Local changes: Updated model training, removed debug instrumentation, and configuration improvements
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kfox
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docs/guides/pairs_trading_setup.md
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docs/guides/pairs_trading_setup.md
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# Pairs Trading Strategy - Configuration Guide
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This guide walks you through configuring and enabling the Statistical Arbitrage (Pairs Trading) strategy in your crypto trading application.
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## Overview
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Pairs Trading is a market-neutral strategy that profits from the relative price movements between two correlated assets. When the spread between two assets diverges beyond a statistical threshold (Z-Score), the strategy generates signals to trade the reversion.
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---
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## Step 1: Navigate to Strategy Management
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1. Open your application in the browser (typically `http://localhost:5173`)
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2. Click on **"Strategies"** in the navigation menu
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3. You'll see the Strategy Management page
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---
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## Step 2: Create a New Strategy
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1. Click the **"Create Strategy"** button in the top-right corner
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2. The Strategy Dialog will open
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---
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## Step 3: Configure Basic Settings
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Fill in the following fields:
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| Field | Description | Example |
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|-------|-------------|---------|
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| **Strategy Name** | A descriptive name for your strategy | `SOL-AVAX Pairs Trade` |
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| **Strategy Type** | Select from dropdown | `Statistical Arbitrage (Pairs)` |
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| **Primary Symbol** | The main asset to trade | `SOL/USD` |
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| **Exchange** | Your configured exchange | `Coinbase` or `Binance` |
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| **Timeframe** | Candlestick interval | `1h` (recommended) |
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---
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## Step 4: Configure Pairs Trading Parameters
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After selecting "Statistical Arbitrage (Pairs)" as the strategy type, you'll see the parameters section:
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### Required Parameters:
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| Parameter | Description | Default | Recommended Range |
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|-----------|-------------|---------|-------------------|
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| **Second Symbol** | The correlated asset to pair with | - | `AVAX/USD`, `ETH/USD`, etc. |
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| **Lookback Period** | Rolling window for statistics | `20` | 15-50 |
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| **Z-Score Threshold** | Trigger level for signals | `2.0` | 1.5-3.0 |
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### Parameter Explanations:
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- **Second Symbol**: Choose an asset that moves similarly to your primary symbol. Common pairs include:
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- `BTC/USD` ↔ `ETH/USD` (highly correlated)
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- `SOL/USD` ↔ `AVAX/USD` (Layer 1s)
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- `DOGE/USD` ↔ `SHIB/USD` (meme coins)
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- **Lookback Period**: Number of candles used to calculate rolling mean and standard deviation. Higher values = smoother but slower to react.
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- **Z-Score Threshold**: How many standard deviations from the mean before triggering:
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- `1.5` = More frequent signals, smaller moves
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- `2.0` = Balanced (default)
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- `2.5-3.0` = Fewer signals, larger moves
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---
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## Step 5: Additional Settings
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| Setting | Description | Recommendation |
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|---------|-------------|----------------|
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| **Paper Trading** | Enable for testing | ✅ Start with Paper Trading ON |
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| **Auto Execute** | Automatically place trades | ❌ Keep OFF initially to observe signals |
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---
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## Step 6: Save and Enable
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1. Click **"Create"** to save the strategy
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2. The strategy will appear in your strategy list with status "Disabled"
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3. Click the **▶️ Play** button to enable the strategy
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---
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## Step 7: Monitor the Spread
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Once enabled, scroll down on the Strategies page to see the **Pairs Trading Analysis** section:
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- **Current Spread**: The ratio of Primary Symbol / Secondary Symbol prices
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- **Z-Score**: How many standard deviations the current spread is from its mean
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- **Signal State**: Shows if a signal is active (Long Spread, Short Spread, or Neutral)
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### Understanding the Charts:
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1. **Spread History Chart**: Shows the ratio over time
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2. **Z-Score Chart**: Shows statistical deviation with threshold lines
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- Green dashed line: Buy threshold (-2.0)
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- Red dashed line: Sell threshold (+2.0)
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---
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## Signal Logic
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| Condition | Signal | Action |
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|-----------|--------|--------|
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| Z-Score > +Threshold | **SELL** | Sell Primary, Buy Secondary |
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| Z-Score < -Threshold | **BUY** | Buy Primary, Sell Secondary |
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| Z-Score between thresholds | **HOLD** | No action (neutral) |
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### Example:
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If you're trading `SOL/USD` vs `AVAX/USD`:
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- **Z-Score = +2.5**: SOL is overvalued relative to AVAX → Sell SOL, Buy AVAX
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- **Z-Score = -2.5**: SOL is undervalued relative to AVAX → Buy SOL, Sell AVAX
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---
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## Tips for Success
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1. **Choose Correlated Pairs**: The strategy works best with assets that historically move together. Check correlation before pairing.
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2. **Start with Paper Trading**: Always test with paper trading first to understand signal frequency and behavior.
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3. **Consider Timeframe**:
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- `1h` is good for daily monitoring
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- `4h` for longer-term positions
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- `15m` for more active trading (higher risk)
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4. **Monitor Volatility**: The strategy performs best in ranging/mean-reverting markets. Trending markets can cause losses.
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5. **Adjust Threshold**: If you get too many signals, increase the threshold. Too few? Lower it.
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---
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## Troubleshooting
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| Issue | Solution |
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|-------|----------|
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| No data appearing | Ensure both symbols are available on your selected exchange |
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| Z-Score always near 0 | Try increasing lookback period or verify price data is flowing |
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| Too many signals | Increase Z-Score threshold (e.g., 2.5 or 3.0) |
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| Strategy not executing | Check if Auto Execute is enabled in Settings |
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---
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## Example Configuration
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```
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Name: ETH-SOL Mean Reversion
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Type: Statistical Arbitrage (Pairs)
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Primary Symbol: ETH/USD
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Second Symbol: SOL/USD
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Lookback Period: 20
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Z-Score Threshold: 2.0
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Timeframe: 1h
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Paper Trading: ON
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```
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This configuration would:
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1. Monitor the ETH/SOL price ratio
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2. Generate a BUY signal when ETH is historically cheap vs SOL (Z-Score < -2)
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3. Generate a SELL signal when ETH is historically expensive vs SOL (Z-Score > +2)
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---
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## How Execution Works
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When you click **Start** on a Pairs Trading strategy:
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1. **Strategy Scheduler starts** - Runs the strategy on a 60-second interval (configurable)
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2. **Each tick**:
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- Fetches current prices for both symbols
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- Calculates spread ratio and Z-Score
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- If Z-Score exceeds threshold → generates signal
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3. **Signal execution** (if enabled):
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- Executes both legs simultaneously
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- Primary symbol: BUY or SELL based on signal
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- Secondary symbol: Opposite action
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4. **Status updates** visible on Strategies page
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---
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## Real-Time Status Panel
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When strategies are running, you'll see a **green status panel** on the Strategies page showing:
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- Strategy name and symbol
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- Start time
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- Number of signals generated
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- Last signal type and price
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- Last execution tick time
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This updates every 5 seconds automatically.
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