ASX Stock Pairs Trade Journal

[Pairs Trader]

yes your right, apologies, Ive got a spreadsheet doing the calculations, the trade was down a few bucks after taking out commissions. But please, don't judge the pair trading on any one trade, its about results after 10, 20 or more trades that count, I still don't know what the result will be on my next trade even though the last 12 were profitable, its mostly random, however results after 20 trades aren't.

 

[beamstas]

yes your right, apologies, Ive got a spreadsheet doing the calculations, the trade was down a few bucks after taking out commissions. But please, don't judge the pair trading on any one trade, its about results after 10, 20 or more trades that count, I still don't know what the result will be on my next trade even though the last 12 were profitable, its mostly random, however results after 20 trades aren't.

Pairs
Im not here to try and say your system is wrong
Your win rate is quite high.... obviously you must be doing something right...?
Maybe you should post the net p/l of the trades as a % (we don't need to include account values) just to see how good the trades actually are?
No use trading if im risking $100 to make $1. Do you see? :

Best of luck
Cheers
Brad

 

[Pairs Trader]

Closed trade

Sold OSH @ 5.04 (3.91% profit)
Covered STO @ 16.41 (1.97% profit)
Holding time: 1 day

13 wins
1 scratch

 

[prawn_86]

Pairs
Im not here to try and say your system is wrong
Your win rate is quite high.... obviously you must be doing something right...?
Maybe you should post the net p/l of the trades as a % (we don't need to include account values) just to see how good the trades actually are?
No use trading if im risking $100 to make $1. Do you see? :

Best of luck
Cheers
Brad

Closed trade

Sold OSH @ 5.04 (3.91% profit)
Covered STO @ 16.41 (1.97% profit)
Holding time: 1 day

13 wins
1 scratch

Much better with the % figures. Now we are comparing apples with apples

 

[tatankov]

Thanks for this interesting topic.

I have one question. Days ago you said:

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.

The Layers configuration is taken in consideration to generate the entry signals and in backtest results? Or not used on backtest results?

A exit signal is only generated when ratio cross rolling mean, correct? This is not configurable? In some trades, seems to be more profitable to exit when it crosses the first std_dev.

 

[beamstas]

Nice one
Thanks Pairs
Much easier to follow now

Cheers
Brad

 

[MS+Tradesim]

Closed trade

Sold OSH @ 5.04 (3.91% profit)
Covered STO @ 16.41 (1.97% profit)
Holding time: 1 day

Hi PT,

I'm trying to understand why you exited this one. I was watching it and I think I have mostly the same settings as you've indicated in this thread but an exit didn't signal for me. Did you make a discretionary exit or is it a case of not using exactly the same settings? I'm just trying to learn more about it.

Also my interest in looking for correlated FX pairs is because of the obvious trading opportunities. Several of them track closely and a take-off in one is often a precursor to a take off in another. Being able to statistically analyse these movements would be valuable. I could probably do it in Metastock, but just hoping PairTrader can add value by saving me time.

 

[beamstas]

Hi PT,

I'm trying to understand why you exited this one. I was watching it and I think I have mostly the same settings as you've indicated in this thread but an exit didn't signal for me. Did you make a discretionary exit or is it a case of not using exactly the same settings? I'm just trying to learn more about it.

Also my interest in looking for correlated FX pairs is because of the obvious trading opportunities. Several of them track closely and a take-off in one is often a precursor to a take off in another. Being able to statistically analyse these movements would be valuable. I could probably do it in Metastock, but just hoping PairTrader can add value by saving me time.

FX is pairs trading anyway

You sell one currency (short)
And buy another currency (long)

When you close the position
You buy the first currency back (cover the short)
And sell the other currency (sell the long)

Cheers
Brad

 

[MS+Tradesim]

I know how FX works. I trade it.

What seems a difficult concept to grasp is that multiple pairs are correlated and might present pair trading opportunities. Maybe a picture will help. EURJPY as bars. EURUSD as line. Can PairTrader analyse this and if so, how do I get FX data into it?

 

[MS+Tradesim]

Sorry Brad. Shouldn't have vented my frustration at you or anyone

Back to OSH/STO:l I've opened PairTrader today to find the trade has simply disappeared. I haven't changed any settings.

Edit: I see what's happened. The closing prices have changed and in the last few days the deviation has not gone above 2.00. How is this happening? I'm guessing when I click on "Refresh Prices" it collects all the prior closes which will overwrite the intra-day data that one might have entered on. How do I avoid this?

 

[glenn_r]

I agree MS&T having a FX capability would be interesting as quite a few pairs do show close correlation.

Young Brad of course you trade FX as pairs but what we are looking at is the correlation between 2 pairs.

To Pair Trader as you already have access to Yahoo data surely it would be fairly simple to add the major FX pairs.

