My Pair Trades

I'm trying out some pair trades on Facebook. The idea is to long the strong ones in the industry and short the weaker ones or I was going to pair trade it off of the ETF, so say short the ETF but long the leaders that ETF holds or long the ETF but short the weaker ones.

I'm trying out the OIH, XOP, MOO, EWZ, PPH, or a combination of stocks in those ETFs... and I do want to try out the financials like KBE and UYG but with the short ban (which ends tonight) it's a little harder to gauge. I want to find things that are close in value or exactly half or a third to judge how many shares to take

I already longed 60,000 shares of MON and shorted 30,000 shares of AGU and MOS since those two's value is roughly half of MON. I will probably put on 50,000 shares of POT long with 33,500 shares of AGU and MOS short each when the market is slow MOS and AGU has a combined price of roughly 33% less than of POT so I'm shorting 33% more shares to match. I don't know if exactly that math makes sense when it's translated into dollar figures but since it's all an experiment I don't really care. In addition, I'm going to put on 45,000 shares OIH short and split my longs among RIG, SLB, and DO. The combined value of those threes is about twice the value of OIH so I'm probably going to do 7,500 shares each for 22,500 shares or half of the number of OIH shares I'm going to put on. For EWZ the max it'll let me short on facebook is 13,350 shares so I'm going to match that by longing 17,800 shares of PBR. PPH I can only short about 37,000 shares so I'll then split that in half and long 18,500 shares of JNJ and ABT.

It kind of makes sense to me with the numbers and the shares and all that in my but I'm not sure and if it's that easy I'm sure everybody out there would be doing it. Supposedly other people who do these kind of trades have some complicated algorithm, etc etc... woooo, wouldn't it be funny if I just crack it right now?

I'm at a point when I'm satisfied with my trading system and I want to continue to expand my repertoire. I have faith in the way that I trade that I'm going to consistently make money.

My New Trades

So I was talking to another trader on the floor yesterday about pair trades. I know he does a lot of that and I've been pretty fascinated by the idea. I've been looking for some trade ideas to automate for a while. The thing with pair trade though is that what I was thinking about is the opposite of what Brian or conventional play which is to play for the divergence to converge back. I was thinking that certain days EWZ looks a lot stronger/weaker compared to SPY, but I was also just looking at the dollar amount whereas most pair traders look at percentages.

There's still a lot of homework I need to do on this. There are traders that base trades off of complicated algorithm. How do I find the pairs? How do I establish what's the norm for them and what would trigger the trade? Should I look at the change in dollar amount or percentage? Do I take a different amount of shares for the long/short? Should I trade in the direction of the divergence or trade for them to converge? If it's not working, how much room do I give it or willing to lose? If it's working for me, what's my exit strategy in that case as well?

So far I only have the LVS-MGM and SPWRA-SPWRB pair that I'm trying out. If you know any other pairs that's been working for you, let me know.