Pair Trading with Divergence and Convergence Signals

Summary

The document describes an indicator for visualizing pair trading by overlaying one instrument’s price series on another. When the two series diverge, the example strategy sells the relatively higher pair and buys the lower one; both positions are closed when the series converge again. The intended payoff is that one position may lose while the other gains enough to offset that loss and leave a net profit.

The example uses EUR/USD and GBP/USD on the same hourly timeframe. The indicator also accounts for gaps in the indirect symbol’s history and reports a scaling factor for displaying that symbol’s candles on the main chart. The document provides an illustrative chart and settings, but no performance statistics, entry thresholds, position sizing, or risk controls. Its convergence premise and profitability are therefore not established by the example alone.

Key ideas

• The indicator overlays two price series to make relative divergence visible.
• The described strategy sells the relatively higher pair and buys the lower pair after divergence.
• Both positions are closed when the pairs begin converging.
• The example illustrates the concept but does not provide performance evidence or detailed risk rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.