Trading Systems

1. What to expect?
What is a trading system? Such a glorious day to start this module! Here is the headline that rocked the stock markets today – Yesterday i.e 24th Oct 2017, the Finance Minister announced that the Go ..

2. Pair Trading logic
2.1 – The idea If you have ever been on an interstate highway, then you would have noticed that the highway usually includes the main highway, on which the vehicles zoom by at full speed. On either ..

3. Pair Trading, Method 1, Chapter 1 (PTM1, C1) Tracking Pairs
3.1 – Getting you familiar with Jargons Like I had mentioned in the previous chapter, there are two techniques based on which you can pair trade. The first technique that we will discuss starting no ..

4. PTM1, C2 – Pair stats
4.1 – Correlation and its types I have to mention this at this point. The pair trading technique we are discussing now is discussed in a book called, ‘Trading Pairs’, by Mark Whistler. I like th ..

5. PTM1, C3 – Pre trade setup
5.1 – Revisiting the Normal Distribution If you have been a regular reader on Varsity, then chances are you’d have come across the discussion on Normal Distribution in the Options Module. If you&# ..

6. PTM1, C4 – The Density Curve
6.1 – A quick recap I think a quick recap is justified at this stage, this is to ensure we are all on the same page. I’d strongly recommend you read through the recap, to ensure we are on track. I ..

7. PTM1,C5 – The Pair Trade
7.1 – Quick Reminder We closed the previous chapter with a note on Density curve and how the value of the density curve helps us spot pair trading opportunity. In this chapter, we will work towards ..

8. Pair trade Method 2, Chapter 1 (PTM2, C1) – Straight line Equation
8.1 – A straight relationship Today happens to be 14th of Feb, people around me are excited about Valentine’s Day, they are busy celebrating love and relationships. I think Valentine’s Day is a ..

9. PTM2, C2 – Linear Regression
9.1 – Introduction to Linear Regression The previous chapter laid down a basic understanding of a straight line equation. To keep things simple, we took a very basic example to explain how two varia ..

10. PTM2, C3 – The Error Ratio
10.1 – Who is X and who is Y? I hope the previous chapter gave you a basic understanding of linear regression and how one can conduct the linear regression operation on two sets of data, on MS Excel ..

11. PTM2, C4 – The ADF test
11.1 – CoIntegration of twotime series I guess this chapter will get a little complex. We would be skimming the surface of some higher order statistical theory. I will try my best and stick to pra ..

12. Trade Identification
12.1 – Trading the equation At this stage, we have discussed pretty much all the background information we need to know about Pair trading. We now have to patch things together and understand how al ..

13. Live Example 1
13.1 – Tracking the pair data We have finally reached a point where we are through with all the background theory knowledge required for Pair Trading. I know most of you have been waiting for this m ..

14. Live Example – 2
14.1 – Position Sizing I know, the discussion on pair trading was to end with the previous chapter, but I thought I had to discuss a special case before we finally wrap up. I’ll also try and keep ..

15. Calendar Spreads
15.1 – The classic approach I had briefly introduced the concept of calendar spreads in Chapter 10 of the Futures Trading module. Traditionally calendar spreads are dealt with a price based approac ..

16. Momentum Portfolios
16.1 – Defining Momentum If you have spent some time in the market, then I’m quite certain that you’ve been bombarded with market jargons of all sorts. Most of us get used to these jargons and i ..