This tool is currently under development.
It is based on the concept of Unilateral Pairs Trading described in James
Altucher's Book "Trade Like Hedge Fund".
Put simply, the concept is to trade the most volatile side of a closely
correlated pair of securities when the difference between the the two
securities exceeds two standard deviations from their historical relationship.
For example, trade QQQQ against SPY.
If the more volatile security exceeds the spread, then the security
is shorted on the basis that it is overpriced and the spread will narrow.
If the more volatile security is trading below the spread then the security
is bought in the expectation that it is underpriced and will rise.
A position is closed when the security reverts to within 0.5 standard
deviations of the historical relationship. The trading rules are given
here.
The tool currently only uses ETF's but its scope may be expanded in
the future.
The last row in the output result set will tell you if you should open
or close a position as of today's date.
It is intended to enhance the tool to allow you to specify securities
pairs that you wish to follow and send alerts when a signal is issued. |