Stop loss after average time in trade

[Matan Bar-Haim]

Hello all,

My pair portfolio is well-diversified in terms of pairs that I have at any given time.
The usual average time in trade both in the backtest and in trading is 10-14 days.
The problem starts when I go past the average time, the SD hasn't made any sign of returning to the mean (IE staying around the 2SD) and the pair is at an obvious loss.
Consistently for those pairs, even when the SD goes back to the mean(usually it doesn't on those pairs) I don't see any profit and usually a loss.

I was thinking about exiting the position when the average time has passed and the SD is not showing any signs of returning to the mean to give that slot to a different pair and wanted to hear if anyone has tried something like this before?

I would also appreciate any opinions on the matter.

All the best,
Matan. 

[admin]

Hello Matan,

this is pretty standard feature and it is recommended to be used.

More info here: https://wiki.pairtradinglab.com/wiki/Pair_Trading_Lab_Algorithms_%26_Strategies
(look for Max Days (Time Stop Loss))

Kind regards,
Karel

[Matan Bar-Haim]

Hey Karel,

Thank you for your reply.

I have been using the max trading days as 20 for every pair as a default setting but yet to adjust it according to the AVG time per trade.

Are you saying that instead of using 20 days for every pair it is a normal procedure to adjust the max trade days to every pair and after the AVG time + X days(depending on the AVG), if the SD hasn't changed much the position should be closed?

All the best,
Matan.

[admin]

I just advise to use the Max Days rule as it is. 20 days is a good default but it is always a good idea to finetune it per pair using a backtest.

Using the SD together with it (to look if it is going "anywhere") won't help much I think (remember the SD you see is already a history, you don't know the SD of the next day yet).