Monday, October 22, 2012

TLT/ XLF Pair Trade - Part II...10.22.12

Following last Monday's introduction of the XLF/TLT pair's the performance report for the TLT side of the trade.  Some pair traders look at a pair trade as a single trade...I look at it as 2 separate trades which are deconstructed to yield both confirmation of the trade potential and timing.  What we don't want to see is one side of the trade making 90% and the other side making 60%...we want to be able to verify a balance of offset momentum to help reassure us that there is a true and ongoing structural relationship between our pair partners.

In our example from last week and this week we are looking at the same as to clarify that the signals do align with considerable precision.  Last Friday morning's signal of a new XLF/TLT position caught the bull break in TLT and ..frankly...ran further than I had expected.   Based on the TradeStation Report, the average duration of the TLT side of the trade is 5 days and I'll be looking to exit on or before that time.

It's often said that anyone can enter a's how you exit that defines you as a trader.

One of my favorite prop shops, Bright Trading....out of Las Vegas, routinely use a 1/3 ATR8 (8 period average trading range) to exit positions with great documented success.  Of course Bright only daytrades so that must be considered in any attempt to mimic their safety net..

Next Monday we'll conclude the XLF/TLT setup with a simplified version compliments of ETF Prophet.

If there's sufficient interest I'll post the daily status of the XLF/TLT trades in conjunction with the upcoming revised Situations format, which will be based on a revised T2 model with new money management tactics.