Monday, August 03, 2009

Pair Trade: RIMM and AMZN

On Friday I went short AMZN and long RIMM. This is a "pair trade" trade using the folling strategy:

1- enter one stock long and one stock short from similar fields.

2- the short stock should exhibit a very bearish pattern, while the long stock a very bullish pattern.

The idea behind this trade is that if the market goes up or down significantly, it will likely take both stocks and you break even or have a slight gain or loss. However, if there is not a major market move, the stocks will move according to their patterns. This could give back significant profits in two trades that end up working out.

RIMM is consolidating post breakout of 50 day moving average. AMZN is a "failed breakout" setup.

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