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I'll
have a go at defining pairs trading for you.
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To me,
there are two different kinds of pairs trading (fundamental and
technical).
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Before
I get into that, however, I'll start by telling you that pairs trading is
NOTHING MORE than buying one stock and shorting another. Usually, the
dollars invested would be the same for each stock.
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<FONT face=Arial color=#0000ff
size=2>Fundamental pairs trading would be based on YOUR INTERPRETATION of the
fundamentals for those two companies. If you spent the time to
review the annual reports for Ford and General Motors, for instance, you might
decide that FUNDAMENTALLY Ford should outperform General Motors over the next
six months. So, you would buy Ford and short General Motors.
Your trade, in theory, should not be affected by any move in the entire market
or even the automotive sector. At the end of the six-month period
you would liquidate both positions.
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<FONT face=Arial color=#0000ff
size=2>Technical pairs trading is a little more complex. Again, you
would be buying one stock and shorting another. Most pairs
traders might only trade a "pair" that were in the same sector, but that isn't
necessarily a requirement. The idea here is that you find two stocks
whose average daily returns move very much in unison. I won't
get into the math for determining this, but I'm sure you get the
picture. Let's say that you discover that the daily
returns for Ford and General Motors almost aways move together.
You also observe that if the returns move apart.... they tend to come back
together. You also observe the maximum amount that they varied
over some period of time. When you see them move apart by that
amount again, you simply short the one with the higher returns and buy the one
with the lower returns. Finally, you just wait for the returns to come
back together and liquidate both positions. Again, the
theory is that any major move in the overall market has no effect on your net
position.
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I
might add that many, if not most, of the professional fund managers using pairs
trading haven't done very well over the last quarter, generating negative
returns for their investors. I've been pairs trading for two
years, netting just over one percent per month for investors in that particular
fund. I can also tell you that, in my opinion, any attempt at
fundamental pairs trading is doomed for failure.
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<FONT face="Times New Roman"
size=2>-----Original Message-----From: dingo
[mailto:dingo@xxxxxxxxxx]Sent: Friday, April 18, 2003 3:13
PMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker]
Re: Dynamic Indicators Poll -- VOTE AGAIN, PLEASE
<FONT face=Arial color=#0000ff
size=2>Could you define "pairs trading" please?
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<FONT face=Arial color=#0000ff
size=2>Thx!
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<FONT face=Arial color=#0000ff
size=2>d
<FONT
face=Tahoma size=2>-----Original Message-----From: Fred
[mailto:fctonetti@xxxxxxxxx] Sent: Friday, April 18, 2003 3:08
PMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker]
Re: Dynamic Indicators Poll -- VOTE AGAIN,
PLEASEYes. I know. See my previous post, but for
example I don't want to have to write my own Stdev routine for variable
periods where it would require a For loop or a script to get it
done. As I've said before, IMHO the best thing about AB today is
it's speed and the LAST thing I want to do is slow it down w/For loops
if I don't have to. The best thing about the future of AB is of course
the support & potential enhancements and I'll be happy to take the
latter in whatever order Tomasz thinks best with my own personal
preference at the moment being the fixing of position size transactions
being automatically limited to total available cash followed by some
other aspects of portfolio trading i.e. pairs and ranking
etc.--- In amibroker@xxxxxxxxxxxxxxx, "DIMITRIS TSOKAKIS"
<TSOKAKIS@xxxx> wrote:> Fred,> take a look
at> > per=10+Cum(1)%20;//variable period from 10 to 29>
StochKa=MA(100*(C-LLV(L,per))/(HHV(H,per)-LLV(L,per)),3);>
StochDa=MA(MA(100*(C-LLV(L,per))/(HHV(H,per)-LLV(L,per)),3),3);>
Plot(StochDa,"",1,1);Plot(StochD(),"",4,8);> > for
example.> DT> --- In amibroker@xxxxxxxxxxxxxxx, "Fred"
<fctonetti@xxxx> wrote:> > Tomasz,> > >
> I agree completely that these are two different areas ... to me
> they > > are both important with (1) being higher
priority then (2) ...> > > > With regards to (1) and
more specifically those functions like ATR > > that require
multiple arrays ... I understand and in the case of > ATR >
