Lessons of the Tape (Pairs Related)


1.  As with blitz chess at my age, limit the number of games/trades per day to stay sharp.

2.  Watch the notional value of the pairs; size accordingly. In general the higher the margin, the higher the notional value. Simple adjustments produce directional orientations.

3.  When an imbalance suddenly affects the pair, a new mean reversion can be established, such that one’s position becomes entirely directional.

4.  Similarly, when time is no longer an ally to the trade, it should be closed.

5. To realize profit, one must realize that any given pair can become stuck in an unfavorable relationship. Take the loss, and don’t waste time.

6.  While hedged, pairs trading remains speculative. The goal is to use 10% of one’s risk capital to realize a 1% per day gain on the 10%.

7. Take time at night to review the daily and weekly charts of futures.


8. This is a public experiment.

9. While in the throes of trading, reduce expectations to insure greater mental flexibility and apprehension of opportunities.


10. Trading is a performance; self-control realizes itself in profit.

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