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Spread / Pairs trading indicators
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Spread / Pairs trading indicators

  #1 (permalink)
Trading Apprentice
London, united kingdom
 
Futures Experience: Intermediate
Platform: Stellar
Favorite Futures: Spread trading / pairs trading
 
Posts: 27 since Nov 2011
Thanks: 2 given, 3 received

Spread / Pairs trading indicators

Hi

Has anyone done research on indicators that work best for spread or pairs trading?

As these inherently are less volotile and move more slowly I'm guessing it's z different approach that's required ?

Was thinking of 2 scenarios

Long stock A, short stock B.

Long the index and short a specific stock

Both in the same monetary amounts

Any ideas would be welcome both daily and intraday

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  #2 (permalink)
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  #3 (permalink)
Elite Member
san diego
 
Futures Experience: Intermediate
Platform: FXCM MarketScope, NT, Interactive brokers, AMP
Broker/Data: FXCM, Interactive Brokers
Favorite Futures: FOREX, IWM, SPY, XLE, NQ
 
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ThinkorSwim has pairs trading on one of their chat rooms and they use an indicator which compares the price of the stock to the mean and entries are at the extreme of the difference. They also have a correlation indicator and only trade on pairs that are currently correlated (over 80 percent and preferably 90 percent). If mean reversion works, the price should return to the mean. The problem I have found with thinkorswim is they don't calculate the pair bars using tick by tick data so the High/Low values of a bar can be really inaccurate. Thus, in thinkorswim, they only use the close of the bar to draw support lines. Does anyone know a list of data vendors that provide true tick by tick pair data? This is actually more important than any indicator.

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  #4 (permalink)
Elite Member
London, England
 
Futures Experience: Intermediate
Platform: Stockcharts, NinjaTrader, ProTA
Favorite Futures: Silver, Gold, ES
 
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Posts: 180 since Sep 2011
Thanks: 68 given, 205 received

P&F Relative Strength

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I've found point and figure charts very good for comparing relative performance. Thomas Dorsey has done a lot of work on this and Stockcharts.com are great for the P&F charts. All you need to do is divide the symbols by each other. For example here's Gold divided by Silver, the latest signal shows that Gold had a buy signal vs Silver in September.

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