 

[sinner]

The scratch on a so far perfect record is my fault, sorry 'bout that :

But I think it highlights a very interesting aspect of market neutral trading. i.e. the difference between a scratch +/- $100 versus a loss of several % of your capital!

 

[beamstas]

Sorry for my oversight

So MS meant trade one pair against one pair

So if USD/AUD and USD/JPY were far apart but normally follow each other pretty closely
And your currency is in Aud
How would you trade this?
That's very confusing for me


Can i ask what would cause 2 currencies to have a correlation?

Or do some pairs work randomly?

Cheers
Brad

 

[glenn_r]

MS

Its still on my screen, I actually traded it.

Brad your examples have the same currency in both pairs, does that give you a hint?

 

[MS+Tradesim]

MS

Its still on my screen, I actually traded it.

The pairs I'm looking at are all missing data for the 27/4.

I'll figure this out.

Edit: OK, there's definitely something wrong here. I deleted all the stocks and reloaded a few. Prices loaded up to and including 28/4. It indicated an open trade on OSH/STO. I then refreshed the prices and it added 30/4 but is still missing the 29/4. Maybe something with SQL...hmmm.

 

[Pairs Trader]

Guys Il answer your questions soon, just busy trading at the moment.

Closed first losing trade of the journal

Sold FTSE @ 4215.2 (7.9% profit)
Covered DAX @ 4728.4 (10.1% loss)

13 wins
1 scratch
1 loss

New trade

Long SSM @ 0.405
Short CSR @ 1.325

 

[Pairs Trader]

Ok, we first loading ASX stocks you will be missing yesterdays data only, its the way yahoo finance works to fetch data, there is only ever a 1 day lag, and going forward all data is gathered correctly and automatically every 5 mins into the program. Also if you have the system running during the day and a signal is generated buts reverts back to its mean over the course of the day and is no longer valid on the close you won't see the signal. Also I did close my OSH/STO trade premature to an exit signal, generally if I have good profits with 1 day holding I will simply take them, I do use a little discretionary when exiting, you can follow the exit signals religously and be fine, however sometimes I like to exit when the pair gets back within 1 stdev of its mean, so for example I could enter when the pair is -2.25 stdev and exit when it goes above -1.00, this reduces trade length, improves win rate % and reduces chances of being stuck in a long, losing trade. There are no hard and fast rules, its up the trader to customize his own trading plan that suits his personality and capabilities the best. Also with FX, in the above examples you are using USD/JPY and AUD/JPY, well we could plug these into pt finder, however if we were to get an signal to trade this pair, its the same as buying or selling AUD/USD, since JPY is in both pairs we would have opposite trades cancelling each other out if we opened positions in both pairs, you will only find highly correlated FX pairs containing the same currency in both pairs otherwise pairs like AUD/USD vs CHF/EUR simply don't correlate well and have no fundamental reason to diverge and converge in a normal oscillating pattern that we see in highly correlated stocks. Its amazing how many times I get asked to incorprate FX and commodities into pt finder and I don't understand why, you need a very large account to properly pair trade futures because of the min contract size and the need to be $ neutral, plus there are 1000s of great stock pairs that offer unique opportunities everyday that only a few people can act on and produce really high risk-adjusted returns, we don't need anything else but stocks as there are literally millions of different stock pair combination's worldwide.

 

[MS+Tradesim]

With respect, customers are asking for a certain functionality, and because you can't see how it would be useful, you seem reticent to offer it. There is clearly a market for it by your own admission.

It doesn't matter though, as I'm figuring it out in Metastock. I'll leave your thread for your journal.

 

[Pairs Trader]

I think its human nature to not do what is simple, what already works, we constantly look for something else instead of just sticking to what is proven to work. Ive done extensive backtesting of pair trading of just about every tradeable instrument in the world, I can tell you FX and commodities are nowhere near as profitable as pair trading stocks, actually pair trading FX is almost impossible(see below), plus they present less opportunities, are more difficult to achieve dollar neutral and you need a large account size, not to mention you will be competing against large players who can't participate in single-stock pair trades. Im sure If I had a feed for these instruments people would be interested, however Im focused on profitability for my clients, therefore I highly recommend to them to only stick to stocks, if they want to pair trade something else, that's fine by me, I guess everyone finds out on their own.

Let me give you a heads up, in your example above you plot the eur/usd and eur/jpy, taking a long position in one and a short position in the other is exactly the same as buying or selling usd/jpy by itself, because eur is in both pairs and you would have an opposite position in each currency, make sense? so in your example, its not a pair trade at all and I can tell you now, if you do pair trade it as your example suggests, you will lose money over a period of time, because its the same as buying or selling usd/jpy when it hits the bollinger band, not a profitable strategy at all.

 

[beamstas]

improves win rate %

The search for the holy grail continues....


Brad