capissimo

SpreadTrade - Cointegration

The Cointegration strategy is to short the outperforming instrument and go long on the underperforming instrument
whenever the temporary correlation weakens which means one instrument going up and another going down.
Here, instead of two different instruments two timeframes of the same instrument are used, lower and higher.
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hi there,
i could not understand the logic behind using two t/f for cointegration calculation and how to interpret it. i want to check coint b/w audusd and nzdusd on daily close basis for last 252 days.
recently i moved to west indices from India. i am doing pair trading in Indian market since long, but i use EOD data for stocks and calculate co-integration with help of amibroker and python severs. i have to move to currency market b/o time diff between my home country and west indices.
please enlighten me. thanks.
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capissimo justnifty
@justnifty, the essence of coint trading is taking advantage of the differences that exists between assets, usually using a bucket of assets. The trick here is that the difference (in momentum, strength, etc.) can be spotted within a signle asset just by taking different tfs.
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justnifty capissimo
@capissimo,
thanks bro, but frankly could not understand anything!!!
i applied it in my chart http://prntscr.com/mz9qql and choose 63,252 period now how to interpret it to understand if my pair is co-integrated or not? hope u can understand my confusion.
best wishes.
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capissimo justnifty
@justnifty, firstly, look into the article indicated in the header to ensure you understand the general idea. Secondly, in this particular case of only one asset dots below and above the horizontal lines indicate the presence of a strong movement. Be ware that this indicator should be used together with another one or two.
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