When I first saw this book I was sceptical, but bought it anyway. Technical Tools and Indicators. Early on he examines the factors necessary to assure market neutrality, a key imperative in pairs trading. Share your thoughts with other customers. Most recent customer reviews. While I certainly am not a market maven, I know that my results have been consistent and positive.
The Handbook of Pairs Trading: Strategies Using Equities, Options, & Futures [Douglas S. Ehrman] on zooguillem.ga *FREE* shipping on qualifying offers. Learn both the theory and practice of pairs trading, why it isconsistently profitable, and how you can apply the strategies inyour own trading with this valuable guide. Author Douglas Ehrmancovers pairs trading involving stocks/5(8).
He clearly favors technicals, in the end recommending a dominant technical screen with a fundamental overlay. Ehrman favors three technical tools to set up the pairs trade. The first is a simple moving average of the spread between the paired stocks. The second is a Bollinger Band analysis of the spread, furnishing dynamic overbought and oversold levels. The third is an RSI of the spread, also yielding overbought and oversold levels.
In essence, when the spread reaches an extreme high according to the consensus of these three indicators, you go long the weaker stock and short the dominant stock. These ideas make sense, but fuller documentation of performance would be helpful. For instance, he writes that any contact with Bollinger Bands is likely to set up a good countertrend trading opportunity.
Anyone who uses Bollinger Bands to trade individual equities or commodities knows you would get hammered if you faded every tag of the upper or lower bands.
Maybe the countertrend setup is more reliable in pairs trading than outright trading, but Ehrman offers no systematic evidence to support the claim. The Handbook of Pairs Trading is a worthy effort by a gifted analyst. But Ehrman is a skilled writer and I would welcome a more comprehensive and detailed treatment of his investment strategies. Nelson Freeburg is editor of Formula Research, a financial letter that builds and tests quantitative timing models for stocks, bonds and commodities.
It serves systematic traders and institutional money managers in 27 countries. Trading pairs is not a risk-free strategy. The difficulty comes when prices of the two securities begin to drift apart, i.
Dealing with such adverse situations requires strict risk management rules, which have the trader exit an unprofitable trade as soon as the original setup—a bet for reversion to the mean—has been invalidated. This can be achieved, for example, by forecasting the spread and exiting at forecast error bounds. A common way to model, and forecast, the spread for risk management purposes is by using autoregressive moving average models.
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Handbook of Pairs Trading: Strategies Using Equities, Options, & Futures / Edition 1 Learn both the theory and practice of pairs trading, why it is consistently profitable, and how you can apply the strategies in your own trading with this valuable zooguillem.ga: $ The Handbook of Pairs Trading: Strategies Using Equities, Options, and Futures. Dec 23, · He has been a featured speaker at several investment conferences, the editor of a daily research newsletter, and has been a guest on the CNN Financial Network to discuss pairs trading and market-neutral zooguillem.ga: Hardcover.