LD Lossdog Research
topic

pairs trading

6 matching records.

Trade idea

TENS/TWOS pairs trading

The yield curve trade involves buying the higher side (tens) and selling the lower side (twos) based on the expectation of mean reversion. The ratio is determined by volatility and notional value, with a typical ratio of 1:4 or 1:5. The trade is based on the idea that the spread is wider than usual and is expected to narrow, reflecting the market's expectation of mean reversion in the yield curve.

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Strategypairs trading
Assetinterest_rate
Time horizonshort-term
Entry / triggerspread wider than usual
Target / exitmean reversion to narrower spread
Invalidation / stopspread continues to widen
SpeakerRick
Risks
  • Spread may not revert as expected
  • Volatility may increase
  • Notional value and volatility may change
longlongshort-termpairs trading
high confidenceVerify in video at 46:18 ↗
Trade idea

ES/NQ pairs trading

Pairs trading between ES and NQ is a viable strategy due to their high correlation. The spread between these two contracts is likely to mean revert, providing opportunities for profit. Start with microcontracts and adjust the ratio based on market conditions. The key is to identify subjective extremes in the spread and start with small positions before moving to larger contracts.

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Strategypairs trading
Assetfutures
Time horizonshort-term
Entry / triggerspread between ES and NQ is at an extreme
Target / exitmean reversion of the spread
Invalidation / stopspread continues to move away from the extreme
Speakerspeaker
Risks
  • market volatility
  • incorrect spread identification
  • liquidity issues
long/shortfuturesshort-termpairs trading
high confidenceVerify in video at 46:27 ↗
Trade idea

SPX/NQ Pairs Trading

The speaker suggests a one-to-one ratio for the S&P 500 and Nasdaq trade, based on the current price movements. The Nasdaq is down 600 today, while the S&P 500 is down 600 as well, indicating a potential mean reversion in the spread. The trade is executed with one lot of micros for the Nasdaq and one lot of micros for the S&P 500, with the expectation that the spread will revert to its average. The trade is considered a pairs trade and is suitable for markets where the spread is widening or narrowing.

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StrategyPairs Trading
AssetEquity Index
Time horizonShort-term, typically within a few days to weeks
Entry / triggerWhen the spread between SPX and NQ is at an extreme or shows a significant divergence
Target / exitMean reversion to the historical average of the spread
Invalidation / stopIf the spread continues to widen beyond historical levels
SpeakerJunior from Florida
Risks
  • Market volatility
  • Liquidity issues
  • Mean reversion failure
Long SPX, Short NQpairs trading
high confidenceVerify in video at 18:32 ↗
Insight

Directional Play in Pairs Trading

Pairs trading involves selecting two assets to trade based on their relative performance. The speaker emphasizes that this is a directional play, requiring the trader to hope they are correct in their directional assumptions. The speaker also notes that certain pairs, such as two notes to one bond or two gold to one silver, are more common and predictable.

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Applicable when
  • pairs trading
  • directional play
Limitations
  • The speaker does not provide specific examples of successful trades or strategies beyond general advice.
pairs trading
high confidenceVerify in video at 41:52 ↗
Q&A

Has there been any research done on correlation between Bitcoin and NASDAQ as being a potential pairs trade or Bitcoin being a leading indicator for tech risk on markets?

The speaker suggests that while there is a correlation between Bitcoin and the S&P 500, and NASDAQ also correlates with the S&P 500, the relationship between Bitcoin and NASDAQ is not well-defined. They mention that figuring out the ratio for a pairs trade is challenging and that using micro futures contracts could help determine the ratio. However, they do not explicitly recommend a trade.

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Actionable takeawayThe speaker discusses the potential for a pairs trade between Bitcoin and NASDAQ but does not provide a concrete recommendation or execution strategy.
Bitcoinpairs trading
medium confidenceVerify in video at 26:28 ↗
Q&A

When do the MNQ versus MES pairs trade?

The speaker states that the timing of pairs trades depends on the current market conditions and the notional balance between the instruments. They mention that the ratio of MES to MNQ can vary, and in the current market, a ratio of two and a half MES to one MNQ is suggested. However, the speaker also notes that the exact timing and ratio should be determined based on the specific market situation.

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Actionable takeawayPairs trading ratios should be adjusted based on current market conditions and notional balance.
MESMNQMarket Outlookpairs trading
high confidenceVerify in video at 39:58 ↗