ASX Stock Pairs Trade Journal

[skc]

There is definitely a serious hole in the market you can fill. Build a decent bit of software, stand good on customer support and you're already ahead.

I think there are alternatives out there already. Have you done a google search on pairs trading software?

There are 3-4 just on the front page. Many of them are quite sofisicated (e.g. with automation to Interactive Broker's API).

I had a casual look on two of them:
- "Iris" pairs platform doesn't support ASX shares.
- ArbMaker - demo available to have a play. I've downloaded but not yet tested it.

 

[kefa]

how are people going with their pairs these last couple of weeks?

i'm struggling with a few pairs where one leg is rallying very hard with strong momentum. anyone else seeing this?

 

[skc]

how are people going with their pairs these last couple of weeks?

i'm struggling with a few pairs where one leg is rallying very hard with strong momentum. anyone else seeing this?

Yes quite a few stocks are going strong with only rare and shallow pullback.

There are a few alternatives to explore.

1. Avoid shorting very strong stocks.
2. Pair very strong stocks only with another equally strong stock.
3. Keep initial position small and layer in if it diverges further.
4. Keep overall position smaller such that there's more room for continued divergence before you hit your loss limit.
5. Take profits earlier on smaller pullback.

There is no single right answer... but the thing you must always remember is adhere to your risk management rules (assuming you have them).

 

[edman79]

SKC - In regards to the lack/reduction in mean reversion in the last couple of months. In your opinion do you think this is a change in market conditions as people are more confident and there is less fear of another crash? Or would you lean towards it being just a reflection of short term strength and low volatility?

 

[skc]

SKC - In regards to the lack/reduction in mean reversion in the last couple of months. In your opinion do you think this is a change in market conditions as people are more confident and there is less fear of another crash? Or would you lean towards it being just a reflection of short term strength and low volatility?

Volatility is definitely lower. I am not sure there's a reduction in mean reversion, but it wouldn't surprise me if you told me that statistics showed a reduction in divergence. To maintain an edge one might need to dynamically adjust some of the levers I listed above.

Credit Swiss (I think) published an article recently about the end of the great RORO (Risk-on, risk-off) era where top-down macro factors have driven asset price movements over the last 5 years... if you extend that interpretation into the profitability of pairs trading, then I'd say discretion and understanding of stock fundamentals will become even more important.

And if straight-up pairs trading is proving too tough in the current environment, a supplementary bull market strategy might worth pursuing.

 

[CanOz]

SKC are you suggesting it might be wise to have something like a trend following strategy?

 

[skc]

SKC are you suggesting it might be wise to have something like a trend following strategy?

It's always wise to have a trend following strategy in case things start to trend... Esp for a full time trader, having a portfolio of strategies will offer risk diversification + improve smoothness of the equity curve.

My trading account has beaten the market only slightly in the last 4 months, but it included a 15% contribution from non-pairs trading which was pretty much all of the out-performance.

 

[kefa]

There are a few alternatives to explore.

1. Avoid shorting very strong stocks.
2. Pair very strong stocks only with another equally strong stock.
3. Keep initial position small and layer in if it diverges further.
4. Keep overall position smaller such that there's more room for continued divergence before you hit your loss limit.
5. Take profits earlier on smaller pullback.

Thanks skc. I appreciate your thoughts, all very good points.

 

[VSntchr]

Having a very frustrating day attempting to set up PTF on my new laptop (windows 8).

I can't seem to create a database!!!

I've tried uninstalling and reinstalling three times with no luck. Been using SQL 2012, but then tried to use SQL 2008....which it wont let me install on windows 8...

Anyone got any tips/is anyone running this with windows 8?

 

[edman79]

Having a very frustrating day attempting to set up PTF on my new laptop (windows 8).

I can't seem to create a database!!!

I've tried uninstalling and reinstalling three times with no luck. Been using SQL 2012, but then tried to use SQL 2008....which it wont let me install on windows 8...

Anyone got any tips/is anyone running this with windows 8?

Do you run into any error messages on the way?
Have you tried backing up a database from an install on your previous computer and restoring to win8?
You might need SQL Server management studio (which you can get for free).

BTW I haven't tried on windows 8.

 

[VSntchr]

Do you run into any error messages on the way?
Have you tried backing up a database from an install on your previous computer and restoring to win8?
You might need SQL Server management studio (which you can get for free).

BTW I haven't tried on windows 8.

Yes its the error message encountered previously in this thread regarding minimum file size. I Have SQL server management studio..I thought that was essential lol

What version of SQL are you running?

 

[edman79]

Yes its the error message encountered previously in this thread regarding minimum file size. I Have SQL server management studio..I thought that was essential lol

What version of SQL are you running?

windows 7
SQL Server 2008 R2
PTF 3.0.4

I cant recall the exact error regarding minimum file size.
If it happened to someone else you could check if/how they overcame the problem...
Can you manually create a database?
Have you tried restoring a previous installation?

