Connors Rs i

8/11/2019 Connors Rs i

1/41

ConnorsResearchTradingStrategySeries

AnIntroduction

to

ConnorsRSI

2

nd

Edition

By

ConnorsResearch,LLC

LaurenceConnors

CesarAlvarez

MattRadtke


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This document cannot be reproduced without the expressed written permission of Connors Research, LLC.Copyright 2014, Connors Research, LLC. All Rights Reserved.

Copyright 2014, Connors Research, LLC.

ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in aretrieval system, or transmitted, in any form or by any means, electronic, mechanical,photocopying, recording, or otherwise, without the prior written permission of the

publisher and the author.

This publication is designed to provide accurate and authoritative information in regardto the subject matter covered. It is sold with the understanding that the author and thepublisher are not engaged in rendering legal, accounting, or other professional service.

Authorization to photocopy items for internal or personal use, or in the internal orpersonal use of specific clients, is granted by Connors Research, LLC, provided that theU.S. $7.00 per page fee is paid directly to Connors Research, LLC, 1-973-494-7333.

ISBN 978-0-9899857-0-3

Printed in the United States of America.


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Disclaimer

By distributing this publication, Connors Research, LLC, Laurence A. Connors, Cesar Alvarez, and MattRadtke (collectively referred to as Company") are neither providing investment advisory services noracting as registered investment advisors or broker-dealers; they also do not purport to tell or suggestwhich securities or currencies customers should buy or sell for themselves. The analysts and employees

or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. Youunderstand and acknowledge that there is a very high degree of risk involved in trading securities and/orcurrencies. The Company, the authors, the publisher, and all affiliates of Company assume noresponsibility or liability for your trading and investment results. Factual statements on the Company'swebsite, or in its publications, are made as of the date stated and are subject to change without notice.

It should not be assumed that the methods, techniques, or indicators presented in these products will beprofitable or that they will not result in losses. Past results of any individual trader or trading systempublished by Company are not indicative of future returns by that trader or system, and are not indicativeof future returns which be realized by you. In addition, the indicators, strategies, columns, articles and allother features of Company's products (collectively, the "Information") are provided for informational andeducational purposes only and should not be construed as investment advice. Examples presented onCompany's website are for educational purposes only. Such set-ups are not solicitations of any order to

buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather,you should use the Information only as a starting point for doing additional independent research in orderto allow you to form your own opinion regarding investments.

You should always check with your licensed financial advisor and tax advisor to determine the suitabilityof any investment.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENTLIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOTREPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHERSLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THERESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAINMARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN

GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEYARE DESIGNEDWITH THE BENEFIT OFHINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TOACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

Connors Research10 Exchange PlaceSuite 1800Jersey City, NJ 07302


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Table of Contents

Section1TheConnorsRSIIndicator.........................................................5

Section2ConnorsRSIBasePerformance...............................................10

Section3ConnorsRSIPullbackStrategyRules.......................................14

Section4TheRoleofExits.....................................................................21

Section5TestResults............................................................................24

Section6TradingOptionsUsingtheConnorsRSIPullbackStrategy......30

Section7AdditionalThoughts...............................................................34

Aboutthe

Author

...................................................................................

37


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Section1

The

ConnorsRSI

Indicator


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ConnorsResearchhasbeendeveloping,testing,andpublishingquantifiedtradingstrategiessincethe

mid1990s. Duringthattime,wehavehadtheopportunitytoevaluateagreatnumberofdifferent

technicalindicatorsandtoassesstheireffectivenessinpredictingfuturepriceaction. Nowwevetaken

thenextstepandcreatedanindicatorofourown: ConnorsRSI. Thepurposeofthisguidebookisto

describetheindicatoritselfandalsotoprovideawelldefined,quantifiedtradingstrategythatutilizes

thisnew

indicator.

ConnorsRSIisacompositeindicatorconsistingofthreecomponents. Twoofthethreecomponents

utilizetheRelativeStrengthIndex(RSI)calculationsdevelopedbyWellesWilderinthe1970s,andthe

thirdcomponentranksthemostrecentpricechangeonascaleof0to100.Takentogether,thesethree

factorsformamomentumoscillator,i.e.anindicatorthatfluctuatesbetween0and100toindicatethe

leveltowhichasecurityisoverbought(highvalues)oroversold(lowvalues).

BeforewediscusshowtocalculateConnorsRSI,letsreviewWildersRSI. RSIisaveryusefuland

popularmomentumoscillatorthatcomparesthemagnitudeofastock'sgainstothemagnitudeofits

lossesoversomelookbackperiod. Wilderhimselfbelievedthat14periodswastheideallookback. We

oftenusetheshorthandnotationRSI(14)forthe14periodRSI. TheformulabelowcomputesRSI(14)for

aseriesofpricechanges:

IfwewantedtocomputeRSIforadifferentnumberofperiods(N),thenwewouldreplace14inthe

formulaabove

with

N,

and

replace

13

with

N

1.

