Q&A by Rob Friesen
PAIR TRADING: LOOK FOR CATALYSTS
In the land of diminishing pair returns, grab some catalysts for your spreads!
We live in an instant-fix environment. If youve got a problem, you want an instant solution. This is often carried into the trading world. You want access to information so that your computers can crunch data and find those statistical anomalies. The computer does all the work and spits out the results you are searching for. In this machine age, traders often forgo the heavy lifting implied by quality time spent researching, reflecting, and contemplating the current and future economic landscape. Instead, they want a formula or a magic pill for profits they think automation can provide.
I am certainly not against the computer age, but I do have an abundance of street smarts gained from years of trading, working with other traders, and observing numerous statistically significant samples. I understand how pairs behave in good times, bad times, and most of the time. Traders will go after pair opportunities, but this can also end up increasing risks to their capital. Attempting to pick up pennies in front of a steam roller, they make a dime, make another, and then lose a dollar...