How to Build a Pairs Trading Strategy: The Secret To Finding Profit In Pairs Trading

In this video we discuss pair trading http://www.financial-spread-be....tting.com/strategies - what is pair trading. If you found value in watching this video, PLEASE LIKE AND SHARE so we can do more! Here’s how it works: When you pair trade stocks, you buy the underperformer, and you sell the outperformer. You are betting on mean reversion. You utilise the pair trading strategy to try extracting money by trading two companies that are in similar industries. As such here you are trading the differential between two instruments as opposed to taking a position in one. This is basically a mean reversion strategy.

This trading strategy involves studying how the historic price of one market performs in relation to another, and using this as a cue to identify whether the price of a market will go up or down from its present position, and potentially when.

Pairs trading commonly involves taking two stocks from the same industry, like BP and Shell for example. These stocks tend to follow each other, as they’re affected by the same types of economic factors. If you notice that BP is trading at a discount to Shell (relatively speaking), then this provides you with a trading opportunity. If you buy BP stock and sell an equal value of Shell shares you can profit as the shares move back to their historic ‘equilibrium’. Your goal here is to profit from the fact that one stock has become too expensive relative to the other.

Related Videos
Mean Reversion Trading Strategy Ideas 👍
https://www.youtube.com/watch?v=XLLRXqSTPjI
Mean Reversion Trading - Indicators, Tips and Strategy 🦊
https://www.youtube.com/watch?v=cPZtzSA8GuY
Traders' Tips 📈 Mean Reversion Strategies and Biggest Challenges
https://www.youtube.com/watch?v=P_XIa1Xeh3s
Reversion Trading Strategy: Using VWAP to Guide Trade Entries in Range Bound Markets
https://www.youtube.com/watch?v=tgjoqK4DlFc
Range Bound or Trending: Top 8 Signs Of A Range Bound Market ☝
https://www.youtube.com/watch?v=FTeNM-6iIV8
How to Build a Pairs Trading Strategy: The Secret To Finding Profit In Pairs Trading
https://www.youtube.com/watch?v=DHrtchOzIqs

• Category

  Forex Trading