ASX Stock Pairs Trade Journal

[Pairs Trader]

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

Long MAP @ 1.73
Short QAN @ 1.94

 

[julius]

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]

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]

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