> I'm not sure I care if this is even dealt with as again it's simple
> > enough like my example w/MACD to create ones own ATR with a
Foreign > > symbol using straight AFL. > >
> > In the case of a stochastic though it's clearly valid to
calculate > it > > as > > > > 100 *
(C - LLV(C, n)) / (HHV(C, n) - LLV(C, n)) > > > > as
opposed to using highs and lows. However here again I'm not >
sure > > I care as it's easy enough to do these in straight AFL
with n being > > time variant since HHV and LLV are already
have the capability of > > being time variant.> >
> > > > --- In amibroker@xxxxxxxxxxxxxxx, "Tomasz
Janeczko" > <amibroker@xxxx> > > wrote:> >
> Hello,> > > > > > As I mentioned in the other
post of mine there are > > > TWO INDEPENDENT areas:>
> > > > > 1. Make input data array available for
functions like RSI> > > 2. Make second argument (period) accept
array too (variable > period).> > > > > >
Somehow people mix those 2 areas.> > > > > > Fred
speaks that he wants all functions to cover at least> > > area
(1).> > > > > > The posts of Mark refer to area
(2).> > > > > > Let me show you example:>
> > > > > RSI( period ) - this function has no input data
array (uses CLOSE > > array> > > indirectly) and
accepts static period> > > > > > (1) RSIa( ARRAY,
period ) - this function accepts input data > array > > but
accepts> > > only static period> > > > >
> (2) RSIa( ARRAY, dynamic_period ) - this function accepts
input > > data array > > > and accepts both
static and dynamic_period. > > > (NOTE: Current version of AB
does NOT support this RSIa 'flavour' > > yet)> >
> > > > > > > As to (1): implementation of this
is relatively easy.> > > There is one caveat however: many
analytical functions> > > in fact use MORE than one input
array. For example Stochastics use> > > Close, Open and
High arrays as inputs.> > > ATR too needs OHLC, not only
close.> > > > > > As to (2): not every function is
suitable for this kind of > > operation. Although > >
> theoretically it is possible to rewrite every function to accept
> > such 'variable> > > periods' the practice shows
that transformations that are > recurrent > > in
nature> > > (exponential averages for example) are extremely
'sensitive' if > > parameter(s)> > > change to fast.
A kind of "frequency modulation" effect appears > > that may
produce> > > distortions therefore one should be careful
working with adaptive > > systems> > > using
recurrency-based transformations.> > > > > > Best
regards,> > > Tomasz Janeczko> > >
amibroker.com> > > ----- Original Message ----- > >
> From: <uenal.mutlu@xxxx>> > > To:
<amibroker@xxxxxxxxxxxxxxx>> > > Sent: Friday, April 18,
2003 5:28 PM> > > Subject: Re: [amibroker] Dynamic Indicators
Poll -- VOTE AGAIN, > > PLEASE> > > > >
> > > > > And IMHO also > > >
> LINEARREG, LINREGSLOPE, TSF > > > > should
be removed from your list. Please> > > > check the remaining
too... Test it in AFL editor (it will > inform > >
you> > > > via a small hint window about the params after
you type the > > opening brace).> > > > UM>
> > > > > > > ----- Original Message ----- >
> > > From: <uenal.mutlu@xxxx>> > > > To:
<amibroker@xxxxxxxxxxxxxxx>> > > > Sent: Friday, April
18, 2003 5:21 PM> > > > Subject: Re: [amibroker] Dynamic
Indicators Poll -- VOTE AGAIN, > > PLEASE> > >
> > > > > > > > > > Hi mark, >
> > > > can you clarify BBANDBOT and BBANDTOP; > >
> > > IMHO they both already do accept user defined
arguments> > > > > for all the 3 possible parameters to
them. > > > > > UM> > > > > >
> > > > > > > > > ----- Original Message
----- > > > > > From: "markf2"
<feierstein@xxxx>> > > > > To:
<amibroker@xxxxxxxxxxxxxxx>> > > > > Sent: Friday,
April 18, 2003 4:03 PM> > > > > Subject: [amibroker]
Dynamic Indicators Poll -- VOTE AGAIN, > > PLEASE> >
> > > > > > > > > > > > >
> In Message 38132, Tomasz pointed out that HHV, LLV, > HHVBars,
> > LLVBars,> > > > > > DEMA, TEMA, MA, WMA,
REF, and SUM already work with dynamic> > > > > >
parameters. When I updated the poll to reflect this, ALL > > votes
were> > > > > > lost so please vote again if you're
still interested, LOL.> > > > > > > > >
> > > <A
href="">http://groups.yahoo.com/group/amibroker/surveys?id=1071266>
> > > > > > > > > > > I apologize for
the confusion. The fact that the above > > indicators
and> > > > > > functions accept dynamic parameters was
reflected in > release > > notes but> > > >
> > not in the 4.30 users guide that I used to make the
poll. > > The fact> > > > > > that
so many of you voted for them shows you didn't know > > either,
and> > > > > > I've asked Tomasz to include this
information in the next> > > > > > documentation
update.> > > > > > > > > > > >
Mark> > > > > > > > > > > > "No
good deed goes unpunished."> > > > > > --Steve
Karnish> > > > > > > > > > >
> > > > > > > > > Send BUG REPORTS to
bugs@xxxx> > > > Send SUGGESTIONS to suggest@xxxx>
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