ASX Stock Pairs Trade Journal

[skc]

Yeah small loss.

Couldn't resist myself and got back in at 0.41 and 0.675...the divergence is pretty big, hope its not luring me in with false hopes!

Not a great week for me, PBG just wont stop going up ~1.5% each day

I'm not taking many signals now due to reporting season but I managed to get into DLX/JHX as they are on a different cycle. That said, JHX will put out a qrtly towards the end of Feb, but I'm comfortable with that.

On a side-note, do you guys do much directional trading whilst the pairs are slow around reporting time? I've been taking a few small positions when stocks I know well have reported..

Yes I had a few PBG signals going off as well but I've deided to ignore them. PBG's last guidance was a downgrade to "materially below pcp" so it feels like various analysts will take wildish stabs at it... and that's who I avoided the trade seeing that it's bouncing off 52wk lows heading into reporting season.

I do trade a fair bit directionally during reporting season - mostly on the back of reports but also using one company's report to trade others in the sector. E.g. IAG says growth will slow on written premium, SUN will take a hit.

 

[SilverRanger]

Duplicate

 

[SilverRanger]

Ok, so I took HVN/DJS at market close just to see the flop, but did so with half my normal position size. If it's not looking good early next week, I fold.

Closed HVN/DJS at market close, in exactly 2 weeks, didn't make as much and as quickly as I expect, but still a profit. Now fully focusing on HKEX!

 

[VSntchr]

Finally some decent volatility with the March futures rollover today and the index rebalance tomorrow the likely cause?

In any case I'm glad to see some trades popping up, it's been a slow start since the reporting season ended.

 

[skc]

Finally some decent volatility with the March futures rollover today and the index rebalance tomorrow the likely cause?

In any case I'm glad to see some trades popping up, it's been a slow start since the reporting season ended.

Yes it's been a boring old 3 weeks since the reporting season. I have been forcing some trades which means I short volatility when volatility is low... not a winning strategy

Still in the red for the month. 6 more sessions to redeem myself and keep in tact my perfect monthly record for the last 2 years.

 

[VSntchr]

Yes it's been a boring old 3 weeks since the reporting season. I have been forcing some trades which means I short volatility when volatility is low... not a winning strategy

Still in the red for the month. 6 more sessions to redeem myself and keep in tact my perfect monthly record for the last 2 years.

I have only taken 4 trades since reporting season - with 2 of those today.
I'm being very selective at the moment, I think I was far too quick to jump on some trades in the recent past and it reflected in some crappy trading performance metrics.

Good luck making in keeping the record in tact, let me know how you go

 

[DJG]

Guess what?
Pair Trade Finder replied.....after 9 months!!

Well first they sent me some discount offer and I mentioned I never even got to trial it since they never replied.

 

[skc]

Guess what?
Pair Trade Finder replied.....after 9 months!!

Well first they sent me some discount offer and I mentioned I never even got to trial it since they never replied.

Did you send by email or owl post? Perhaps the owl got lost?

 

[VSntchr]

Didn't get much sleep last night and this morning I just wandered in to a gold pair RSG/EVN. Statistically looks great and my gold pairs generally backtest really well. Haven't traded gold stocks extensively before, but after placing the trade it occurred to me that stocks in this sector really do need to be checked for fundamental comparison a bit more deeply than other sectors.
The main factors I ignored was whether the company hedged their gold sales, and what their cash cost is.
In this case it appears that I was shorting the company with a hedging strategy, while going long on the company with a no-hedge strategy - where the latest investment presso actually states "strongly leveraged to the gold price".

Obviously that is not the intention of my trade and since I am trying to trade statistically and not on the prospect of the recent gold slump rebounding, I managed to exit the trade and luckily even managed to cover my brokerage.

Lesson learnt and time to return to increase my focus that's served me well over the last 2 weeks.

 

[SilverRanger]

Didn't get much sleep last night and this morning I just wandered in to a gold pair RSG/EVN. Statistically looks great and my gold pairs generally backtest really well. Haven't traded gold stocks extensively before, but after placing the trade it occurred to me that stocks in this sector really do need to be checked for fundamental comparison a bit more deeply than other sectors.
The main factors I ignored was whether the company hedged their gold sales, and what their cash cost is.
In this case it appears that I was shorting the company with a hedging strategy, while going long on the company with a no-hedge strategy - where the latest investment presso actually states "strongly leveraged to the gold price".

Obviously that is not the intention of my trade and since I am trying to trade statistically and not on the prospect of the recent gold slump rebounding, I managed to exit the trade and luckily even managed to cover my brokerage.

