Tuesday, September 22, 2009

Qs / UUP Pair

This is a continuation of my study of the REWIND Pairs Trading module.
Today I'm looking at some trading opportunities offered by various currency ETFs and the major indices.
There are other currency ETFs available, but I've tried to narrow the pack to those that actually have tradeable volume, considering that muted volume leads to significant bid/ask spreads that can effectively destroy much of the potential trade gains..
Although there are some interesting inter currency pair possibilities (to be explored at a later time) the object of our current attention is the QQQQ/UUP pair as shown by the red circles and connecting bars. I've set the linearity filter to 90% (as discussed last week) in an attempt to further cull the high probability pairs.
The UUP/SPY and UUP/DBV look like alternate candidates (blue circles and connecting bars) and as I move towards building a UUP based pair basket, their trade cycles and the relative synchronization of of their trigger signals will be explored further.
Below is the actual Qs/UUP pair analysis:
While there have only been 7 trades during he last 6 months the Trade Report shows that all have been winners. Now the first thing you're going to say after looking at the Trade Report is, "Gee, Bob, 6 of the 7 trades were long the Qs and short the dollar. . .why not just trade the Qs?"
That's a very good question (I often have these conversations with myself) and my answer is that it's easy to see things in hindsight, but a bit more problematic in real time. Those that have been predicting a significant mean reversion pullback for the past 2 months haven't fared very well but this little pairs model would have kept you on the right side of the Qs (and the Spy as it turns out). Sometimes the best use of a trading system is not as a strategy per se, but as a timing model, and in the case of the Qs/UUP I think the evidence speaks for itself.


sysin3 said...

I'm just going to point to this and say " )*#@)* ", or " blatant ", or " egregious "


Hope you're doing well, BZ

bzbtrader said...

Thanks for the link. ZH is, as usual, ahead of the curve and informative in his own unique no-holds-barred way.