Hare are two further observations regarding Friday's DIG FAS pair trade.
Above . . after whining to Jeff that I felt the trade distribution was a vital metric, he provided me with a beta version of REWIND +, an enhanced platform designed specifically for pairs trading.
As expressed on Friday, my concern was the max daily drawdown because I hate drawdowns and gauge the value of a trading system more on the ability to minimize drawdown than the ability to maximize gains. . . that's just me.
The chart is run out (or back) 153 trading days and displays the incremental % gain or loss for each day. These are not trades, just a reflection of how the equity curve is developing on a day to day basis. Out of 150 days the pair produces 5 outlier losers in the -10 to -15% category and 2 outlier losers in the -15 to -20% category. IMHO these are respectable results for a 153 day time frame.
To get a further sense of what's going on with this pair's equity curve I've expanded the P&L chart from the original post and high lighted in red and green the crossovers of the R2 (squared) line and the P&L line.
The best P&L gains are clearly made when the P&L line rides above the R2 while marginal or negative returns are realized when the P&L rides below the R2.
Keep in mind that one of my ongoing goals is smoothing the equity curve through systematic risk management. What this metric suggests is that the pairs model can be improved with a rather simple timing model . . . and, if we examine a larger universe of pairs as part of a pairs portfolio, capital can be culled out of sub par ETFs and rotated into pairs that are "performing" above the R2 line (or other trending metric).
As a followup to yesterday's archived post, I'm adding this archive to help traders who might be otherwise inclined, to reign in those hormones.