#TradingPairs101 TradingPairs101: A Comprehensive Guide to Understanding and Applying Pairs Trading in Financial Markets
Pairs Trading is a market-neutral trading strategy aimed at profiting from the relative price movements between two related assets. This strategy is based on the idea that some assets move together over time, and when a divergence occurs between them, traders can take advantage of their return to the common trend.
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## **1. What is Pairs Trading?**
Pairs Trading is a strategy focused on the correlation between two financial assets, such as:
- **Stocks of two companies in the same sector** (e.g., Apple and Microsoft).
- **Similar commodities** (like gold and silver).
- **Related currencies** (like EUR/USD and GBP/USD).
The core idea is to **buy the weaker asset and sell the stronger asset** when a divergence occurs, expecting them to return to correlation again.
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## **2. How does Pairs Trading work?**
### **A. Choosing the Right Pair**
- You should be