Lesson learnt and time to return to increase my focus that's served me well over the last 2 weeks.

I would also throw in the geographical location of their operating mine(s) as well, obviously that is going to have different political risk and exchange rate risk. But for me I'm out of ASX goldies altogether, mainly due to their size, both in absolute term and relative to their international peers.

 

[skc]

I would also throw in the geographical location of their operating mine(s) as well, obviously that is going to have different political risk and exchange rate risk. But for me I'm out of ASX goldies altogether, mainly due to their size, both in absolute term and relative to their international peers.

I haven't traded gold for the last 18 months. I did use to trade them a lot.

Back in the days when gold was $1800, a cash cost between $900-1100 would yield a margin of $700 to $900, or ~20% difference. These days with gold at $1400, the same cash cost yield margins of $300 to $500, or over 60% difference. The problem is more pronounced when you start to look at different measures like all in sustaining costs. So a $20 drop in gold price may be worth 5% margin for one producer and 25% for another. It just gets too hard and too wild.

You can probably still trade gold pairs, but you do need to know them really well, and you should trade with the gold price chart to some extent. When you add in other operational risks, it'd be easier to just trade the spot gold.

 

[VSntchr]

I haven't traded gold for the last 18 months. I did use to trade them a lot.

Back in the days when gold was $1800, a cash cost between $900-1100 would yield a margin of $700 to $900, or ~20% difference. These days with gold at $1400, the same cash cost yield margins of $300 to $500, or over 60% difference. The problem is more pronounced when you start to look at different measures like all in sustaining costs. So a $20 drop in gold price may be worth 5% margin for one producer and 25% for another. It just gets too hard and too wild.

You can probably still trade gold pairs, but you do need to know them really well, and you should trade with the gold price chart to some extent. When you add in other operational risks, it'd be easier to just trade the spot gold.

Yep, that's the conclusion I came to when I sat down and had a think about whether it was feasible to keep pursuing these pairs or not. When the profit over the AISC is slim, as you say, the impacts of the POG movements are so much more extreme and it makes knowing the companies hedging policies even more relevant. I started plotting costs and hedging %'s and just realised it was getting too complicated for what are <15 day trades.
Just for a little jab in the face I actually missed out on a 4% gain with that one, but I'll put that down to risk management expense.


Was looking at PNA/OZL yesterday - but the hedging issue popped up again, as well as the complicating factor that one company is more reliant on copper than the other...I think its something like 65% for PNA and 75% for OZL with the remainder coming from gold and silver...again it gets complicated and at some point I think you either have to ignore the miners all together, or close your eyes on these risks (to a certain extent) and trust in the backtesting and quality of the signal. FWIW this trade would already be at 4.5% profit.


On another note, I have had numerous signals to short CSR on its big run over the last few months...and I have resisted them all...until this week when I felt it had run a bit hard on the back of the Macquarie upgrade and might be a decent pair with FBU. Well it proved me wrong (jumping quickly from 3.48 to 3.60+)...re-inforcing my lesson to avoid strong-trending stocks.

March was a 7-0 streak for me, but April is already far worse at 1-2.

 

[skc]

Yep, that's the conclusion I came to when I sat down and had a think about whether it was feasible to keep pursuing these pairs or not. When the profit over the AISC is slim, as you say, the impacts of the POG movements are so much more extreme and it makes knowing the companies hedging policies even more relevant. I started plotting costs and hedging %'s and just realised it was getting too complicated for what are <15 day trades.
Just for a little jab in the face I actually missed out on a 4% gain with that one, but I'll put that down to risk management expense.

Even if you look at some of the analyst numbers on cash costs between different producers, there are different methodoogies and terminologies used. So allin the too hard basket.

Was looking at PNA/OZL yesterday - but the hedging issue popped up again, as well as the complicating factor that one company is more reliant on copper than the other...I think its something like 65% for PNA and 75% for OZL with the remainder coming from gold and silver...again it gets complicated and at some point I think you either have to ignore the miners all together, or close your eyes on these risks (to a certain extent) and trust in the backtesting and quality of the signal. FWIW this trade would already be at 4.5% profit.

This pair is not as bad although OZL can be wild, and PNA as you said is slightly more gold-like. I am more concerned with SFR taking OZL over (some years ago that rumour was the other way).

On another note, I have had numerous signals to short CSR on its big run over the last few months...and I have resisted them all...until this week when I felt it had run a bit hard on the back of the Macquarie upgrade and might be a decent pair with FBU. Well it proved me wrong (jumping quickly from 3.48 to 3.60+)...re-inforcing my lesson to avoid strong-trending stocks.

