The best of our indicators are included in our CIT Toolbox for TradingView and in CIT Collection for NinjaTrader.
* Link to live market breadth statistics for NYSE and NASDAQ
* Added new time tabs to Vix Market trading Module.
New in version 1.1:
* Vix Trading System (see below)
* Added weekly tab.
Pairs trading is one of the most popular and successful hedge fund trading strategies (#9 in the list below):
It involves the simultaneous buying and selling of two closely correlated securities which have temporarily been mispriced. For a brief introduction to pairs trading look here, here and here. For a more in-depth analysis of pairs trading please consult the recommended books.
For Steve Cohen's use of pairs trading read his SEC testimony. He certainly could have benefited from using OT Pairs.
The Pairs Trading Module (PTM) consists of two charts.
The top chart is where the two securities are charted. You can enter the symbols individually, in the cells above the chart, or you can select them from previously saved pairs in the Pairs list.
The bottom chart will display the Spread indicator. Once the spread indicator moves above/below the shaded area, the app will automatically display trading instructions for the correct amount according to the price ratio which, along with pair correlation, is always displayed on top of the chart. According to pairs trading theory, the trade should be closed when the Spread indicator goes back to zero. Please note that the spread indicator is truncated and in extreme conditions may blow above/below the range (see Risks involved in Pairs Trading below).
WARNING: This is not a black box system that produces buy/sell recommendations. The information is provided for educational purposes only and does not constitute trading advice, or an invitation to buy or sell securities. There are risks involved in Pairs Trading (see below), and users bear sole responsibility for their trading actions.
Risks involved in Pairs Trading: Pairs trading is attractive because it is market neutral i.e. the trader bets on the spread between the two stocks instead of betting on absolute price levels. However, there are additional risks to be considered, especially when a pure technical analysis approach to pairs trading is used.
Fundamental Risk: one of the main risks involved with pairs trading based only on technical analysis is that a fundamental change in the relationship between the two stocks can get obfuscated and the trader can enter positions when the prices are not expected to revert to historical means. This can happen when for example, there is a fundamental change in the strategy of one of the companies as a result of which the price level changes permanently.
Industry risk: This means that the trader is somewhat protected against adverse movements affecting any particular industry since he is diversified. However, the diversification may not be large enough given only two stocks in the pair.
Noise Trader risk: like any other contrarian, mean reversion strategy, pairs trading is subject to noise trader risk. This is the risk that the deviations which signal a trading opportunity may not converge in the short run and therefore, lead to higher losses, also resulting in larger margin requirements.
Risks involved in Pairs Trading: Pairs trading is attractive because it is market neutral i.e. the trader bets on the spread between the two stocks instead of betting on absolute price levels. However, there are additional risks to be considered, especially when a pure technical analysis approach to pairs trading is used.
Fundamental Risk: one of the main risks involved with pairs trading based only on technical analysis is that a fundamental change in the relationship between the two stocks can get obfuscated and the trader can enter positions when the prices are not expected to revert to historical means. This can happen when for example, there is a fundamental change in the strategy of one of the companies as a result of which the price level changes permanently.
Industry risk: This means that the trader is somewhat protected against adverse movements affecting any particular industry since he is diversified. However, the diversification may not be large enough given only two stocks in the pair.
Noise Trader risk: like any other contrarian, mean reversion strategy, pairs trading is subject to noise trader risk. This is the risk that the deviations which signal a trading opportunity may not converge in the short run and therefore, lead to higher losses, also resulting in larger margin requirements.
PTM allows user unparalleled flexibility and versatility.
It can be used for monitoring the behavior of closely or inversely correlated securities and asset classes (e.g. SPX and VIX), for comparing foreign and domestic stocks or indices, for tracking the same stock trading on different stock exchanges around the globe, etc.
The module comes with a link
(the magnifying glass next to Price ratio) to one of the most advanced pairs tracking tools on the web, where users can perform their own search for pairs. Unfortunately, the site went through an upgrade, and the link is no longer accessible from mobile devices. You can access it, though, from any pc here at sectorspdr.com.
The Chart button gives you access to OT Trend, which is available via in-app purchase.
The OT Trend User Guide is available here.
My Portfolio provides a direct link to the Yahoo Finance Portfolio tool (you need to sign in or create a new account), one of the best and most complete on the net. You can input your trades, monitor their performance, and track changes in your portfolio value and risk profile, intraday and on the go.
You can also create price alerts, using My Portfolio's alert tool, which will notify you by e-mail when a predetermined price level has been reached.
Yahoo Finance's Sector page is also a good starting point to look for pairs of stocks from the same sector/industry.
The Vix tab gives access to the SPX/VIX trading system. Using the Vix (Volatility index) to time the broader market is another popular swing trading strategy. It's based on the observation that high Vix readings usually coincide with market tops, while low readings signal market bottoms.
For a list of books on the subject, check out Larry Connors' writings.
Here we use the pivot moving average (pma) as a trigger. When SPY or ^GSPC is above the pma and Vix is below, a buy signal is triggered; when SPY is below the pma/Vix above, a sell signal is triggered.
There are two signal lines.
The bottom signal line turns green when SPY above/Vix below the pma; red when SPY below/Vix above the pma; and yellow when they are above/below the pma at the same time. When the color is yellow that should serve as an early warning that a change in trend may be coming.
The signal line in the top chart is only green or red i.e. it ignores the signals when both SPY and Vix trade on the same side of the pma.
You can use the template to test other pairs as well. E.g. QQQ/^QQV, GLD/UUP, ^GDAXI/VIX, etc.
If you choose any random pair of stocks, the top signal will show when the stock in the top chart is outperforming the bottom stock on a relative strength basis (e.g. SPHB/SPY, XLP/SPY, QQQ/SPY, AGG/SPY).
If you have questions, comments, or suggestions, please use the contact form.
The Chart button gives you access to OT Trend, which is available via in-app purchase.
The OT Trend User Guide is available here.
My Portfolio provides a direct link to the Yahoo Finance Portfolio tool (you need to sign in or create a new account), one of the best and most complete on the net. You can input your trades, monitor their performance, and track changes in your portfolio value and risk profile, intraday and on the go.
You can also create price alerts, using My Portfolio's alert tool, which will notify you by e-mail when a predetermined price level has been reached.
Yahoo Finance's Sector page is also a good starting point to look for pairs of stocks from the same sector/industry.
The Vix tab gives access to the SPX/VIX trading system. Using the Vix (Volatility index) to time the broader market is another popular swing trading strategy. It's based on the observation that high Vix readings usually coincide with market tops, while low readings signal market bottoms.
For a list of books on the subject, check out Larry Connors' writings.
Here we use the pivot moving average (pma) as a trigger. When SPY or ^GSPC is above the pma and Vix is below, a buy signal is triggered; when SPY is below the pma/Vix above, a sell signal is triggered.
There are two signal lines.
The bottom signal line turns green when SPY above/Vix below the pma; red when SPY below/Vix above the pma; and yellow when they are above/below the pma at the same time. When the color is yellow that should serve as an early warning that a change in trend may be coming.
The signal line in the top chart is only green or red i.e. it ignores the signals when both SPY and Vix trade on the same side of the pma.
You can use the template to test other pairs as well. E.g. QQQ/^QQV, GLD/UUP, ^GDAXI/VIX, etc.
If you choose any random pair of stocks, the top signal will show when the stock in the top chart is outperforming the bottom stock on a relative strength basis (e.g. SPHB/SPY, XLP/SPY, QQQ/SPY, AGG/SPY).
If you have questions, comments, or suggestions, please use the contact form.
