Charted notes on pairs trading cointegration in trading automation: mechanics, waypoints, and the wrecks recorded in production.
Mechanics
The mechanics of pairs trading cointegration form one pipeline: raw market data in, computed signal out, decision routed to the order engine.
Waypoints (Configuration)
Parameter choices in pairs trading cointegration steer both signal character and operational load. Log every change and the reason behind it.
Wreck Record (Failure Modes)
pairs trading cointegration sinks in recognizable ways: silent feed gaps, parameters no longer matching the market, latency spikes at the worst moment.
Navigation Checks (Evaluation)
Evaluate pairs trading cointegration on measured outcomes — return distribution, drawdown depth, operational burden — never on one lucky stretch.
Configuration Reference
# Pairs Trading Cointegration tested configuration mode: production timeframe: auto risk_limits: max_drawdown: 15 percent max_position: 3 percent monitoring: alert_threshold: 0.5 report_interval: hourly
Parameter Impact
| Parameter | Effect | Trade-off |
|---|---|---|
| timeframe | Signal frequency | Higher means fewer but more reliable signals |
| risk_limit | Maximum exposure | Lower means safer but slower returns |
| lookback | Indicator sensitivity | Longer means smoother but lagging |