#TradingPairs101 WHAT IS PAIRS TRADING?

A strategy that involves buying an undervalued stock and selling an overvalued one. This strategy is considered "market-neutral" and is designed to generate profits in both bullish and bearish markets. Investors are drawn to market-neutral strategies due to the potential for consistent returns without taking on large risks. Additionally, it offers a very low correlation with the market as a whole.

Mission: Educate investors about pairs trading

Pairs trading is a powerful tool that should be in every investor's toolbox.

PairsTrading101.com is an effective resource that offers educational resources and premium services for investors interested in pairs trading.

We offer free educational articles for those who want to learn more about pairs trading. The site also offers a premium component for individual and institutional investors.

Pairs trading is an old strategy. You need to add your own approach (additional analysis).

If you are running a pairs trading strategy, you will likely need to execute the strategy on more than one pair of stocks.

I believe that a single pair of stocks is not stable in the current market.

For pairs trading to work well, we should have many pairs (perhaps hundreds) operating with appropriately small position sizes.

Visual testing is one of the quickest and most efficient ways to start trading pairs.

We analyze the charts of two assets to see if they diverge and converge. This is called visual testing.

If you find potential in your visual testing, you can move on to testing the strategy using code.

Steps:

Choose 2 assets

Chart the 2 assets

Perform retrospective visual tests of your assets

Some products do not have overlapping trading hours.

If asset A trades from 1 a.m. to 9 a.m. and asset B trades from 12 p.m. to 8 p.m.