The KaiTrade Accelerator platform provides
powerful support for pairs trading both from our own pairs trading
and spreader applications and Excel. In this short guide we show
you how to pairs trade from Excel using our built in pairs
algorithms and manually trading each leg manually.
Pairs trading is a popular strategy in which you
take opposite positions in two different stocks (or indices): you
go long on the stock you favor, and short on the stock you feel
will weaken.
The key idea is that by pairs trading you are
making a profit on the relative difference between a pair of
products, and so your trading is, in theory, independent of the
general market trend.
To do effective pairs trading, you need first to
find products that have some correlation (i.e. related to each
other). These may be products in a similar sector (for example IBM
and MSFT), or products traded against some index in their
sector.
Products that are highly correlated will
generally change by the same relative amount as the market as a
whole trades; those with no correlation will move in different
directions.
It is important to find well-correlated products
when pairs trading, and Excel is a great tool for finding
correlations from historic data for various stocks.
This guide will show you how to create a pairs
trading scheme within minutes, using KaiTrade.
You can watch a video of pairs trading here:
http://www.screencast.com/users/junwin/folders/Jing/media/8c2fea1c-0b83-4c2c-8cda-9f065b435ad3
A good article on pairs trading by Douglas S.
Ehrman can be found by
here