 

[VSntchr]

windows 7
SQL Server 2008 R2
PTF 3.0.4

I cant recall the exact error regarding minimum file size.
If it happened to someone else you could check if/how they overcame the problem...
Can you manually create a database?
Have you tried restoring a previous installation?

Thanks for your help, but I'm an IT noob and dont know how to do manual databases.

It was me who had the issue last time, and a simple reinstall fixed it lol...

 

[VSntchr]

FYI this is the error msg.
Ive seen a few people having this problem on other forums but so far no fix is identified. Ive also contacted Jared and am awaiting a reply.

 

[edman79]

View attachment 55410

FYI this is the error msg.
Ive seen a few people having this problem on other forums but so far no fix is identified. Ive also contacted Jared and am awaiting a reply.

apparently all new databases must be larger than the size of the model database. In this case the model database is 5Mb and PTF uses the "SIZE = 3072KB" which is smaller than 5Mb. If PTF did not use this "SIZE" variable it would work.

Info about model database...
http://technet.microsoft.com/en-us/library/ms186388.aspx

Since we cant change the statement in PTF we need to reduce the size of the model database or create/restore our own. You could try to copy the create statement and run that in SqlServerManagementStudio (SSMS) without the size statement. I'll look around and see if you can reduce the size of the model database.

 

[edman79]

uninstall any instance of PTF.

In SSMS go to system databases.
Right click on model database -> properties and check the size. (should be 5Mb)
then
Right click on model database -> tasks -> shrink -> database.
then
Right click on model database -> properties and check the size, see if its less than 3Mb
if it is

Then try a fresh install of PTF and see if it works.

 

[VSntchr]

uninstall any instance of PTF.

In SSMS go to system databases.
Right click on model database -> properties and check the size. (should be 5Mb)
then
Right click on model database -> tasks -> shrink -> database.
then
Right click on model database -> properties and check the size, see if its less than 3Mb
if it is

Then try a fresh install of PTF and see if it works.

:thankyou:

There goes a whole heap of wasted hours!!!!
Finally thanks to your help I've got it sorted. I realised I didnt have SSMS, I misinterpreted what you meant by that. So by taking your advice and getting SSMS (took a while to install), and then following your instructions - it works perfectly.

I owe you one :cheers:

 

[DJG]

:thankyou:

There goes a whole heap of wasted hours!!!!
Finally thanks to your help I've got it sorted. I realised I didnt have SSMS, I misinterpreted what you meant by that. So by taking your advice and getting SSMS (took a while to install), and then following your instructions - it works perfectly.

I owe you one :cheers:

So to save everyone else (myself included) the confusion, lets recount how you did it. - I never got a reply from their customer service along with many others.

So you downloaded the MySQL Windows 2008 SMSS thingo?

Then did this?

uninstall any instance of PTF.

In SSMS go to system databases.
Right click on model database -> properties and check the size. (should be 5Mb)
then
Right click on model database -> tasks -> shrink -> database.
then
Right click on model database -> properties and check the size, see if its less than 3Mb
if it is

Then try a fresh install of PTF and see if it works.

Then reinstalled PTF software and it all went smoothly like any normal installation does?

 

[spec]

Volatility is definitely lower. I am not sure there's a reduction in mean reversion, but it wouldn't surprise me if you told me that statistics showed a reduction in divergence. To maintain an edge one might need to dynamically adjust some of the levers I listed above.

Credit Swiss (I think) published an article recently about the end of the great RORO (Risk-on, risk-off) era where top-down macro factors have driven asset price movements over the last 5 years... if you extend that interpretation into the profitability of pairs trading, then I'd say discretion and understanding of stock fundamentals will become even more important.

And if straight-up pairs trading is proving too tough in the current environment, a supplementary bull market strategy might worth pursuing.

Thanks all for a very useful discussion.

In order to increase the chance that the pair will revert, I'm thinking of filtering out sectors that show strong relative strength, and trade only "weaker" sectors. For example (in the US) the consumer discretionary sector is very strong now and we would not trade pairs in this sector. We would trade the weaker Staples or Basic Material sectors instead.

What do you think ?

 

[VSntchr]

So to save everyone else (myself included) the confusion, lets recount how you did it. - I never got a reply from their customer service along with many others.

So you downloaded the MySQL Windows 2008 SMSS thingo?

Then did this?


Then reinstalled PTF software and it all went smoothly like any normal installation does?

Didn't have to reinstall PTF after I did the prior step, the SMSS stuff was a lifesaver!!!

Any other questions let me know..but that step pretty much solved everything for me