40 Things To Know Before Entering The Stock Market

28. Pairs Trading

When investors chose pairs trading as their trading strategy, they find similar pairs of stocks and combine their prices linearly. This strategy is neutral, allowing investors to profit from pretty much all market conditions, including sideways, uptrend, and downtrend movements.

Investors have used pair trading since the 1980s where it was pioneered at Morgan Stanley. This strategy requires market timing, strong decision-making skills, and good position sizing. There isn’t much of a downside to pairs trading, but opportunities are scarce due to the dynamics involved. For success, a trader must be quick and one of the first to capitalize on a movement.