I have a trading strategy that I use on single tickers. I'd like to start using it with pairs as well. However, I'm somewhat math challenged and not sure how to best calculate the stops of the individual tickers. Could someone point me in the right direction?
If I have a pair, ABC and DEF, that I'd like to go long on. ABC is trading at 53 and DEF is trading at 50, the spread is 3. My stop on the spread is $2. How would I convert that spread stop price into individual ticker prices? Sure, I could watch a chart of ABC-DEF and when it hits my stop, exit both. However, my strategy is much more convoluted than this simple example. I need to know the stop price on each issue separately, so that I can properly control risk prior to entering.
Is this even possible since the two issues aren't always moving at the same ratio to one another?