From the November 01, 2010 issue of Futures Magazine • Subscribe!

Software Review: Catalyst Corner’s ‘Pair Tool’

Catalyst Corner – ‘Pair Tool’

Web site: www.catalystcorner.com
Requirements: Internet browser (Internet Explorer, Firefox, etc.).
Price: Free, but requires a no-charge website user account.

Overall Rating: 4 of 4

In a world of expensive investment and trading education and software, Catalyst Corner’s Pair Tool offers a professional, data-rich website for investigating pairs trading. The Pair Tool is a good pro bono opportunity for the broad trading public to investigate what has, until now, been a niche trading strategy.

Installation, documentation and support: 4 of 4

There is no installation step, other than creating a user account at the Catalyst Corner website. No personal information is required to create the account. The Catalyst Corner business model appears to be one based on ad placement, site sponsorship and other promotional features; currently the third-party foot-print at the site is refreshingly unobtrusive.

The Catalyst Corner website is professionally designed and uncluttered. It gives the user the sense that only a carefully hand-picked set of investment and trading techniques are its focus – another pleasant surprise. There is a free e-book PDF, a short introductory video and a Demo Tool that give the user a quick introduction to the Pair Tool software. Again, useful pro bono information on what has been a fairly arcane subject. Because the Pair Tool is a free offering, there is no specific user support, other than the typical website “Contact Us” feature. Given the novelty and complexity of pairs trading, the user may find additional support required before attempting a pairs trade.

Features: 3.5 of 4

The user selects two assets at a quotes page, entering one long and the other short, and then requests a pairs chart analysis. The pairs chart gives a wealth of fundamental and technical analysis on the paired, offsetting position. A unique graphical display of recent pair performance, including historical price history and average price, is graphed. The historical price history is bounded by Bollinger Band standard deviation lines. The Pair Tool provides a large amount of data in an accessible format. There is a “Create PDF” feature to create and email a pairs chart.

A very useful feature is the Pair Tool calculation of a dollar-neutral position based on an initial capital setting. For example, given a long position in the platinum ETF PTM and a short position in the gold ETF GLD, when based on a $10,000 account allocation, the Pair Tool generates a Buy (long) 526 PTM and Sell (short) 81 GLD, with a 5% position increase as an expected profit-target, assuming the pair moves back to its historical average.

A pairs position can protect the user from sudden, unexpected market moves, as the long and short positions will often offset each other, and this is one of the attractions of pairs trading. The traditional trend trader looking for winning runners may find pairs trading frustrating because a pairs trade seeks to exploit relatively smaller price moves back to historical norms. But in the challenging investment climate faced today, the Pair Tool offers an excellent new data resource for the retail investor/trader. And, as in the example given here, with the advent of commodity ETFs, the retail market now has the opportunity to trade discrepancies in related commodity markets from an equity account. The Pair Tool helps give retail access to what has been a fairly specialized investment and trading strategy.

Given the complexity of a pairs trade, additional documentation on pairs trading could make the site even more accessible to the new user. There is a “Top 5” pairs listing at the Catalyst Corner site, but little additional guidance. A few example pairs trades, and how stop-loss and profit-targets are managed would go a long way in helping the first-time user.

Conclusion

Catalyst Corner’s Pair Tool is a very fine pro bono data and charting website for pairs trading. It offers pairs analysis that here-to-fore has been largely unavailable to the retail investor/trader. It’s definitely worth a review from anyone interested in exploring pairs trading and/or looking for a data analysis of pairs.

For 20 years Michael Gutmann was a software engineer and manager at Intel Corporation. He has recently published the 2nd edition of: “The Very Latest E-Mini Trading: Using Market Anticipation to Trade Electronic Futures,” and trades his system daily. Mike can be reached at mike@vgxcapital.com.

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