hey all,
When yahoo stopped providing the historical data feed I emailed PTF and have been disappointed in their response. They have several options to repair/replace the data feed with very little effort but have chosen not to.
software updates seem to have ground to a halt. Being left with few viable options I have written my own software so I can continue to trade without the restrictions of having no free historical feed.
I am happy to email to those that have been left in the lurch like myself just DM me....


----------



## Freddy

edman79 said:


> Hey all,
> When yahoo stopped providing the historical data feed I emailed PTF and have been disappointed in their response. They have several options to repair/replace the data feed with very little effort but have chosen not to.
> software updates seem to have ground to a halt. Being left with few viable options I have written my own software so I can continue to trade without the restrictions of having no free historical feed.
> I am happy to email to those that have been left in the lurch like myself just DM me....
> 
> View attachment 71544



I have been beta testing PTF Pro since 1 May 2017.  A few minor bugs all cleaned up and it is running smoothly.  Probably 5 times faster on loading - lovely.  Cosmetically, no real changes.  However, the alerts work perfectly as PTF sends them through an Amazon server.  I am no longer tied to the screen and can go have a coffee down the road where the email will reach me and I can make decisions from there using Teamviewer to connect to my home PC.  What a wonderful world.
I setup an account with IB but not operating yet. I have found them extremely difficult to contact by phone and the don't understand what IG Market's "Force Open" means which allows me to have multiple trades on one stock at different prices - pair trading - their only option is I think OCP which will close both trades at once.  Sometimes I like to keep one side open for a little while and hopefully catch a better closing price.
I really recommend the PRO version.....


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## skc

Freddy said:


> I have been beta testing PTF Pro since 1 May 2017.  A few minor bugs all cleaned up and it is running smoothly.  Probably 5 times faster on loading - lovely.  Cosmetically, no real changes.  However, the alerts work perfectly as PTF sends them through an Amazon server.  I am no longer tied to the screen and can go have a coffee down the road where the email will reach me and I can make decisions from there using Teamviewer to connect to my home PC.  What a wonderful world.




Good to hear. Thanks for the update.



Freddy said:


> I setup an account with IB but not operating yet. I have found them extremely difficult to contact by phone and the don't understand what IG Market's "Force Open" means which allows me to have multiple trades on one stock at different prices - pair trading - their only option is I think OCP which will close both trades at once.  Sometimes I like to keep one side open for a little while and hopefully catch a better closing price.




I don't know if IB is the right broker for pairs trading... IB doesn't offer enough leverage and have less number of stocks available for shorting. Although it's been a few years since I used IB for trading so things could have changed. 

I don't understand why you'd need the "force open" functionality with pairs? Unless you also trade outrights using the same account... and happen to have a signal to short XYZ while you happen to hold it long under a different strategy.


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## Freddy

skc said:


> Good to hear. Thanks for the update.
> 
> 
> 
> I don't know if IB is the right broker for pairs trading... IB doesn't offer enough leverage and have less number of stocks available for shorting. Although it's been a few years since I used IB for trading so things could have changed.
> 
> I don't understand why you'd need the "force open" functionality with pairs? Unless you also trade outrights using the same account... and happen to have a signal to short XYZ while you happen to hold it long under a different strategy.



Thanks for the info on IB.  The reason I was contemplating them was their connection to PTF PRO for Aussie stocks update considering the kerfuffel going on about Yahoo stopping.

"Force Open" allows me to keep separate trades listed for the same stock, then I can just do a simple close on the one I need, leaving the other open.

Are you getting any news on the Yahoo story?


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## skc

Freddy said:


> Thanks for the info on IB.  The reason I was contemplating them was their connection to PTF PRO for Aussie stocks update considering the kerfuffel going on about Yahoo stopping.




IB charges an inactivity fee so I guess you might as well trade with them if you have an account...



Freddy said:


> "Force Open" allows me to keep separate trades listed for the same stock, then I can just do a simple close on the one I need, leaving the other open.




I see. Might take an extra few seconds to put on trades and a bit more book keeping on individual trade P&L...but it doesn't sound like a dealbreaker.



Freddy said:


> Are you getting any news on the Yahoo story?



 I've heard nothing...


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## VSntchr

Latest update is that v3.28 will have an upgraded datafeed that will support the yahoo changes. Although this comes at a price, even to 'lifetime license holders'.

Interesting that this new version is outlined to have improvements and bug fixes, which I recall were already suggested for V3.27? I found 3.27 to be just as slow, if not worse than earlier versions..

Pro subscription version is going to be $599 p/a and released later this month..


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## skc

VSntchr said:


> Latest update is that v3.28 will have an upgraded datafeed that will support the yahoo changes. Although this comes at a price, even to 'lifetime license holders'.
> 
> Interesting that this new version is outlined to have improvements and bug fixes, which I recall were already suggested for V3.27? I found 3.27 to be just as slow, if not worse than earlier versions..
> 
> Pro subscription version is going to be $599 p/a and released later this month..




So what are you doing about this? Will you take up v3.28, or continue to limp with 3.27 whilst waiting for the Pro version? Or will you do something else altogether?

I am a bit undecided but leaning towards getting v3.28 just as a back up. It's not that expensive so even if it stops working in 6 months on the next Yahoo update it's not the end of the world.

