Basket trading means buying or selling several stocks from the same sector or index..
Let's admit, the oil sector is growing and you decide to buy shares, included in the oil industry. Choose for example 10-15 stocks from that sector and as soon as the index gives you a signal, enter the selected promotions at the touch of a button.
- Stop loss is based on PnL (Profit and Loss). If basketball doesn't go your way, you must know, how much are you willing to give. For myself, I use stop to 10 cents per share. I.e, if you have a basketball from 10 shares and each 100 shares, then my way out is -100$ by PnL.
- Everyone decides the profit for himself. But there are some general rules. If basketball is already making money for you, then close it at a loss is a sin
basketball Trading (basket trading, — trade with a basket of instruments) - type of arbitrage transactions, that use more than two instruments. Usually, Basket trading involves trading the difference between two baskets of stocks..
Basket trading is a type of market-neutral strategy, ie. does not depend on the direction of the market.
Description of Stock Basket Trading:
- The idea behind basket trading is, to take for example, 6 shares of one sector, divide them into 2 heaps, and take the difference between them. The difference will historically fluctuate around the mean with some variation. Deviation of the price of one basket from another provides arbitrage opportunities.
- Trader (or trading robot) buys a basket 1 and sells a basket 2 at that moment, when the difference between them reaches the statistical limits.
- The price of one basket is calculated as the sum of the prices included in it. Shares, multiplied by the number of these shares.
Spread Characteristics of Two Baskets:
Spread range (in %). The less, all the better. The smaller the range, the lower the account drawdown
Spread amplitude — degree of spread spread relative to the average value. The less, all the better.
Amplitude kurtosis - in fact, time of deviation from the average value). The less, the better - the faster the spread returns to the average value.
Spread frequency - the number of intersections of the average value with the mean. The higher, the better - the less the trend in the price deviation of the two baskets.
spread volatility
kurtosis of spread volatility
the number of reverse movements of the spread and their sum
