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How to select the two legs of a pair trading?
Posted: Sat Jun 10, 2006 8:26 am
by yoyo2000
Someone here trades commodity pair/spread ?
I'm interested in pair.spread trading of commodity,but the ways I got about how to select two legs for trading pair/spread in commodity are all by subjective/fundemantal judgement,it seems that there is no way to do so mechanically ?
For example,in the case of intra market pair trading,how to select two months among all the cu contracts ?
regards.
pair trades
Posted: Sun Jun 11, 2006 1:56 am
by PTCM
1) you need to identify a group of stocks in the same sector
2) you select two stocks that you think are highlycorrelated and you back-test them.
2-3 standard deviation out for entry and very discretionary for exit rules....
Normally you need to run many many pairs just to survive and from time to time, some of them will blow up and your equity curve will look terrible.
DE Shaw was very good at it...
Posted: Sun Jun 11, 2006 2:19 am
by PTCM
I've never done it in commodities. This kind of inter market pairs trades are not commonly traded .....I belive Joe Ross was in it for a while
Posted: Tue Jun 13, 2006 3:30 pm
by yoyo2000
I'v read joe ross' book,Trading Spreads and Seasonal,it explains the theory,introduces seasonality for pair trading,I learnt much from his book,but still says nothing about the issue of my post here.
Could you tell me how to get his email?maybe it's a good idea to send him an email for this question.
regards.
Posted: Fri Jun 16, 2006 4:57 am
by PTCM
yoyo2000 wrote:I'v read joe ross' book,Trading Spreads and Seasonal,it explains the theory,introduces seasonality for pair trading,I learnt much from his book,but still says nothing about the issue of my post here.
Could you tell me how to get his email?maybe it's a good idea to send him an email for this question.
regards.
http://www.tradingeducators.com/books.htm
please share your findings with us if you find anything valuable.....