- Connors Research: Trading Strategies That Work
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- Trading strategy: RSI 2P
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- Free trading strategies which can be automated: the RSI 2P strategy from Larry Connors.
One advantage of trading frequently can be the fact that it allows a trader to rapidly compound gains. Through that process, wealth can accumulate quicker. Please complete this form and click the button below to get your free copy. Enter your email address below to receive your free copy! Our post drew a variety of responses.
Some readers asked for specific examples of short term trading strategies.
- What Short Term Trading Strategies Really Work? | Trading Tips.
- A blog dedicated to discussing system-based trading strategies.
- Laurence Connors?
There are many resources available on this topic. But, most of the best strategies will require a great deal of effort or software that may be expensive. Some of the most popular strategies among short term traders include those developed by Larry Connors at TradingMarkets. That site is no longer regularly updated but still contains a wealth of information about short term trading.
However, he advocated changing the calculation period from 14 days or weeks to as little as 2 periods. His results show that this can be more effective. See his next big recommendation right here, for FREE. This strategy is typical of the work Connors published. It has a high win rate and small average gain with a short holding period.
In the book, back tested results are presented. Data is always presented to support the conclusions. The average trade delivered a gain of 1. The average trade accounts for the gains and losses of all trades and is the result assuming all trades were taken.
Connors Research: Trading Strategies That Work
For this strategy, the average holding period was a little more than six days. If it were possible to find a trade like this every six days, you would find 42 trades in an average year assuming trading days in a year. Compounding the 1. That demonstrates the potential power of short term trading. This strategy is designed to but short term pullbacks in long term up trends.
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This strategy is explained in a YouTube video. RSI4 is used to identify the short term pullback. When it is under 25, the ETF is considered oversold. The day MA is used to define the long term up trend. After a position is opened, trades were closed when RSI4 ended the day above Other exit strategies could be used to improve the trading performance. This strategy does not use a stop loss because stops tend to hurt performance of short term systems traders.
Notice that is relatively smooth, avoiding large losses even in bear markets. Another strategy developed by Connors is detailed at TradingView. For this strategy, the average holding period of a trade is just over 2 days. This strategy is also designed to buy short term pullbacks in long term up trends.
This strategy also finds short trades. Trades can be entered at the close on the day all conditions are met or on the open the day after the conditions are met. To exit a long trade, sell when the stock closes above its 5 day MA. While the book may cover too much well-tred material for advanced system designers, I think the book would be an excellent starting point for someone interested in learning about systems trading.
As a side note, I love the format of the book. It is a large, thin, hardcover book. I will also be starting to confirm the tests outlined in the book, and post some follow-up on the systems and whether I was able to reproduce the results, and how as the strategy done recently. Chapter 1 — Introduction: Not much to say here.
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Chapter 2 — Think Differently — Rule 1 — Buy Pullbacks, Not Breakouts: This chapter makes the convincing argument that buying pullbacks has, statistically, worked far better than buying breakouts. While this is not news to me, the chapter presents some compelling information. The basic idea is to buy when the VIX is stretched. And this is without a doubt true. A second issue is that not having stops takes away some pretty attractive position sizing techniques such a percent at risk or an ATR-based stop. You can also translate that into options position sizing as well.
Connor points out, again, using statistics, that most gains are made overnight rather than intraday. Thus, he argues that one should hold overnight to maximize profits.
Trading strategy: RSI 2P
Chapter 8 — Trading with Intra-Day Drops — Making Edges Even Bigger: This chapter shows how buying on a limit price below the open price can significantly improve the edge of a system. Obviously, there will be fewer trades as the percentage below the open increases, but Mr. Connors shows how both the percent correct and average gain per trade goes up. Definitely interesting stuff that I will be using. But regardless, this chapter provides a comprehensive look at the power of the RSI 2 indicator.
Connors presents a strategy for focusing on the end of the month as a system. Chapter 12 — 5 Strategies to Time the Market: This chapter covers, not surprisingly, 5 strategies. All are interesting. Chapter 13 — Exit Strategies: Here Mr. Connors reviews different exit strategies and their qualities.
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These include: time-based exit, first-up close exit, new-high exit, close above a moving average exit and the RSI 2 exit. The author provides detailed analysis of each exit. One criticism of the book here: he does not include stats on the first-up close exit and the new-high exit. Chapter 14 — The Mind: I thought this chapter would bore me, but I found it surprisingly interesting. What do you do? Get out? So more food for thought. There is also a long interview with Richard J. I actually find this a problem, in general, when people describe trading strategies in general.
Most of these negatives are pretty small — and I would strong recommend the book.
Free trading strategies which can be automated: the RSI 2P strategy from Larry Connors.
For the beginning system designer, this book would be indespenible. Posted in Book Review , Strategy ideas 8 Comments. This is a great book.. Connors is great……I also learned a lot about hedge fund trading strategies from 2 other great books. Hedge Fund Trading Secrets Revealed.. You should check them out if you like reading behind the scenes stuff about hedge funds and what methods they use to trade.
As long as the patterns persist, traders that follow their research will definitely make money consistently. My major criticism is how the research relates to data mining—essentially this is the methodology used to come up with most of the trading systems without a lot of theoretical justification or integration. They capitalize on the countertrend nature of these investments that has been induced by intense competition and increasing volume. Note that these two factors largely do not exist in the commodity markets and for the more junior indexes like the Russell As a consequence they tend to trend much more, and fading strategies are dangerous.
My concern is what will happens when we have a net money outflow from the stock market, and a collapse of proprietary trading desks and funds that focus on arbitrage as we are having right now. Perhaps this means that large stocks and indices will trend more in the future than in the past.