Daytrading Stock Pairs by Mark Conway and Aaron Behle
Tired of trading Level II quotes and one-minute charts? Try a
It can take years of experience to discover one
unique insight to exploit that can consistently
pull money out of the stock market. Most
traders have a bias as to market direction and
position themselves accordingly; however,
market-neutral strategies are becoming
popular for those who are tired of trading on
the gerbil wheel of Level II quotes and one-minute charts.
Pairs trading is a market-neutral strategy where a long
position in one stock and a short position in a correlated stock
are taken simultaneously. The profit principle of the trade is
based on mean reversion — that is, two stocks that normally
trade in the same direction become temporarily uncorrelated
and eventually will revert to the mean.