Lol. I have BLD/CSR on at the moment. Only down 1.5% so nothing to worry about. FBU went ex-div recently and may have caused your entry signal. The rising NZD should help though.

March was a 7-0 streak for me, but April is already far worse at 1-2.

Nice. How many trades do you put on a month on average?

 

[VSntchr]

Lol. I have BLD/CSR on at the moment. Only down 1.5% so nothing to worry about. FBU went ex-div recently and may have caused your entry signal. The rising NZD should help though.

Thats a nice trade, funny enough I actually have signal to short BLD..but it's another one that is trending up (I think PAV even mentioned it in his breakout thread) so I'd prefer to be long than short..

Nice. How many trades do you put on a month on average?

March was quiet as I didn't do anything for the first 13 days.
Average is around 20-30.

 

[VSntchr]

Market changes are coming http://www.theaustralian.com.au/bus...trading-targeted/story-e6frg8zx-1225937363096 high frequency trading will dramatically increase over the next 2-3 years on the ASX from the current 20% levels of volume probably more closer to 70% like the US markets I think, because of new legislation that will open up the market to more competing exchanges and hedge funds, next year will probably see the introduction of chi-x which will create segmentation in market liquidity, and hopefully brokers can create smart routing options to collate the bids/offers together into one que for us or something like the NBBO in the US.

It's important as a trader to be aware of these changes, because it will affect how stocks trade, how the tape looks, hopefully the ASX forces time on que rules so we don't see those fleecing bids/offers that the US market sees, some stocks over there can have 3,000 bids/offers posted and pulled in under 1 second, not something we want here but let's see how it goes.

Until then the ASX still offers potent alpha from a relatively in-efficient market.

With HFT dominating my news feed at the moment I thought it would be relevant to dig up this old post and see if it has affected those who have traded for a longer period than myself?

Looking at the old trade journals from PTF it seems that profit margins have definitely been eroded, however this is complicated by the fact that this was in 2009 - a period of extreme volatility, I can imagine it was a great time to be an accomplished trader..but perhaps not a perfect learning environment.

 

[VSntchr]

Decided to take FXJ/APN today.

Might be in for a bit of pain in the short term with APN a bit more volatile than FXJ and both stocks have been strong recently but the signal looks pretty good.

FBU/CSR is looking a bit better...

Was interesting to see CSR and BLD go into a JV for east coast bricks...doesn't seem to have affected the prices much though. If anything I though this might be positive for both and negative for all other competitors..

 

[skc]

With HFT dominating my news feed at the moment I thought it would be relevant to dig up this old post and see if it has affected those who have traded for a longer period than myself?

Looking at the old trade journals from PTF it seems that profit margins have definitely been eroded, however this is complicated by the fact that this was in 2009 - a period of extreme volatility, I can imagine it was a great time to be an accomplished trader..but perhaps not a perfect learning environment.

I think it's more to do with the reduced in overall volatility rather than HFT.

Decided to take FXJ/APN today.

Might be in for a bit of pain in the short term with APN a bit more volatile than FXJ and both stocks have been strong recently but the signal looks pretty good.

Same. Got FXJ @ 94.25, APN @ 69.

FBU/CSR is looking a bit better...

Was interesting to see CSR and BLD go into a JV for east coast bricks...doesn't seem to have affected the prices much though. If anything I though this might be positive for both and negative for all other competitors..

It's a pretty small JV in the whole scheme of things. BLD has revenue >$5B, CSR ~$1.5B. JV has revenue of $230m.

However, ABC is looking weak today and I wonder if that's related.

 

[edman79]

I think it's more to do with the reduced in overall volatility rather than HFT.

X 2

 

[VSntchr]

Looking at long MTU with another telco today...still deciding between TEL/TLS/SGT.

APN/FXJ has been very frustrating - almost exited twice now but still haven't got there...actually "layered" this trade which was a first for me.

 

[VSntchr]

Looking at long MTU with another telco today...still deciding between TEL/TLS/SGT.

APN/FXJ has been very frustrating - almost exited twice now but still haven't got there...actually "layered" this trade which was a first for me.

Went for MTU/TEL...so far underwater...

Got out of FXJ/APN yesterday, was some extreme volatility with FXJ breaking over the $1 mark...unfortunately I didn't get to ride it that far..out at 97.5c

Although, being in RFG/CCL this morning paid off very well...nice to be on the good side of a downgrade - I am sure there will be plenty of occasions that the opposite occurs however..

Currently in CDI/DXS and CDI has just gone into a halt pending the takeover by parent Challenger...hopefully the bid offers some decent upside although I am not too optimistic due to the relationship.