You posted some interesting information abour pair trading. Kevin mentioned some software which I am trying.
Could you share some information on resources to learn pair trading? The software gives trading signals but I'm sure there is much more to it than just the entry signals. I'm wondering about things like when to give up on a trade; how to set stop losses; how many positions to have on at any one time etc. Are there any books, seminars etc that you like?
I would also like to know if you would share some information about win/loss percentages, the amount of time you spend on trade management; good brokers to use.
http://quantpedia.com/Screener/Details/55 (there is a detailed article linked to this page)
Free pair trading resources and correlations calculators:
http://www.market-topology.com/ (select US equities -> Correlation)
Entries and exits:
I have my layer settings at BB(100,1) and BB(100,2.7) on my Pairtradefinder software which you can effectively enter on Stockcharts.com to visualize the trade. I consider entries of those pairs that breach the 2.7 STD and then exit when they close inside 1 STD. IF you have you software set up correctly, it will email you the entry and exit signals.
Stops / Brokerages:
I dont use them I stick to my exit rules. Brokerage it doesnt really matter as long as you can short and that the commissions are cheap like $7. Position sizes I use $10K for each side.
Not too much. Pairtradefinder alerts you to potential trades each night or so and I eyeball the trade before considering entry.
I can email you an XLS file detailing all 1 layer trades from my Pairtradefinder year to date results:
Average - $368.50 per trade
Total Profits - $85,123
Largest Loss - $2,568
Largest Gain - $1,951
Total Trades 231
Winning Trades 186/231 (80.5%)
Your reply greatly exceeded my expectations and I appreciate it. It must have taken quite a while to assemble all of that information.
I would be very interested in seeing the XLS. My email is firstname.lastname@example.org.
One of the blogs I looked at said that there were a couple of tough years for pair trading. I believe they were referring to 2007 through the low in 2009. Are your results for 2012 typical of what you have been achieving or is 2012 a particularly good year? BTW, you are doing really well for a conservative strategy.
I emailed you that file. I wish I was in on all plays but it would have cost a substantial amount of capital because you could have 30 pairs open at once - that's $600,000 - $300,000 long and short. Nevertheless, the results speak for themself.
I have been on a number of the trades.
PS: I am a little disturbed that your name includes the word "loss".
Does anyone have an opinion or recommendation on pair trading software?
I am in a free trial with PairTradeFinder. It is impressive software but it stopped working and they don't respond to customer support questions. I have downloaded SQL multiple times and PairTradeFinder twice. From their forum, it appears I'm not the only one having problems.
There are some sites that are good for backtesting pairs one at a time and/or getting correlations but I haven't found a site that does what PairTradeFinder does.
I think PTF is probably the best pairs software out there, and periodically goes on sale for about $100. I also had some install issues, but was able to get it to work after a few tries.
You might want to look at www.pairslog.com - a similar system that gives you alerts and lets you paper trade your strategies as well. Requires registration but is currently free. They have already sorted pairs based on sector and industry, and maintain a database of 30,000+ pairs from which to choose. Note that you cannot alter the settings, but you probably don't need to since they seems to be generally profitable. They also have several autotraders that you can simply follow if you don't want to think too much about trading.
I had problems with the instal initially also .... had to go back to the guide and instal a couple of times .... have not had too many problems with it now that it is running .... i have it installed on 2 computers also
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