ASX Stock Pairs Trade Journal

[Pairs Trader]

what holy grail?

there is only edge, risk management and discipline.

 

[beamstas]

what holy grail?

there is only edge, risk management and discipline.

There is more to the story than win%

You are only using half of your brain

The price can go up or go down tomorrow
No one knows and no one will know

By selling you are being un-disciplined and irrational. You are thinking the price may go against you, but in reality it could go either way. You may be severerly damaging your win/loss

You won't make a big profit by taking a small one!

 

[Pairs Trader]

There is more to the story than win%

You are only using half of your brain

The price can go up or go down tomorrow
No one knows and no one will know

By selling you are being un-disciplined and irrational. You are thinking the price may go against you, but in reality it could go either way. You may be severerly damaging your win/loss

You won't make a big profit by taking a small one!

Gee thanks for the advice, I actually base my trading on years of experience and extensive backtesting, and my account has grown 28% since starting this journal 2 months ago with 15 trades Ive placed in real time for everyone to see, maybe you could start your own trading journal and show us all how its done?

 

[Nyden]

There is more to the story than win%

You are only using half of your brain

The price can go up or go down tomorrow
No one knows and no one will know

By selling you are being un-disciplined and irrational. You are thinking the price may go against you, but in reality it could go either way. You may be severerly damaging your win/loss

You won't make a big profit by taking a small one!

I seem to recall a wonderful quote from someone here a while ago, (don't remember who, sorry!) - that no one ever went broke from taking a profit

I would argue that by locking in profits - and not allowing for greed to take over, Pairs is actually being quite disciplined, and I fail to understand why you seem to have an agenda against him? Almost all of your posts here have been critical!

Personally, I enjoy reading this thread. Keep up the good work Pairs.

 

[glenn_r]

Don't worry about junior beams, he remind's me of an old story about the young bull and the old bull, the young bull says to the old bull lets run down to the paddock and do one of those cows, the old bull replies nah lets walk down to the paddock and do them all...

I'm quite keen on your work too PT keep it up and as I see it the software is not a black box it just saves a lot of time in finding correlated pairs and then produces signals for further discretionary/fundamental analysis and when the pairs move in your favour you bank profits as your not riding a trend just using mean reversion, very simple.

 

[skc]

There is more to the story than win%

You are only using half of your brain

The price can go up or go down tomorrow
No one knows and no one will know

By selling you are being un-disciplined and irrational. You are thinking the price may go against you, but in reality it could go either way. You may be severerly damaging your win/loss

You won't make a big profit by taking a small one!

It is clear that Beamstas is a fan of Nick Radge and read his win % vs average win curve (sorry don't have it at hand) - so am I, but I think you have extrapolated what Nick means a bit too much

What Nick is saying is that he operates at the area of the graph where the win% is lower (~40% I think) and average win is high (~4x risk). This is achieved by letting profits run and cutting losses quickly. What Nick is not saying is that no one or other methods can operate on other parts of that graph and still be profitable.

The last thing you do with Pairs Trading is to let the profit run. Because the more the profit run, the deviation from the mean goes from positive to negative... and you are more likely to actually close and reverse the positions.

Applying the low win% vs high average win framework to pairs trading wouldn't make sense.

Open your mind to other possibilities - and reassess who's using half their brain.

 

[awg]

Hi PT and all,

do you ever close one leg of the trade ( upon receiving yr signal)?

but let the other leg run with a trailing/profit stop ( because its moving in the right direction)..ie further into profit?

RIO long would have been a nice hold (I held), even if though I did query yr trade at the time

 

[beamstas]

Have openened my mind
Been following this system for a while silently

I seem to recall a wonderful quote from someone here a while ago, (don't remember who, sorry!) - that no one ever went broke from taking a profit

Sorry mate, You couldn't be more wrong
Many posts around here even TH etc have argued against the saying of you can't go broke taking profits. Can't be bothered finding them but if you look through the beginners forum you might find it. You can and will go broke

I have no agenda against pairs, it seems like a good system that produces a nice win rate. Someone needs to give criticism.. It can be contructive or not just depends on what people want to take out of it

The last thing you do with Pairs Trading is to let the profit run. Because the more the profit run, the deviation from the mean goes from positive to negative... and you are more likely to actually close and reverse the positions.

Realise this too
Not saying you can't operate with a low win/loss and a high win rate
Very possible and will reduce drawdowns which would make trading more comfortable
The point is that he has set his sell level and hasn't been diciplined!


No where did i say he has to lower his win% and operate like that.

Don't have Nicks Curve
But here is one

If you are above that line you are profitable
If you are below it you are losing

Obviously Pairs needs a low Win/Loss because of his high win%

BUT

You should always let the market decide when you end your position
Even if he puts the stop loss right up under his position
He's still giving the market a chance to move in his favour even further.

 

[Nyden]

Sorry mate, You couldn't be more wrong
Many posts around here even TH etc have argued against the saying of you can't go broke taking profits. Can't be bothered finding them but if you look through the beginners forum you might find it. You can and will go broke

I did say profits Beam, by which I refer to gains after expenses. If you believe it possible to go broke with profitable trades (after expenses, a trade isn't profitable if the brokerage / costs exceed any gains), well - please do explain it to me.

