Pair trading setups
Once you have gained knowledge of the basics it's time to actually find good Pairtrading set-ups.
In order to find good setups i prefer to do my homework and gather historic data for the Pairs you are interested in Pairs trading. This can be done as described on the previous page "Find suitable Pairs to trade", or can be done by gathering the data yourself. One way to easily obtain historic data is in the History section on your MT4 Platform. You have to decide what time frame you are interested in and then you can download the data for the Asset you are interested in to a HTML page. This data is then transferred into a normal Excel sheet.
Once you have done this for both your Pair trade assets A and B you are ready to calculate the Ratio for these assets. The ratio is the Price of asset A divided by the price of asset B. (Please use the more expensive asset as A to get a Ratio larger than 1)
For me the whole Pair trading revolves around the Ratio between A and B. Once I have easily calculated this in Excel I normally also plot the graph for the Ratio to get a better feeling for the trend. Enclosed you will find my Excel chart with more than 2 years of 30 min data for one of my favourite indices Pair, the German DAX and the Swedish OMX.
Once you have gained knowledge of the basics it's time to actually find good Pairtrading set-ups.
In order to find good setups i prefer to do my homework and gather historic data for the Pairs you are interested in Pairs trading. This can be done as described on the previous page "Find suitable Pairs to trade", or can be done by gathering the data yourself. One way to easily obtain historic data is in the History section on your MT4 Platform. You have to decide what time frame you are interested in and then you can download the data for the Asset you are interested in to a HTML page. This data is then transferred into a normal Excel sheet.
Once you have done this for both your Pair trade assets A and B you are ready to calculate the Ratio for these assets. The ratio is the Price of asset A divided by the price of asset B. (Please use the more expensive asset as A to get a Ratio larger than 1)
For me the whole Pair trading revolves around the Ratio between A and B. Once I have easily calculated this in Excel I normally also plot the graph for the Ratio to get a better feeling for the trend. Enclosed you will find my Excel chart with more than 2 years of 30 min data for one of my favourite indices Pair, the German DAX and the Swedish OMX.
Click on picture to enlarge
The thin green line is the actual Ratio of DAX/OMX. This Ratio has fluctuated between 6.0 and 7.30 during these 2 years.
What I look for is first if the Ratio is trending or more fluctuating in a range. Then I do monitor the Ratio development compared to several Mean values. Once the divergence to these mean values is large enough I enter a trade. Normally I decide the Ratio values on which I'm prepared to enter a Pairtrade in the evening and the I set these values into my Pair trading EA software. So the next trading day I am sure that I will not miss any trade should these Ratio values be reached.
What I look for is first if the Ratio is trending or more fluctuating in a range. Then I do monitor the Ratio development compared to several Mean values. Once the divergence to these mean values is large enough I enter a trade. Normally I decide the Ratio values on which I'm prepared to enter a Pairtrade in the evening and the I set these values into my Pair trading EA software. So the next trading day I am sure that I will not miss any trade should these Ratio values be reached.
Find suitable Pairs to trade
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Layering - Multiple Entry & Exit strategy
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