ASX Stock Pairs Trade Journal

[skc]

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

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]

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]

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

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]

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?

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.

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]

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

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]

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]

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]

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]

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]

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!!

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]

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]

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.

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]

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]

For my trading record, the average gain is 1.5-2% of the leg size.

Including commission x 4?