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Spread / Pairs Trading - the allure and the reality
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Spread / Pairs Trading - the allure and the reality

  #71 (permalink)
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@josh,

How did this play out?

Mike

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  #72 (permalink)
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TheDude View Post
I agree 100%.

It does however make the illustration of what is possible with spreads and the broader possibilities of the kind of structures can be made.

You also identify the point that a traders job is in execution (not a TA analyst - thats done by TA analysts, not traders!), and spotting good points and understanding the difference bad execution will make. Autospreaders are key to this type of trading. No one will try to manually work more than 2 legs.

As Indiantrader said - these are mostly done in treasury markets where the relationships are more certain and the structures are more definite.

@TheDude .. hmmm "Dude" from London, you remind me of someone I met in Amsterdam. Walbrook house mean anything to you?


Last edited by WolfieWolf; January 4th, 2014 at 10:25 PM.
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  #73 (permalink)
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FWIW I used to trade a portfolio of equity pairs from 2008-2010 when stocks were highly correlated. The pair selection was based on backtests and did much better in the backtests versus real market, even with conservative commissions and slippages added. Still made some good money from the strategy but I've since switched over to futures. Even with HFT liquidity takers, futures exchanges like CME are a much more fair venue vs equity markets.

Here are some screenshots I took of the backtests.

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  #74 (permalink)
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Big Mike View Post
@josh,

How did this play out?

Mike

@Big Mike, have been super busy with a lot of trading goals, and I have done some options spreads, but I haven't put on any commodity spreads so far. In the coming months I may have a chance to do that but as of yet have not. To what degree I will put on pairs trades in the future depends on a lot of things but I will definitely update the thread here accordingly. Hope you have had a good new year so far!

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  #75 (permalink)
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TheDude View Post
Sorry, no empirical evidence here - just observations and experience. Ive traded loads of crude spreads where the daily outrights have been stuck in a range, but the spreads have been trending like a MF'er.

The bold highlights seem to answer your question in a way? The nearest thing I could perhaps refer to is the MRCI results I provided a link to. Not ideal though - basically 180 spread trades over the course of 2012 making >$100k trading 1 lots v 180 outright trades making a big fat zilch - suggesting a propensity to trend more? interesting that this seems to suggest that the less risky spreads are returning more than the more risky/volatile outrights, implying that less risk does not necessarily equate to less return at all? Since 1990 (4140 spreads and 4140 outright trades) spreads returned $800,000, outrights a cool $1,000,000 (approx) Although the spreads returned $200k less, I'd rather be trading them as the reduced risk and margin would allow us to blow outrights out of the water assuming we were using the same capital base. Here's the link again: 2012results

I agree 100% with what you say with regards to intraday price and daily price. I was trying to say just this a while back - but not so eloquently as you

Hi Dude,
Thanks for that information, my experience is much the same. Yes, my days of trading outrights are long gone.
Cheers John

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  #76 (permalink)
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baywolf View Post
FWIW I used to trade a portfolio of equity pairs from 2008-2010 when stocks were highly correlated. The pair selection was based on backtests and did much better in the backtests versus real market, even with conservative commissions and slippages added. Still made some good money from the strategy but I've since switched over to futures. Even with HFT liquidity takers, futures exchanges like CME are a much more fair venue vs equity markets.

Here are some screenshots I took of the backtests.

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Are you trading pairs on the futures exchanges? Thanks.

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  #77 (permalink)
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Yes, exchange listed spreads mainly.

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  #78 (permalink)
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baywolf View Post
Yes, exchange listed spreads mainly.

Ok thanks for that. Looking to identify brokers in the UK who have pairs trading - if indeed such instruments do exist!

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  #79 (permalink)
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i have been spread trading futures for 10 years+. It has got harder but there is still some money to be made...

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  #80 (permalink)
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josh View Post
I have done some options spreads, but I haven't put on any commodity spreads so far. In the coming months I may have a chance to do that but as of yet have not. To what degree I will put on pairs trades in the future depends on a lot of things but I will definitely update the thread here accordingly.

Wondering how things have fared since January 2014?

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