Pairs Trading

Pairs trading, or at least that is what I call it, is the idea that each stock you follow has a major competitor that you should also keep an eye on. There are a thousand examples, but a couple will suffice. LOW and HD, UPS and FDX, LEN and KBH, CVX and XOM...you get the idea. One way that I have made good money is to keep a close eye on these "pairs" when trading. While they can surely diverge and often will, a strong move in one will often show the way in the other. Yesterday I bought UPS based on FDX's run up. While UPS's move was benign compared to FDX's, it was in my mind a low risk trade and I emphasize "trade." Worth adding to your arsenal if you dont already do it.