ASX Stock Pairs Trade Journal

[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.

 

[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]

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%.

 

[fingl]

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.

 

[skc]

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]

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]

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]

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]

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]

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]

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...

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]

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...

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]

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]

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]

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?