Wednesday, November 28, 2007

Spread trading with IT pair.

There is one of the best examples for spread trading (or pair trading). It comes from IT stocks, Intel (INTC) and AMD. Basically this kind of trading is convenient if market is unpredictable. Stocks can go up, down or sideways. You are going long with your favourite one and going short with worse company. The whole idea is that your laggard will always drop more than your favourite and in the same meaning for bullish trend.

If you would apply this trading system for mentioned stocks (long with INTC, short with AMD) you would have profit 70% for last year. At the chart, you can see that even recent sell off you would survive with as AMD drop was more significant than INTC.


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