Regardless

of

the

number

of

periods

used

in

the

calculation,theresultwillalwaysbeanumberbetween0and100. TraderswhouseRSI(14)typically

lookforvaluesgreaterthan70toidentifyoverboughtconditions,andvalueslessthan30toindicate

oversoldconditions.

OurpreviousresearchhasshownthatusingshorterlookbackperiodsmakesRSImoreeffectivein

predictingshorttermpricemovements. WehavepublishedmanystrategiesthatutilizeRSI(2),aswell


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asseveralthatuseRSI(3)andRSI(4). ChangingthenumberofperiodsalsohasaneffectontheRSIlevels

thatbestidentifyoverboughtandoversoldconditions. Forexample,anRSI(2)valueoflessthan10is

usuallyareliableindicatorofanoversoldcondition,whileanRSI(2)valueover90isagoodbenchmark

foranoverboughtcondition.

Nowlets

turn

our

attention

back

to

ConnorsRSI.

As

mentioned

previously,

ConnorsRSI

combines

three

components,andasyoumightguess,theyareallelementsthatourresearchhasrepeatedlyshownto

havesignificantpredictiveability:

PriceMomentum: Aswejustdiscussed,RSIisanexcellentwaytomeasurepricemomentum,

i.e.overboughtandoversoldconditions. Bydefault,ConnorsRSIappliesa3periodRSI

calculationtothedailyclosingpricesofasecurity. WewillrefertothisvalueasRSI(Close,3).

DurationofUp/DownTrend:Whentheclosingpriceofasecurityislowertodaythanitwas

yesterday,wesaythatithascloseddown. Ifyesterdaysclosingpricewaslowerthanthe

previousdaysclose,thenwehaveastreakoftwodownclosedays. Ourresearchhasshown

thatthe

longer

the

duration

of

adown

streak,

the

more

the

stock

price

is

likely

to

bounce

when

itrevertstothemean. Likewise,longerdurationupstreaksresultinlargermovesdownwhen

thestockmeanreverts. Ineffect,thestreakdurationisanothertypeofoverbought/oversold

indicator.

Theproblemis,thenumberofdaysinastreakistheoreticallyunbounded,thoughwecould

probablyplacesomepracticallimitsonitbasedonpastexperience. Forexample,wemight

observethattherehavebeenveryfewinstancesofeitheranupstreakoradownstreaklasting

formorethan20days,butthatstilldoesntgetustoatypicaloscillatortypevaluethatvaries

between0and100.

Thesolutionistwofold. First,whenwecountthenumberofdaysinastreak,wewilluse

positivenumbersforanupstreak,andnegativenumbersforadownstreak. Aquickexample

willhelptoillustratethis:

Day ClosingPrice StreakDuration

1 $20.00

2 $20.50 1

3 $20.75 2

4 $19.75 1

5 $19.50 2

6

$19.35

37 $19.35 0

8 $19.40 1

TheclosingpriceonDay2ishigherthanonDay1,sowehaveaonedayupstreak. OnDay3,

thepricecloseshigheragain,sowehaveatwodayupstreak,i.e.theStreakDurationvalueis2.

OnDay4,theclosingpricefalls,givingusaonedaydownstreak. TheStreakDurationvalueis


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negative(1)becausethepricemovementisdown,notup. Thedownwardtrendcontinueson

Days5and6,whichourStreakDurationreflectswithvaluesof2and3. OnDay7theclosing

priceisunchanged,sotheStreakDurationissetto0indicatingneitheranupclosenoradown

close. Finally,onDay8theclosingpricerisesagain,bringingtheStreakDurationvalueback

to1.

ThesecondaspectofthesolutionistoapplytheRSIcalculationtothesetofStreakDuration

values. Bydefault,ConnorsRSIusesa2periodRSIforthispartofthecalculation,whichwe

denoteasRSI(Streak,2). Theresultisthatthelongeranupstreakcontinues,thecloserthe

RSI(Streak,2)valuewillbeto100. Conversely,thelongerthatadownstreakcontinues,the

closertheRSI(Streak,2)valuewillbeto0. Thus,wenowhavetwocomponents RSI(Close,3)

andRSI(Streak,2) thatbothusethesame0100scaletoprovideaperspectiveonthe

overbought/oversoldstatusofthesecuritywereevaluating.

RelativeMagnitudeofPriceChange:ThefinalcomponentofConnorsRSIlooksatthesizeof

todayspricechangeinrelationtopreviouspricechanges. WedothisbyusingaPercentRank

calculation,whichmayalsobereferredtoasapercentile. Basically,thePercentRankvalue

tellsusthepercentageofvaluesinthelookbackperiodthatarelessthanthecurrentvalue.

