ASX Stock Pairs Trade Journal

[sleepy]

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

 

[sleepy]

How did everyone fare in October?

sleepy

 

[skc]

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

 

[SilverRanger]

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

 

[skc]

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.

 

[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.

 

[skc]

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.

 

[SilverRanger]

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%!!

 

[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.

 

[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.

 

[FXanyone]

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]

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?

 

[FXanyone]

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

 

[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.

 

[SilverRanger]

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]

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?

 

[SilverRanger]

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]

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]

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.