Pair Trading: Not an Option — A Necessity for Today’s Intraday Trader

Dear Traders,

I’m writing this letter to you from the heart — not from a textbook, not from a fancy theory, and not from what people “say” works. This is coming from the market, from experience, from the daily battle we all fight between fear and confidence, between patience and overtrading, between discipline and temptation. If you have been in the market long enough, you already know one thing: the market doesn’t care about your emotions. The market doesn’t care about your opinions. It only respects preparation, structure, and execution.

And today, I want to talk about something that has become extremely important for every serious intraday trader. Something that many traders ignore in the beginning… but later regret ignoring. Something that can save you on the most dangerous days — the days when the market is wild, news-driven, unpredictable, and moving like a snake.

I want to talk about Pair Trading.

Now, before you roll your eyes and think, “Oh, another strategy,” let me stop you right there.

Pair Trading is not just a strategy.Pair Trading is not a trend.Pair Trading is not a fancy concept meant only for institutions.

Pair Trading is becoming a necessity for intraday traders in today’s world.

Why? Because we are living in an era where anything can happen anytime. A statement, a headline, a sudden global reaction — and the market can flip in minutes. One moment you are confident, next moment your trade is in loss, and your mind starts racing: “Should I exit? Should I hold? Should I average? Should I reverse?” This is where most traders get chopped. Not because they don’t know entries. But because they don’t have a structure that protects them when chaos enters the market.

That’s why I am writing this letter — to give you clarity, direction, and a practical mindset around Pair Trading. And I want to keep the core message exactly as I believe it, exactly as I have lived it in my experience:

But when we know What is Pair Trading & How can we do this in a proper menner?First of all we need to know what is Pair trading?Pair Trading is not a statical structure. Its an art... where u can go long in 1 stock and in another u need to go short?U ll make money in any stock when u close ur trade.But the thing is u need a right pair to trade to get profit. If u not in a right pair u'll be in loss.In my experiance ...U can make money in pair trading around 90% once u know which pair is right to go, as per corelation also with winning rate and stop loss.

I’m going to expand this into a full letter — a complete explanation, in a proper manner — so that you can understand Pair Trading not as a “trick,” but as a professional skill.

The First Question: When Do We Really Know Pair Trading?

Let me ask you something honestly:

How many traders actually understand Pair Trading…and how many traders just talk about it?

Most traders hear the words “Pair Trading” and immediately imagine:

• “Buy one stock, sell another stock.”

• “Long one, short one.”

• “It’s hedged so it’s safe.”

And they stop there.

But Pair Trading is not a one-line definition. It’s not a one-step formula.

Pair Trading is an art.

And art requires understanding, patience, and practice. If you treat it like a shortcut, it will punish you. If you treat it like a craft, it can reward you.

So the right question is not only “What is Pair Trading?”

The right question is:

How do we do Pair Trading in a proper manner?

Because the market is not forgiving. It will not give you profit just because you know the definition. Profit comes when you know the method, the rules, the pair selection, the hedging, and the exit discipline.

What is Pair Trading — The Real Meaning

Let’s define it in the most practical way.

Pair Trading means:

✅ You go LONG in 1 stock ✅ You go SHORT in another stock ✅ You trade the difference between their performance ✅ You aim to benefit when the stronger stock outperforms the weaker stock

That’s the basic structure. But remember what I said:

Pair Trading is not a statical structure. It’s an art.

Why do I call it an art?

Because it’s not like buying a breakout and placing a fixed stop.It’s not like a single-stock trade where everything depends on direction.

In Pair Trading, you are not betting on the whole market.You are betting on relative strength — who is stronger and who is weaker.

And the beautiful part?

Even if the market suddenly becomes volatile — both stocks may move, but if you have chosen the right pair, the spread can still work in your favor.

That’s why Pair Trading is so powerful when you do it correctly.

“You’ll Make Money When You Close Your Trade” — True But Incomplete

Many traders don’t understand this line properly:

“U ll make money in any stock when u close ur trade.”

Yes, profit is only booked when you close. That is true in every trade.

But in Pair Trading, this sentence has a deeper meaning:

Until you close your trade, your trade is a relationship, not a position.

One leg may show profit, the other leg may show loss — and you may panic if you look at them separately.

That’s why the biggest mistake in Pair Trading is this:

✅ Traders watch both legs emotionally ❌ Instead of watching the spread logically

In Pair Trading, you should learn to think like this:

• “Is my spread moving in my favor?”

• “Is the stronger stock still stronger?”

• “Is the weaker stock still weaker?”

• “Is the correlation behaving stable?”

• “Is my stop loss level violated?”

When you start thinking in spread terms, you stop reacting like a retail trader and you start operating like a professional.

