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Trading Techniques  |  MAY 2002

Daytrading Stock Pairs by Mark Conway and Aaron Behle

Daytrading Stock Pairs by Mark Conway and Aaron Behle Tired of trading Level II quotes and one-minute charts? Try a market-neutral strategy. It can take years of experience to discover one unique insight to exploit that can consistently pull money out of the stock market. Most traders have a bias as to market direction and position themselves accordingly; however, market-neutral strategies are becoming popular for those who are tired of trading on the gerbil wheel of Level II quotes and one-minute charts. Pairs trading is a market-neutral strategy where a long position in one stock and a short position in a correlated stock are taken simultaneously. The profit principle of the trade is based on mean reversion — that is, two stocks that normally trade in the same direction become temporarily uncorrelated and eventually will revert to the mean.

by Mark Conway and Aaron Behle

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