Thread: Market Neutral Corner

Originally Posted by ;

But if there was no trend you would have every move independant again (significance =0.

You're right, it is conceivable to have cointegration with two horizontal signals, where the correlation will be feeble on any tf.
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Originally Posted by ;

quote Yes they are. When you are buying AAPL you are shorting the USD. It is AAPL/USD. If I lived in Europe and that I purchased shares of AAPL, then they'd be purchasing dollars and Euros. Technically speaking you might say that they had been buying Apple Dollars from Euros. When you buy shares of AAPL you are prepared to give up the interest rate you are receiving by dollars in exchange for the return of holding AAPL stocks. This example might help. Let us say that you have $1,000 in money. You have two options. You could spend that 1000...

Thank you for chipping in.

You would have need at least two tools to construct a spread.

Originally Posted by ;

quote I like the trim excess volatility affecting your desired outcome part. A fundamentalist's strategy of Search-Validate-Leverage-Destroy?

Excuse me for using a dated picture from one of my previous posts but to provide a better illustration would imply having to start my trading machine up. From the below picture you're seeing in the top chart flat price of a constant crude oil future versus the reduced chart that's an easy calendar spread. You can recognize that the decrease chart has vol by looking at wicks and range.

Exchanges recognize it by carrying out volatility scans and adjusting margin consequently. Look at the following link http://www.cmegroup.com/trading/ener...CLpageNumber=1 to get CME margins on inter market spreads. If you select Nymex Crude (NY-CL) from the drop down you will see that trading the spread on immediate weeks can give you an 87% margin reduction. Immediate month Crude margin is 4000$ per contract therefore the 87% margin reduction produces a hell of a reduction. So basically for 1040$ it is possible to own 2 contracts .

Originally Posted by ;

quote Thank you for chipping in. You would have want at least two tools to construct a spread.

I don´t think you're understanding me correctly. Every trade is sort of spread whether you decide to recognize it or not.

For example in the 1980's a killing was made with the purchase of Brady Bonds. These were debt instruments issued in other South American Countries and Brazil. The killing was created threefold. Their debt was paying interest rates. The primary value of the debt increased and lastly the value of the currency shot up.

Originally Posted by ;

quote I dont think you are understanding me correctly. Every transaction is kind of spread whether you choose to recognize it or not. With the purchase of Brady Bonds there was a killing made for example in the 1980's. All these were debt instruments issued in other South American Countries and Brazil. The killing was made. Their debt has been paying huge interest rates. The value of their debt increased and lastly the value of the currency taken up.

1. I agree you for mentioning every transaction is kind of spread--no tool can be quoted without a fiat currency price delegated to it, which essentially means for each and every trade, a commerce involves not 1 but two instruments: buys/sells an instrument while simultaneously sells/buys a quoted currency.

2. What this thread differs is your target provide mechanism of a egy, the search leverage part. Spreading itself is a bet, I'm longing shorting Japan right now . Market neutral will be spreading that strives to get rid of bias that is directional.

3. Your opinions on fundamentals are welcomed.

Originally Posted by ;

quote 1. I agree you for mentioning every trade is kind of spread--no tool can be quoted without a fiat currency price delegated for this, which basically means for every transaction, a trade entails not 1 but 2 tools: buys/sells a tool while concurrently sells/buys a quoted currency. 2. What this thread differs is your goal deliver mechanism of a egy, the lookup leverage part. Spreading itself is normally a vertical bet, I am longing shorting Japan . Market impartial tends to be dispersing...

For part 2 of your last post, I believe I have most probably clarified sufficient of you to comprehend exactly what SPAN margin is and how to use this to decrease margin requirements.

In terms of part 3 my main trading fashion is Price Action. The term itself Price Action has been implemented from concept with this forum so much, that the real meaning of Price Action has been lost. Indeed most posters on here feel that Price Action is using trend lines, OHLC patterns in combination with support/resistance etc.. The Price Action term has always been rehashed into industrial trading strategy titles etc.. I can tell you with 100% certainty that non of these approaches are PA based.

The truth is that price action trading takes a lot of time and effort to procure and there's surely no free lunches. What I can worry is that the market gives out a continuous stream of advice. I hear many traders starting the week by stating the EUR should be bearish, the USD should be bullish. Expecting the market to behave in a logical manner is quite naive. Doesn't work like that never has.

Instead of taking the random logic in our head and forcing it on the marketwe should be listening to what the market is pushing and saying it upon our trade choices. If you understand how to listen properly, the market can tell you a lot through the day. The best starting point I can recommend for any trader is to construct a framework in order for you to'listen' to the market.

A Great starting point for the inquistives

Trading Spreads and Seasonals
The Handbook of Pairs Trading
Pairs Trading: Quantitative Methods and Analysis

Blindly Subsequent trading methods in eduional materials without Assessing their premises won't Assist You Residing in this niche

Originally Posted by ;

quote For part two of your final article, I believe I've most probably explained sufficient of you to grasp what SPAN margin is and the way to use this to decrease margin requirements. Concerning part 3 my main trading style is Price Action. The term itself Price Action really has been applied out of concept on this forum so much, the real meaning of Price Action was lost. Indeed most posters on here believe that Price Action is the use of trend lines, OHLC patterns in combination with support/resistance etc.. The Price Action term has always...

Ordinarily a trader would put a piece of arbitrary claim such as Stat Arb will not operate or market neutral egy is doomed right into a paper shredder, enjoying the Whirrrshhhhhhhcccchhh sound as it moves, LOL. I'm not that kind of trader and passed the point of seeking self boost from a forum.

What I do like to point out is that the financial market as one of the most complex artificial structure created, is inherently the sum of expectations from all speculators, hedgers, arbitragers across the globe, thus an arbitrage would not exist if there hadn't been one already inside the market micro-structure itself.

As a market-neutral egist I ask myself the exact same question daily: am I listening into the market at this time or am I just forcing it? There is not any black and white answer.

I thank you for the input on this subject matter.