Forthiscalculation,wemeasurepricechangenotindollarsandcents,butasapercentageof

thepreviousdaysprice. Thispercentagegainorlossistypicallyreferredtoastheoneday

return. Soifyesterdaysclosingpricewas$80.00,andtodayspriceis$81.60,theoneday

returnis($81.60 $80.00)/$80.00=0.02=2.0%.

TodeterminethePercentRank,weneedtoestablishalookbackperiod. ThePercentRank

valueisthenthenumberofvaluesinthelookbackperiodthatarelessthanthecurrentvalue,

dividedby

the

total

number

of

values.

For

example,

if

the

look

back

period

is

20

days,

then

we

wouldcomparetodays2.0%returntotheonedayreturnsfromeachoftheprevious20days.

Letsassumethatthreeofthosevaluesarelessthan2.0%. WewouldcalculatePercentRankas:

PercentRank=3/20=0.15=15%

ThedefaultPercentRanklookbackperiodusedforConnorsRSIis100,orPercentRank(100). We

arecomparingtodaysreturntotheprevious100returns,orabout5monthsofpricehistory.

Toreiterate,largepositivereturnswillhaveaPercentRankcloserto100. Largenegative

returnswillhaveaPercentRankcloserto0.

Thefinal

ConnorsRSI

calculation

simply

determines

the

average

of

the

three

component

values.

Thus,

usingthedefaultinputparameterswouldgiveustheequation:

ConnorsRSI(3,2,100)=[RSI(Close,3)+RSI(Streak,2)+PercentRank(100)]/3

Theresultisaveryrobustindicatorthatismoreeffectivethananyofthethreecomponentsused

individually. Infact,ConnorsRSIalsoofferssomeadvantagesoverusingallthreecomponentstogether.

Whenweusemultipleindicatorstogenerateanentryorexitsignal,wetypicallysetatargetvaluefor


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eachone. Thesignalwillonlybeconsideredvalidwhenalltheindicatorsexceedthetargetvalue.

However,byusinganaverageofthethreecomponentindicators,ConnorsRSIproducesablendingeffect

thatallowsastrongvaluefromoneindicatortocompensateforaslightlyweakervaluefromanother

component. Asimpleexamplewillhelptoclarifythis.

Letsassume

that

Trader

A

and

Trader

B

have

agreed

that

each

of

the

following

indicator

values

identify

anoversoldcondition:

RSI(Close,3)


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Section2

ConnorsRSI

Base

Performance


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Withanyindicatorthatyouuseinyourtrading,itishelpfultoknowhowtheindicatorbehaves,and

whatitstellingyouaboutthesecurityprice. OurgoalwithConnorsRSIwastodevelopasuperior

momentumoscillatorwhichwouldproducelowvaluesforoversoldstocksandETFs,andhighvalues

whenthosesecuritiesareinanoverboughtstate.

Todetermine

whether

we

had

achieved

our

goal,

we

ran

the

following

test.

We

created

auniverse

of

approximately6,000highlyliquidstocks. StartingonJanuary2,2001,welookedforeverystockinthe

universewhichhadthefollowingcharacteristicsonthatday:

1. Atleast200daysoftradingdataavailable

2. Averagedailyvolumeoverthepast21daysofatleast500,000sharesperday

Eachstockthatmetourcriteriawasplacedinoneoftwentydifferentbucketscorrespondingtoits

ConnorsRSIvalueatthecloseoftradingonthatday. StockswithConnorsRSI(3,2,100)valuesoflessthan

5wentintothe0bucket. ThosewithConnorsRSI(3,2,100)valuesgreaterthanorequalto5andless

than10wereplacedinthe5bucket,etc. allthewayuptothe95bucket,whichcontainedstockswith

ConnorsRSI

values

of

95

to

100.

This

process

was

repeated

for

every

trading

day

through

February28,2014.

Next,foreachofthe20bucketswecalculatedthefivedayreturnofeachstockforeverydayinthetest

period,andaveragedthosevalueswithineachofthe20buckets. Insimpleterms,wedeterminedthe

typical5daypricemove(asapercentage)ofastockwhoseConnorsRSIvaluefellintoaparticular

bucket.

Weexpectedthatstocksthatwereoversold(thosewithlowConnorsRSIvalues)wouldincreaseinprice,

whilethosethatwereoverboughtwoulddecreaseinprice. Asyoucanseeinthetablebelow,thisis

exactly

what

happened.


