Pairs- Market Topology

Pairs trading works like this. You have 2 highly correlated pairs in which you want to follow. It doesn't matter which stocks moves first in a particular direction, the key is to get into the laggard stock which will eventually catch up to the leader. Also, you have anti-correlated pairs, in which case you want to short when your stock goes up and vice versa. Here is a great example of 2 pairs(CHK and ECA) and it has 2 corresponding anti-correlated pairs(AMR and CAL).


Here's a Pair:


Depending on what type of trader you are, this strategy can be used for swing and day trading. Also, a good website to use to find pairs and anti-correlated pairs is www.market-topology.com.