Modules for Traders

Pair Trading

1. What is pair trading? 2. Pair trading jargon and terms play What are the benefits of pair trading? 3. Mean, median and mode 4. Deviation and distribution play 3 key terms to remember when pair trading 5. The density curve 6. Applying the concepts to make the trade play What to keep in mind when trading in pairs? 7. Straight line equation method 8. Understanding linear regression play Does pair trading work all the time? 9. The error ratio 10. Identifying trades play When to include pair trading in your strategy? Glossary: 20 pair trading terms for beginners

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3 key terms to remember when pair trading

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Learn some key terms about pair trading, so you can understand the strategy better.

Transcript

Right. So, let's decode some jargon. First, we have the differential. This is the difference between the closing prices of the two stocks in the pair. Next, we have the price ratio. This is the ratio of the closing price of one stock divided by the closing price of the other. And lastly, we have the correlation. Correlation measures the degree to which both the stocks in a pair are related. It is numerically expressed by the correlation coefficient Which falls between minus 1 and plus 1. So, you're now caught up with the basic jargon And the basic statistics. Head to the next chapter to learn more about this trading strategy.

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The density curve

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