Trade Equity Pairs to Cut Volatility and Put Time on your Side

Use equity pairs trades to stay in trades longer and put time on your side.

If you are trying to increase your holding time but are scared, you can buy one instrument long and sell another related instrument short against it.

Ideas to Test

Look at the strongest equity sectors from a relative strength standpoint. You’d buy the best name long and sell the worst short. You are looking for the long to outperform the short.

This is a relative value trade – one instrument will outperform the other. You give yourself more “outs” or more ways to win. This type of trading give you much more flexibility.

If the market crashes or corrects, the sting of the down move will be offset by the short position.

You have to test these ideas, but this is a creative way to get your testing ideas going.

Remember, making transactions is not trading.

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