Pairs Momentum

Pair's Momentum is an auxiliary indicator that can be used in conjecture with Pair's Spread, Pair's MACD and Pair's RSI Indicators for optimizing the timing of opening or closing a position in a Pair's trading strategy. Pair's Momentum is an ordinary Momentum indicator with the only difference being the way its price is derived.

While a simple Momentum indicator uses the closing prices of only one instrument, Pair's Momentum uses the Pair's Spread closing price. (see equation 2.)

Lets assume that we have identified a long-term relationship between Microsoft and Intel Corporation. Additionally lets assume that after applying an econometric research we have found that the long-term relationship between Microsoft and Intel is given by the following equation:

MSFT=-13.8362+2*INTC+error  (1.)

Pair's Spread= MSFT-(-13.8362+2*INTC) (2.)

Where the error is normally distributed with mean zero and unit standard deviation.

The above econometric equation uses daily time frame!

In more detail in our example Pair's Momentum price is derived using the following inputs:

•  Pair A symbol: Is the symbol of the first pair component. For example MSFT for the Microsoft Corporation. Its value should be a string.
•  Pair B symbol: Is the symbol of the second pair component. For example INTC for the Intel Corporation. Its value should be a string.

Before typing any pair symbol please make sure that the corresponding investment instrument is added to the navigator window. To add an instrument you should right click on navigator window go to Symbols, select the desired instrument and then click on the show button.

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