coval

Hi guys, actually it is my first post on this forum, but as I can see you are talking here about something what I have been doing for around a year and I would be happy to exchange some ideas about spread trading. I usually trade DAX vs CAC as well as some forex instruments. So far, to trade in such way I have always measured correlation of the securities, to make sure that there is a chance to have the spread closed up.... Recently I have learnt that much more reliable method would be to calculate cointegration of the instruments, because 2 charts might be almost perfectly correlated but keep constantly getting away one from another - at least when you measure correlation with Pearson's method... Than, another very important issue comes - when to take a position - the easiest way to answer is: " when the spread is higher than usually". For this I created a very simple indicator which shifts me CAC chart on DAX chart with one point taken as a mutual neutral point, i.e. Jan 1. And than you can see a nice spread between instruments. Unfortunately, we never know whether we took a really "neutral" neutral point or was it in reality an extreme point and we need to wait months before the spread would come back and let make us earn some money... If this is interesting to anyone please let me know so I will post in some pictures to show clearly the problem... greetings, CoVal