$WMT Walmart vs $SPY SP500 ETF $Pairs Trade. One of the hidden strategies most people don’t talk about is “pairs trading”. Some people talk about it but still the concept is not done right. I learned this powerful strategy in the institutional world.
What is pairs trading? Pairs trading is a hedge based strategy. The goal is to trade one instrument and hedge with another instrument. For example, if you like to trade Apple stock, you buy that instrument. To hedge it, you should sell their major competitor. As long as you limit your risk and make sure you get a 3:1 ratio, you will make money. This strategy is executed every quarter so it starts to create a “residual” income every quarter.
The key is to make sure at least one of the instruments move in your direction. To do this, we use technical analysis to determine the following:
- Which/When instrument to buy
- Which/When instrument to sell
This month, we are looking at $WMT vs $SPY.
Below is the weekly chart. The vhart broke out bullish long term. It is now going through a pull back. We are looking to setup a bullish pull back trade on the weekly time frame.
Update $JPM vs $COF:
The trade never triggered so we canceled it. Below is the current 240m chart.
Update $CAR vs $HTZ:
Below is the current monthly chart. The trade has triggered and we are at a minor resistance now. If this resistance break, we will get to the 3:1 reward/risk.
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