ASX Stock Pairs Trade Journal

[Gunter]

Hi,

Probably a silly question, but what instruments do you use to put these pair trades on? CFDs as its easier to go short?

If so is there much deviation on the CFD price to the underlying stock price?

Cheers.

 

[Pairs Trader]

I use IG Markets direct market access. IG is great for the index pair trades, as they have AUD denominated mini contracts which takes out the need to currency hedge and you can achieve exact dollar balancing much cheaper than with futures.

 

[carmen]

Your welcome carmen,

WES/WOW 100 day correlation @ -58%

Don't pair trade it

hehe thanks i was just thinking as the old adage gos, buy woolies sell wesfarmers, or as its been lately the other way around.

 

[skc]

Hey PT. Thanks for a great thread.

I am playing around with your demo at the moment, with the aim of producing enough profit over the next 30 days to pay for the program. I am part way there thanks to a ABC-JHX play

I understand that the entry/exit triggers are based on the "+/-" column. Where can I find the calculation of this number? That is, where can I see the current ratio (which can be calculated easily enough I guess), the current rolling mean, and the current standard deviation?

As the program uses Yahoo data which is delayed, knowing the current mean and standard deviation will allow a pair be opened by looking at the spread and deviation in real time. Also, the larger the absolute value of the std dev, the greater the potential return when things return to the mean. Knowing the numerical value of the std dev allows one to pick the better bang for buck trade.

Thanks

 

[Pairs Trader]

We only disclose formula methodologies to paid members upon request as Im sure you can understand. We don't display those values anywhere, the system calculates it all in the background. Im currently working with my programmer adding a new feature which displays how far the pair is from its mean in % terms, thus giving a good indication of the profit potential on a trade because as you know the short term standard deviation can become smaller than in the past whilst still giving a signal but producing less % return on capital invested, this way you may only want to take trades with greater than 5% profit potential.

 

[MS+Tradesim]

PT,

I was initially skeptical but I've been following this thread with interest. I've downloaded the demo but haven't done much with it yet.

Can it be setup to look at currencies?

 

[Pairs Trader]

New Trade Alert Received

Monadelphous seems to had a massive institutional order worked through this morning causing a big spike up to 10.59, got short on the way back down.

Long UGL @ 9.50
Short MND @ 10.31

 

[skc]

We only disclose formula methodologies to paid members upon request as Im sure you can understand. We don't display those values anywhere, the system calculates it all in the background. Im currently working with my programmer adding a new feature which displays how far the pair is from its mean in % terms, thus giving a good indication of the profit potential on a trade because as you know the short term standard deviation can become smaller than in the past whilst still giving a signal but producing less % return on capital invested, this way you may only want to take trades with greater than 5% profit potential.

Thanks PT. Understand you can't disclose everything.

I think you have partly answered my question anyway.

I did find the program can generate some "false positives" for entries due to a pair's std dev being too small (and hence doesn't take much to get the +/- over the threshold). I have seen buy signal triggered, only to generate exit signal when each stocked moved a few cents. It seems to one way to address that is to look at the ratio chart and eyeball the distance with the rolling mean. If it's too small then there's not much to be had.

 

[Pairs Trader]

Sold N225 @ 8753
Covered HSI @ 14893

11 from 11.

 

[Pairs Trader]

Closed trade for small profit

Sold GCL @ 5.01
Covered RIV @ 4.07

12 from 12.

 

[MS+Tradesim]

Hi PT,

You might have missed my question...

Can PairTrader analyse FX?

Cheers.

 

[Pairs Trader]

There is the possibility of analyzing FX and commodities through pairtrade finder with IQfeed, our subscription data feed, we have a special arrangement where the initial $50 fee is waived. However the software is specifically designed for analysing stocks and indicies, I don't personally pair trade FX as there are 1000s of highly correlated stocks and indices with fundamental correlation aswell, since FX are already in pairs, eg..AUD/USD, you are already pair trading, so for eg.....if you analysed GBP/USD against CHF/USD and got a buy signal, thats the same as going long GBP/CHF, so I don't even bother with pair trading FX, more profits in stocks and indices.

 

[Pairs Trader]

Sold UGL @ 9.53
Covered MND @ 10.05

13 trades, 13 wins.

 

[Pairs Trader]

New trade

Long OSH @ 4.85
Short STO @ 16.74

 

[beamstas]

Closed trade for small profit

Sold GCL @ 5.01
Covered RIV @ 4.07

12 from 12.

Long GCL @ 4.90
Short RIV @ 3.99

That's not a winning trade mate
Lets say you put 100k on each side, which would be a pretty normal trade. You do the trade through IB with 0.08% brokerage

You are spending $320 on brokerage and made $270 on the position? (+$2,244.90 for GCL and -$-1,965.60 for RIV) You've just spend more in brokerage than you have made on the trade

Even if you don't count commissions, you have made 0.14% for the trade

Not sure how these are winning trades when you are losing money!

Hope i've missed something because i was actually looking at the pairs trader

Cheers
Brad

 

[keroppi]

I also think it would be good to incorporate a simple FX feed into the software. Otherwise, it is not as useful.

How much are you putting in per trade?

Have you considered the risks of relying only on yahoo data?

 

[Pairs Trader]

GCL bought at 4.90 sold at 5.01 = 2.2%
RIV sold at 3.99 covered at 4.07 = 2.0%
gross profit 0.2%
commission 0.16%

so whilst its did produce a minuscule profit, I guess you could call it a scratch trade, my bad, next time any trade produces less than $100 profit Il call it a scratch, this trade has been my lowest producing trade to date and I don't think you can deny the previous 12 trades I posted in real time which produced significant profits, Il post a summary of my trades over the next several days which will show them all in detail.

 

[Pairs Trader]

We also have a special arrangement with IQfeed for real time data, they are considered to one of the most reliable & clean data providers out there.

 

[skc]

GCL bought at 4.90 sold at 5.01 = 2.2%
RIV sold at 3.99 covered at 4.07 = 2.0%
gross profit 0.2%
commission 0.16%

so whilst its did produce a minuscule profit, I guess you could call it a scratch trade, my bad, next time any trade produces less than $100 profit Il call it a scratch, this trade has been my lowest producing trade to date and I don't think you can deny the previous 12 trades I posted in real time which produced significant profits, Il post a summary of my trades over the next several days which will show them all in detail.

GCL had a takeover on the table which essentially put something of a price target/ceiling on them. So when other coal shares went flying, the Pairs Finder identified the discrepency and triggered an entry. I think this is one example where some fundamental research may have stopped one from entering the trade.

Having said that, GCL spiked up yesterday soon as the trade was exited. So who knows...

 

[beamstas]

GCL bought at 4.90 sold at 5.01 = 2.2%
RIV sold at 3.99 covered at 4.07 = 2.0%
gross profit 0.2%
commission 0.16%

so whilst its did produce a minuscule profit, I guess you could call it a scratch trade, my bad, next time any trade produces less than $100 profit Il call it a scratch, this trade has been my lowest producing trade to date and I don't think you can deny the previous 12 trades I posted in real time which produced significant profits, Il post a summary of my trades over the next several days which will show them all in detail.

Huh?
Commission is 0.08% each way
You opened 2 trades and closed 2 trades

Comms = 0.08*4 = 0.32%
Gross Profit = 0.20%

Net profit/Loss = -0.12%