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