Written by Norm Winer. Follow me on Twitter and StockTwits.

Norm trades spreads for Bigger Capital. Norm comments on Chris Cachat's post about spread trades follow:

We enjoyed your post on spread trading.  It’s nice to hear we inspired you to learn more about spreads, and it’s always helpful to hear how other traders approach things.

Reading your post, I see you are grappling with some of the same issues we did, and still are, and we thought we’d share some of our thoughts and experiences with you (and by we, I mean @biggercapital, @biggercapitalnw, and @fledlingtrader, who collaborates with us on trades).

It looks like you are basing your calculations on a 30 day time period.  We have found that, while that approach works well with some spreads such as GLD-GDX, it often pays to look at longer time periods as well.  We are now experimenting with looking at Cointegration and Z scores (standard deviations from the mean) based on five years, two years, one year and sometimes six months of data.  We have found that something that looks cheap over a 90 day period, or even a two year period, can look a little bit pricey over a five year period.  Just look at where NFX-BRY was trading a week ago and where it’s trading today.

Regarding when to unwind or when to cut, we only recently started giving serious thought to this.  Because we prefer to unwind quickly also, we have probably been cutting winners too early.  We are now paying closer attention to whether a spread still looks cheap or expensive before we unwind, even if we have already made a good return.

Lastly, definitely look more closely at half-life, especially if you’d rather not hold positions for long periods.  Good luck and let us know if you discover anything interesting!

P.S. Micheal's book How Traders Achieve Creative Flow is now available on Amazon.com. If you want to use your creativity to innovate your trading edge, this book is for you.