#TradingPairs101

What is Pairs Trading?

Pairs trading is a market-neutral strategy where you buy one asset and at the same time short another, expecting their price gap to return to normal.

Core Idea:

You're not betting on the market going up or down—you’re betting that two related assets will move back in sync.

Two Correlated Assets:

You pick a pair of assets (like two stocks or two cryptos) that usually move together. If one goes up more than usual while the other lags, you buy the underperformer and short the outperformer.

Goal:

Profit when the price gap closes and the relationship returns to its historical average.

Works best when:

The two assets have a strong historical correlation

There’s a temporary divergence in price

You want a strategy that’s less affected by overall market direction

It’s a smart way to trade when markets are choppy or directionless—but timing and proper pair selection are key!