The Most Important Truth: You Need the Right Pair

Now let’s come to the heart of your message — and the heart of Pair Trading success:

“But the thing is u need a right pair to trade to get profit. If u not in a right pair u'll be in loss.”

This is reality. This is the entire game.

You can be the best entry trader in the world — but if your pair is wrong, your odds collapse.

Because Pair Trading depends on the relationship.If that relationship is unstable, you’re not pair trading. You’re just running two random trades at the same time.

So how do we define a “right pair”?

A right pair usually has:

1. Strong correlation (they move together most of the time)

2. Stable spread behavior (when they diverge, they tend to come back)

3. Similar sector sensitivity (both respond similarly to sector news)

4. Good liquidity (so spreads and slippage don’t kill you)

5. Reliable historical performance (a proven “winning rate” structure)

If these things are present, Pair Trading becomes smooth.

If these are missing, Pair Trading becomes suffering.

Correlation is Important — But Correlation Alone is Not Enough

You mentioned correlation, and it’s crucial:

“as per corelation also with winning rate and stop loss”

Correlation tells you one thing:“How much the two stocks move together.”

But correlation does not tell you everything.

Because two stocks can be correlated — yet their spread may keep expanding and expanding.

So here is a mature way to use correlation:

✅ Use correlation as a filter ✅ Use spread behavior as a confirmation ✅ Use winning rate as confidence ✅ Use stop loss as protection

That’s the proper manner.

Winning Rate: Why It Matters So Much in Pair Trading

In intraday trading, most traders fail because they trade random setups.

Pair Trading becomes powerful when you have historical evidence.

If a pair has shown that:

• On similar days

• In similar volatility

• Under similar sector conditions

…the spread behaves in a repeatable way, then your confidence rises.

That’s why I always say:

Pair Trading is not guesswork.Pair Trading is probability.

So when I say “winning rate,” I mean:

• The pair has performed well historically

• The spread has behaved predictably

• The relationship has stayed stable

This is why professional pair traders survive long-term.

Stop Loss: The “Non-Negotiable Rule”

Now, listen carefully, because this is the difference between a trader and a gambler:

Pair Trading without stop loss is a slow disaster.

Many traders think:

“Pair Trading is hedged, so stop loss is not needed.”

Wrong.

Yes, Pair Trading reduces directional risk, but it does not eliminate risk.

Relationships can break. Correlation can change. News can hit one stock, not the other. One stock can become an outlier.

So you must have a stop loss.

But here is the proper manner:

✅ Stop loss should be based on spread movement, not on emotion.

That means you define:

• A maximum acceptable spread loss

• A spread level where relationship is invalidated

• A time-based stop (if spread doesn’t mean-revert in planned time)

Stop loss is not fear. Stop loss is discipline.

Why I Say “Pair Trading Can Give Around 90%”

You wrote:

“In my experiance ...U can make money in pair trading around 90% once u know which pair is right to go…”

Let me explain what this means in a mature way.

This doesn’t mean:“Every trade wins.”

This means:When pair selection is correct,when correlation is stable,when winning rate is proven,when stop loss is disciplined,then Pair Trading becomes one of the highest-probability methods for intraday traders.

Why?

Because you are not trying to predict the market’s mood.You are trading imbalance and rebalancing.

You are trading deviation and convergence.

When you master this, Pair Trading stops being risky. It becomes structured.

The Proper Manner: A Clean Pair Trading Process

Let me give you a practical step-by-step approach that traders can follow.

Step 1: Decide the universe

Pick stocks from the same sector:

• Banks with banks

• Metals with metals

• IT with IT

• FMCG with FMCG

Step 2: Filter by correlation

Look for high correlation pairs (stable ones).

Step 3: Validate historical winning rate

Test how often the spread reverts.Focus on probability.

Step 4: Define hedge balance

Even if you keep it simple, you must have a sizing plan.

Step 5: Trade only when spread shows opportunity

Don’t trade every minute.Wait for divergence.

Step 6: Place stop loss and follow it

No negotiation.

Step 7: Exit when spread converges

Greed destroys pair traders.

That’s the proper manner.

Final Message to You, Traders

Let me end this letter with a simple message.

Pair Trading is not magic.Pair Trading is not a shortcut.Pair Trading is not “safe” if you are careless.

But Pair Trading becomes powerful when you respect the rules:

• Right pair

• Correlation filter

• Winning rate proof

• Stop loss discipline

• Spread mindset

• Professional execution

Remember: Pair Trading is not a statical structure. It’s an art.And if you learn this art properly, it can give you a level of stability in intraday trading that most traders never experience.

I want you to trade with structure.I want you to trade with safety.I want you to trade like a professional.

Because the market is not here to reward your emotions.The market rewards only one thing:

Discipline with probability.

Warm Regards, Sagar Chaudhary