I guess it more so depends on your situation though, as to whether or not the individual trades for a living, or uses trading for a little additional income. A few 100 extra a week is great if you're working full time, but perhaps not so if you're forced to live on it.

Oh, and I do understand that profits on individual trades do need to be adequate as to cover losses on future trades, but surely if ones stops are tight enough, and the average win rate is high enough (as with Pairs) - this isn't a problem.

 

[beamstas]

I did say profits Beam, by which I refer to gains after expenses. If you believe it possible to go broke with profitable trades (after expenses, a trade isn't profitable if the brokerage / costs exceed any gains), well - please do explain it to me.

I guess it more so depends on your situation though, as to whether or not the individual trades for a living, or uses trading for a little additional income. A few 100 extra a week is great if you're working full time, but perhaps not so if you're forced to live on it.

Oh, and I do understand that profits on individual trades do need to be adequate as to cover losses on future trades, but surely if ones stops are tight enough, and the average win rate is high enough (as with Pairs) - this isn't a problem.

That's it really. If you know your system is profitable over 100-200 trades and how it preforms 2 things will come from it. Your next trade will not be causing you great anxiety because it will work or it won't. its no threat to you or your survival.

The second thing is that you soon realise that you need to let your winners run a bit its the best thing to enable you to survive. In spite of the cliche you can go broke taking a profit.

Anyway, im not going to turn this into a pissing contest
Just trying to twig people's minds
You can take what you want from what i say
If you don't agree i don't care!
Don't wanna argue with anyone

 

[Pairs Trader]

Yes, thanks everyone for not turning this into a flaming thread and keeping it on the topic of pair trading.

Opened a new trade just before close

Long NWS @ 12.94
Short NWSLV @ 11.71

Increased size on this trade due to the limited risk of same stock arbitrage.

 

[keroppi]

You say you have gained 28%. However, have you accounted for brokerage and slippage because these are major factors when you are playing with the large number of trades you are entering and exiting?

The other thing is with FX, you can buy usd/jpy instead of long usd/eur and short jpy/eur, so that is just one trade instead of two, and transaction costs are then halved. Why not then enter that one trade if the pair of usd/eur and jpy/eur suggests that a pairs trade is feasible?

Some general questions,
How long have you been pairs trading?
What instruments have you tried pairs trading with?
How much are you trading in each pair?

I look forward to your response.

 

[julius]

Increased size on this trade due to the limited risk of same stock arbitrage.

Hi Pairs,

Could you please elaborate on this.

Thanks.

 

[prawn_86]

Could you please elaborate on this.
.

My understanding of this is that the trade in question is one on a stock and its notes or something by the looks. This means that it is likely to have a stronger correlation due to the fact its the same company.

Im sure pairs will give a better explanation.

 

[Pairs Trader]

You say you have gained 28%. However, have you accounted for brokerage and slippage because these are major factors when you are playing with the large number of trades you are entering and exiting?

The other thing is with FX, you can buy usd/jpy instead of long usd/eur and short jpy/eur, so that is just one trade instead of two, and transaction costs are then halved. Why not then enter that one trade if the pair of usd/eur and jpy/eur suggests that a pairs trade is feasible?

Some general questions,
How long have you been pairs trading?
What instruments have you tried pairs trading with?
How much are you trading in each pair?

I look forward to your response.

Yes I have accounted for brokerage and slippage in my results. I only pair trade stock and indices, not FX as its nowhere near as profitable.

Ive been pair trading for 6 years. Ive pair traded just about everything out there, you name it, and Ive traded it. Generally speaking my position size is $50,000 per side, sometimes more for reduced risk trades, sometimes less for elevated risk trades.

 

[Pairs Trader]

Yes NWSLV is the non-voting scipt of News Corp, the same as NWS just without the voting rights, this pair has a 99% correlation and because of this the avg profit per trade is lower than other pairs because divergences are smaller in % terms, so I increased my size to reflect this as a black swan event in this pair is virtually impossible.

New trade

Long MLB @ 2.20
Short SMX @ 2.88

 

[Pairs Trader]

Closed trade

Sold SSM @ 0.465 (14.81% profit)
Covered CSR @ 1.45 (9.43% loss)

14 wins
1 scratch
1 loss

 

[tatankov]

Yes, thanks everyone for not turning this into a flaming thread and keeping it on the topic of pair trading.

Opened a new trade just before close

Long NWS @ 12.94
Short NWSLV @ 11.71

Increased size on this trade due to the limited risk of same stock arbitrage.

Percent from mean is only 1%.
The target profit is not to much low?

 

[Pairs Trader]

Hence the increased trade size.

 

[tatankov]

Hence the increased trade size.

PTF closes a trade, only when the ratio cross the "rolling" mean value, right?

It's not possible to configure other ways to exit a trade? This is a big limitation in my opinion.