OK Guys…. I’m really sorry that I wasn’t able to get the NinjaTrader for Unilateral Pairs Trading Indicator put together… but IT’S NOT MY FAULT!! Honest!

OK. If its not my fault, then why the delay? Well, there’s a couple of little “technical” gotcha’s in NinjaTrader that are being worked out. NinjaTrader support is telling me that when NinjaTrader 7 comes out this fall/winter that all the technical components I need to accomplish the Unilateral Pairs Trading Indicator will be included.

So what “technical” issues are we dealing with? Well…. its simple in nature really. You see, in order for me to implement James Altuchers Unilateral Pairs Trading Strategy that he talks about in his highly acclaimed book Trade Like a Hedge Fund: 20 Successful Uncorrelated Strategies & Techniques to Winning Profits (Wiley Trading), I need a function called “Correlate” that … well….. finds the mathematical correlation value between two symbols. So why can’t I do that? Well, at this time, NinjaTrader doesn’t allow for two different symbols to be referenced in an indicator. So I can get the data for the two symbols and identify what the correlation is between them, which is (partly anyhow) what determines the standard deviation values that are derived for the buy/sell signals.

Now I don’t want anyone to badmouth NinjaTrader over this…. They are working very diligently on this, and even gave me several alternate methods to try. Unfortunately, as with most work-arounds, they were designed with a different purpose in mind, and were ultimately unsuitable for the Unilateral Pairs Trading Indicator

In fact, I’d really rather that everyone that has genuine interest in having this indicator, go to the NinjaTrader support forums, and let it be known that we Absolutely Require Multiple Symbols To Be Referenced in Indicators, so that more quality NinjaTrader indicators can be created. In fact, if you want a starting point, here’s the thread I started

So where does this leave me for writing NinjaTrader indicators? There’s still a whole wide field open for indicators…. and I’m just getting warmed up!!

So keep those requests coming, and I’ll keep delivering!!

Summary

Based on James Altucher's book Trade Like a Hedge Fund: 20 Successful Uncorrelated Strategies & Techniques to Winning Profits (Wiley Trading), this useful indicator is great for pairs traders that would like to trade only one side of a pair. I really recommend that you buy James Altuchers book, or at least check it out from the library. His book describes Unilateral Pairs Trading in depth, as well as several other trading techniques for high profits, and just general trading thoughts that are highly refreshing. The download includes 2 indicators and a bonus showme for buy/sell conditions At this time, the indicator is just for TradeStation, but as you all know, I'll get it into NinjaTrader soon!! NinjaTrader was missing a key function I needed, that I'm having to create by hand.

Screen Shots

Usage

James Altuchers book Trade Like a Hedge Fund: 20 Successful Uncorrelated Strategies & Techniques to Winning Profits (Wiley Trading) was my inspiration for the Unilateral Pairs Trading technique that he outlines in chapter 2. I've code up a simple TradeStation ShowMe to indicate buy conditions. You can turn on sell conditions too, but I've got some improvements to do on that half, so don't say I didn't warn you ;) The idea is that when two pairs are trading that are highly correlated ( I use pairs with a correlation value > .85, but that's just me) they will shift out of sequence with each other for short bits of time, and statistically they will "re-converge"

And how do I find 2 stocks that are highly correlated like that? Well, I wrote a program to analyze all the stocks, and compile them into a list, and tell me which ones are highly correlated :) You know, the easy, lazy programmers way!! I used to have it online, but there wasn't enough interest to keep it going. If I was to get a sudden surge in interest, I'd consider putting it back online again.... I might even make it free!! Just let me know if you prefer online, or a desktop app you run at home.

So now that you have a highly correlated pair, how to you apply it to the Unilateral Pairs Trading technique that James Altucher outlines? Well, basically for a long buy, and the ShowMe takes the work out of it, if the standard deviation of some calculated ratios is less then -1.5 (modifiable to suit your trading style) AND the percent change in price is greater than 2%, then you have a buy signal. On the other hand, if you have 1.5 standard deviations and greater than -2% change, then you have a short sell trading opportunity. There is more to it than that, and James Altuchers book is really great to read for insight into how this, and many other, trading techniques work for hedge fund managers

Downloads

Download Unilateral Pairs Trading Indicator (ELD and Workspace)

Happy Trading!