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I know a few full time prop spread traders, trading US Treasuries/Eurex interest rates. They are trading the yield curve.
My understanding is that the most attractive thing about this sort of spread is the way the spread works when the trade is not in your favor.
In laymans terms, the trade will become profitable faster as it moves your way but lose money more slowly when it moves against. As has been said, it is still effectively a directional trade but the direction of the yield curve.
Trading 2 correlated stocks that have gone out of synch is statistical arbitrage and that is what I generally think of when I hear about pairs trading. To me, that seems more of a high frequency game than yield curve trading but on stocks I am sure there's plenty of pairs that can be arbed without being an HFT guy. I think there's a fundamental aspect to pairs trading stocks in terms of figuring out if the divergence is because of a change in the underlying fundamentals or not.
Then there's calendar spreads which might involve you doing zany things like actually storing a bunch of oil for 3 months to take advantage of a pricing disparity.
Then crack spreads that trades off oil/gas against their derivative products.
I am sure it is very difficult to do a generic analysis of pairs trading because there's a lot of different spreads out there and they all have different characteristics, you'd need to become quite familiar with them to form an educated generic opinion. It is something I want to look into more but with so much on my plate, it never really gets priority.
From what I have seen, the prop traders that lean towards spread trading tend to get onto a funded account in less time than those that stick to outrights. If I wasn't so lazy
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The DJIA has been so weak relatively that a short there instead of ES would actually almost be yielding a profit, or at least breaking even, so you'd have an NQ long free and clear for a $4900 profit.
+$3800 on the NQ long, and only -$200 on the ES short. The cool part is that I'm not worried about being stopped out unless a dollar loss is reached. Kind of like, "go ahead, run the stops, I don't have one."
The ES leg is actually in profit, with NQ staying very strong. First circle is the spread where the trade was entered, second is current. A two week sim trade may not be too exciting for some people, but this has demonstrated how the trade works at least, which was the only purpose.