5 Things We've Learned about Spread Trading

• Avoid Spreads Which Have Recently Gapped – Sometimes a spread will meet your criteria because it gapped.  Be careful of these.  It may indicate the spread relationship is broken.

• Your Target Profit and Stop Loss Should Be Symmetric – If you are right more often than not you will make money.

• Time Limit – Set a time limit for how long you hold a spread, ideally not too far away from the half-life.  There is a risk and opportunity cost to holding positions too long.

• Know How You Made or Lost Money – Are you making more from your shorts or longs?  Is there a catalyst involved or are the spreads just drifting back to the mean?

• Track the Spreads after You’ve Unwound Them – Are you unwinding too early or too late?

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

Comments

[Andrew nill]

Trading is a business. As in any other business, a well thought-out plan can make the difference between success and failure. A trading plan is a pact you make with yourself. It is your personal blueprint for success. It must include not only your goals but must also detail how you plan to achieve them.

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[zombie games]

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[Telematrix Marquis]

Trading is a business. As in any other business, a well thought-out plan.

Telematrix Marquis