Pair trading
Market place offering for sharing trading idea and provide easy build and publish idea to profit from our ecosystem participants.
What is pair trading?
When pair trading, you’re usually trading two correlated stocks; sell short one stock while simultaneously buying the other. You’ve then “hedged” yourself to the market and therefore the market is free to do what it wants. If the market goes down, your short position should make money. If it goes up, your long position should make money. Of course, while each side of your trade is making money, there’s the other side that is losing money. However, that’s the key to pairs…you can be in a pair while the market is moving quickly and your pair price can barely move 50 cents. Why is this beneficial? The pair helps curb the price action and increases the predictability of the action.
You buying one stock and at the same time short selling another correlated stock when they diverge away from each other more than normal, then exiting the trade when the two stocks converge again. Pair trading, also known as market neutral, spread trading, long/short investing and statistical arbitrage is a style highly used amongst institutions, hedge funds and investment banks as they know the many advantages it delivers. Many online traders don’t take advantage of short selling, that is profiting from falling stock prices and restrict themselves to only buying shares. As you are always long and short two similar stocks at the same time, your risk is significantly reduced and you’re not dependent on market direction for profits.
In other words, the pair of the two stocks creates tighter, more predictable ranges for the trader to trade. It’s then your job as the trader to wait for the time when one of the stocks jumps out of it’s normal correlation and play for the pair to come back to normal, or to occasionally trade toward the convergence.
The key to the strategy is simply finding correlated stocks, exploiting the times when they diverge from their correlation, following simple rules of entry and exit, and having a disciplined money management system in place.
Let us emphasize a key difference with pairs: you’re not trading the individual stocks based on their direction, but rather trading the difference between the two stock prices. This is called trading the differential and you’ll quickly learn that this key difference makes this type of strategy very different from other trading methodologies. In pair trading you’ll move away from the dependency of following the market’s direction and instead focus on trading the chart of the difference of the two correlated stocks.
The relationship between two correlated stocks is much more predictable than the outright direction of any given stock. Recent studies of hedge funds have shown long/short trading to deliver the best risk-adjusted returns over other strategies. In times of market uncertainty and volatility this style thrives and delivers consistent profits.
Our Pair trading platform offering provides you
Pair Finder
Our highly advanced statistical calculations find co-integrated pairs in market. These calculations are based on historical data or real time data.
You can find pairs by one of these options
- 1. Pair of your choice from pre-calculated co integrated pairs
- 2. One symbol of your choice
- 3. MoneyGuruz recommendations
System finds long-time correlation, near time correlation and suggested ratios for entry, exit and stop loss.
Pair Charting
Our solution provides linked charts for price, Bollinger bands , spreads, ratio and profit potential graphing to under to understand the pairs .
Pair Analysis
You can save the pair for running analysis over period of time. You can set up back test in paper trading mode and when you are ready , start auto trading with your linked broker account.
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Complimentary White Paper!
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