Pair Trading Strategy
Pair trading is a market neutral trading strategy enabling traders to benefit in all market conditions: uptrend, downtrend, or sideways movement. It is one of the most popular strategies employed by hedge funds and now increasingly being used by other market professionals and traders. This strategy is categorized as a statistical arbitrage and convergence trading strategy. The strategy involves trading two securities which are very sound background of fundamentally and technically in same sector and mostly high correlated and high beta that have moved together and this strategy consist simultaneously one long and one short at the time of misprice with the mean reverting. BlitzTrader strategy development API models enables quants to completely model their own proprietary pair trading logic with 100% automation capabilities that executes trades based upon quantitative factors customized by the individual user. The example strategy is based on divergence which is calculated with the help of standard deviation and moving average. In sample strategy below, we are demonstrating how using BlitzTrader API, we take our position according to divergence: Entry criteria : Take position when divergence become (+/-) 2.0 and exit position when divergence become (+/-) 0, or as per user’s desire z score Stop loss :- We put stop loss divergence become more than +3 or less then -3. And our request never trade without proper stop loss. In the following diagram we depict the actually scenario of divergence and trades which you can verify by historical data.
