The concept of two pair trading (also called pairs trading) is not really new, yet it remains one of the most popular trading strategies among experienced traders. This is because pair trading leverages on the idea that two different assets that have similar characteristics will have their prices move together in the short to medium term, either in the same or opposite direction. This type of trading is believed to be relatively low risk and offers potential high returns.
In recent years, one tool that has become increasingly popular for traders looking to capitalize on the idea of pair trading is the Relative Rotation Graph (RRG). RRG charts provide an easy way for traders to observe the relative performance of two different stocks, currency pairs, or other assets, and determine if there is an opportunity to exploit an expected correlation in price movements.
RRG charts give traders the ability to track the relative strength of one asset against another and identify potential trading opportunities. It does this by displaying the relative strength of an asset in the form of a graph. In this graph, one asset is usually at the center and the others are plotted along the border of the graph. The assets that are plotted closer to the center is deemed to be the stronger of the two, and is the one that a trader may be interested in trading.
So, how can RRG help to find two pair trading opportunities? The first step is to find two similar assets at different price points, since this is what trading pairs are all about. To do this, use the RRG chart to look for assets that have a high degree of correlation – that is, assets that tend to move in the same direction, either steadily or vocally. Once you have identified two similar assets that are priced differently, you can then use RRG to confirm the correlation. If it is high, then this is an opportunity for a two pair trade.
The key benefit of using RRG for two pair trading is that it does the hard work for you and makes it much easier to identify trading opportunities. It allows you to track the relative strength of two assets and see if they are in fact correlated. The other advantage of RRG is that it makes it easy to keep track of the performance of each asset and allows you to compare the performance of multiple assets quickly.
In conclusion, Relative Rotation Graphs (RRG) is a great tool for traders to identify two pair trading opportunities. This is because RRG makes it easy to analyze and track the correlation between two different assets and to identify trading opportunities that are potentially profitable. As always, it is important to remember to use risk management strategies when trading and to always use stops to protect your profits.