Plus I haven't seen the pro version so v3.28 could be as good as it gets. Hopefully a trial will be made available soon.


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## VSntchr

skc said:


> So what are you doing about this? Will you take up v3.28, or continue to limp with 3.27 whilst waiting for the Pro version? Or will you do something else altogether?
> 
> I am a bit undecided but leaning towards getting v3.28 just as a back up. It's not that expensive so even if it stops working in 6 months on the next Yahoo update it's not the end of the world.
> 
> Plus I haven't seen the pro version so v3.28 could be as good as it gets. Hopefully a trial will be made available soon.



Still thinking about it.
I haven't been pair trading at all since the issues as my personal situation has been a bit all over the place. Combine that with current market conditions and the end result has been that I've been almost purely intra-day trading. 

I've been playing around a bit with Edman's (thanks again) workaround, but haven't been able to give it enough time to master yet. 
So given all that - I won't be buying the 3.28 version yet. I'll consider the Pro version when it arrives, but would definitely need a trial first I think..


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## Freddy

As


VSntchr said:


> Still thinking about it.
> I haven't been pair trading at all since the issues as my personal situation has been a bit all over the place. Combine that with current market conditions and the end result has been that I've been almost purely intra-day trading.
> 
> I've been playing around a bit with Edman's (thanks again) workaround, but haven't been able to give it enough time to master yet.
> So given all that - I won't be buying the 3.28 version yet. I'll consider the Pro version when it arrives, but would definitely need a trial first I think..



 I have said, I have been beta testing the PRO version and it quite stable now (since 1 May 2017). Loading up is about 10 times faster than 3.27.  PRO is worth it just for the alerts now working.  Just got an alert so here is what you get:
04/07/2017 Enter Trade EVN/NST - Buy Long 4484 shares of EVN at 2.23/share, Cost Basis 9,999.32, Sell Short 2114 shares of NST at 4.73/share, Cost Basis 9,999.22, Layer 1, Group: ASX
They send these alerts through an Amazon server.


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## VSntchr

Freddy said:


> As
> 
> I have said, I have been beta testing the PRO version and it quite stable now (since 1 May 2017). Loading up is about 10 times faster than 3.27.  PRO is worth it just for the alerts now working.  Just got an alert so here is what you get:
> 04/07/2017 Enter Trade EVN/NST - Buy Long 4484 shares of EVN at 2.23/share, Cost Basis 9,999.32, Sell Short 2114 shares of NST at 4.73/share, Cost Basis 9,999.22, Layer 1, Group: ASX
> They send these alerts through an Amazon server.



Not sure about selling NST at $4.73 today 

That's great the alerts are working well for you though.
I don't use that function so it's not of much use for me. The faster software speed is good if it stacks up...


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## Freddy

VSntchr said:


> Not sure about selling NST at $4.73 today
> 
> That's great the alerts are working well for you though.
> I don't use that function so it's not of much use for me. The faster software speed is good if it stacks up...



So PTF PRO is now out and this is my 4th month of action.  I am up to 17 trades in this time and showing a profit.  Admittedly, I am screening the selections made by PTF.  Email alerts make life with the market more acceptable.  I can go out and know that PTF will send me an alert.  Then I use TeamViewer to access my home PC, do a quick analysis, check for news and either make or reject the trade.
Life can't get better than that.....


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## skc

http://www.afr.com/markets/equity-m...up-a-trader-in-just-one-month-20170906-gycew5

Article on the Fin Review about the performance of the Absolute Equity Performance Fund.

NB: The title is nothing like the content - we are in an era where even the Fin Review needs click bait titles.


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## SilverRanger

skc said:


> http://www.afr.com/markets/equity-m...up-a-trader-in-just-one-month-20170906-gycew5
> 
> Article on the Fin Review about the performance of the Absolute Equity Performance Fund.
> 
> NB: The title is nothing like the content - we are in an era where even the Fin Review needs click bait titles.




I'm guessing these funds' pair trades  tend to be more thematic than stat arbitrage (I'm not sure they even cared about mean reversion) , and given their size they probably don't move in & out as much as we do. Sometimes it's probably good to be minnows


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## Freddy

SilverRanger said:


> I'm guessing these funds' pair trades  tend to be more thematic than stat arbitrage (I'm not sure they even cared about mean reversion) , and given their size they probably don't move in & out as much as we do. Sometimes it's probably good to be minnows



Yahoo Feed For PairTradeFinder
My feed has stopped as of Close of Trade 13 November 2017.
Has anyone else experienced this?


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## Freddy

Freddy said:


> Yahoo Feed For PairTradeFinder
> My feed has stopped as of Close of Trade 13 November 2017.
> Has anyone else experienced this?



PTF has been informed and they are trying to figure a solution.  I have contacted IG Markets and they have an API which may be useful for PTF to create the necessary link....


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## Dhamu

Is anyone still active in this group? I have just come across PTF and would like some feedback on the platform. I am just about to give the trial a crack and also trade the ASX market. Cheers.


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## Freddy

Dhamu said:


> Is anyone still active in this group? I have just come across PTF and would like some feedback on the platform. I am just about to give the trial a crack and also trade the ASX market. Cheers.



I am using PTF ask away.  Selecting pairs is the key to using this software.


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## pabloran

only because i picked it in stock competition and i need to make a comment....omen pick


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