Are you ready to set the stage for success in pair trading? This task involves defining the parameters that will guide our trading strategy. Accurately establishing these parameters is pivotal as it determines the pairs we choose and the signals we respond to. Envision the impact of having well-delineated parameters—a smoother trading process, clearer signals, and better profit margins.
Things you might consider include: the amount of leverage to use, the duration for holding positions, or the thresholds for entry/exit signals. Potential pitfalls include setting parameters too rigid, hampering adaptability, or too loose, inducing excessive noise. Your toolbox here includes industry reports, financial models, and data analysis tools.