If you are looking for a stock trading strategy that can reduce your risk, increase your returns, and take advantage of market inefficiencies, why not consider pair trading?
Pair trading is a market-neutral trading strategy that involves buying and selling two stocks that are related in some way, such as belonging to the same industry, sector, or country. The idea is to profit from the relative price movements of the two stocks, regardless of the overall market direction.
How Pair Trading Works
The chart below shows you the relative price performances of the two related shares, Juniper Networks and Lumentum Holdings:
Can you see the profitable pair trading opportunities clearly? Not sure?
How about now:
Pair Trading Advantages
Pair trading has many advantages over other stock trading strategies. First, it can lower your exposure to market risk, since you are hedging your position with a counterbalancing trade. Second, it can generate consistent profits in any market condition, as long as the two stocks maintain their historical relationship. Third, it can exploit market inefficiencies, such as mispricing, arbitrage opportunities, and mean reversion.
However, pair trading is not as simple as it sounds. It requires a lot of research, analysis, and testing to find suitable pairs that are correlated and cointegrated. It also requires a lot of monitoring, execution, and management to identify optimal entry and exit points for each trade. That’s why you need a high-quality, easy-to-use pair trading software that can help you with all these tasks.
Enter the Need for Pair Trading Software
A good pair trading software should be able to:
- Backtest a stock universe to find correlated and cointegrated pairs and their trading histories
- Identify high-probability pair trade setups on these pairs in real-time and send signals to the trader
- Provide a way to quickly and easily send these signals to a high-quality, low-cost broker for execution
With a pair trading software like this, you can save time, money, and effort in your stock trading journey. You can also enjoy the benefits of pair trading without the hassle of doing everything manually.
Our suggestion? Get trading with PairTrade Finder® PRO! We are the leading online pair trading software since 2008, and have performed billions of backtests and supported millions of pair trades on behalf of our subscribers over the last 15 years.
Sign up for our free Webinar Pair Trading 101 and start a Free Trial today…just use the box on the right hand side of this page at the top!
