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Spread / Pairs trading indicators
Started:November 13th, 2011 (10:27 AM) by Mehul Views / Replies:3,689 / 3
Last Reply:November 13th, 2011 (03:54 PM) Attachments:1

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Spread / Pairs trading indicators

Old November 13th, 2011, 10:27 AM   #1 (permalink)
Trading Apprentice
London, united kingdom
Futures Experience: Intermediate
Platform: Stellar
Favorite Futures: Spread trading / pairs trading
Posts: 27 since Nov 2011
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Spread / Pairs trading indicators


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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Old November 13th, 2011, 10:27 AM   #2 (permalink)
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Old November 13th, 2011, 03:13 PM   #3 (permalink)
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This post has been selected as an answer to the original posters question Answer

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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Old November 13th, 2011, 03:54 PM   #4 (permalink)
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Platform: Stockcharts, NinjaTrader, ProTA
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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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