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ConnorsRSI(3,2,100)

Bucket 5DayReturn

0 2.15%

5 1.16%

10 0.65%

15 0.54%

20 0.37%

25 0.27%

30 0.29%

35 0.25%

40 0.21%

45 0.16%

50 0.33%

55 0.36%

60 0.24%

65 0.22%

70 0.15%

75 0.08%

80 0.07%

85 0.06%

90 0.28%

95 0.94%

Youcan

see

that

as

the

ConnorsRSI

value

goes

below

20,

the

5day

returns

begin

to

increase

substantially. StockswithaConnorsRSIvalueintherangeof0to5(the0bucket)experiencedan

averagepriceincreaseof2.15%overthenextfivetradingdays.

WeseetheinversebehavioratthetopendoftheConnorsRSIrange:asthevaluemovesabove80,the

5dayreturnsareincreasinglynegative,withstocksinthe95bucketshowinga0.94%pricedecrease

overthefollowingfivedays.

Forthoseofyouwhoaremorevisuallyoriented,thechartbelowshowsthesameinformationasthe

tableabove:


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NowthatwevelookedatConnorsRSIinisolation,letsmoveontotheConnorsRSIPullbackStrategy

rulestoseehowtheindicatorperformsaspartofacompletesystem.

1.50%

1.00%

0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

5DayReturnofStockswith

aConnorsRSI(3,2,100)ValueofX


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Section3

ConnorsRSI

Pullback

StrategyRules


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Pullbacktradingisoneofthemostpopularformsoftradingamongsttraders.Thegoodnewsisthat

whenitsdonecorrectlyitcanbeverylucrative.Thenotsogoodnewsisthatoverthepasttwodecades

therehasbeenaproliferationofpublishedpullbackstrategieswhichhavelittleornoedgeatall.

InthisStrategyGuide,wewillpresentastrategywhichutilizesConnorsRSIincombinationwithother

indicatorsto

identify

when

apullback

has

occurred.

Each

of

these

indicators

and

their

contribution

to

thestrategywillbedescribedinthenextchapter. Multipleexittriggerswerealsotested,allowingyou

toselectavariationofthestrategythatcomplementsyouroveralltradingplan.

Beforewegoon,letslookatexactlywhatapullbackisandwhyitsimportant.

What Is A Pullback?

Apullbackoccurswhenasecuritywhosepricehasbeenmovinghighersellsoff,i.e.thepriceofthe

securitydrops. Mostpeopletradepullbacksbasedondailybars,althoughsometradersseekout

intradaypullbackswhileothersuselongertimeframes. Thecommonthemeisthattradersare

attemptingto

identify

stocks

that

they

feel

have

pulled

back

too

far

and

will

likely

regain

their

upward

trend. Thismovementbacktowardthelongertermtrendisknownasmeanreversion.

Therearenumerouswaystoidentifypullbacks,rangingfromsimplyeyeballingachartallthewayup

tousingindicatorssuchasFibonaccinumbers. Althoughthesetechniquesworkforsometraders,we

preferamoreprecise,quantifiedapproach. Withexactentryandexitrulesinplace,wewanttosee

robusttestresultsforthemajorityofthemanycombinationsofparametersthatweretesting,andfor

thoseresultstobeconsistentacrosstheentiretestingperiod(2001throughearly2014). Suchsolid

resultsindicatethatwearenotsimplycurvefittingorcherrypicking.

Whentradingshorttermpullbacks,thebestresultsoccurwhenyouholdthepositionforatleastafew

days.Often

stocks

pull

back

sharply

and

snap

back

strongly.

There

is

no

way

of

knowing

ahead

of

time

howfarthatupwardmovewillbe,soitiscrucialtohavewelldefinedexitrulesinplacewhichallowfor

therallytoplayout.

NowletsmoveontotheConnorsRSIPullbackStrategyrules. Aswithallofourstrategies,inthis

guidebookwewillpresentyouwithquantifiedrulesforenteringandexitingtrades. Inaddition,wewill

showyouhowdifferentvariationsoftheruleshaveperformedovertime,sothatyoucanselectthe

variationsthatbestcomplementyourowntradingplan.


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HerearetheentryrulesfortheConnorsRSIPullbackStrategy:

1. Thestockpricemustbeabove$5pershare.

2. Thestocksaveragedailyvolumeoverthepast21days(onetradingmonth)mustbeatleast

250,000sharesperday.

3. Thestocks

10

day

Average

Directional

Index

(ADX)

is

above

30.

4. TodaythestockslowestpriceisatleastW%(W=2,4,6,or8)belowthepreviousdays

close.

5. TodayscloseisinthebottomX%(X=10or25)ofthedaysrange.

6. TheConnorsRSI(3,2,100)valueofthestockisbelowY,whereY=5,10,or15.

7. Iftheaboverulesaremettoday,buythestocktomorrowonafurtherintradaylimitZ%

belowtodaysclosingprice(Z=4,6,8,10).

8. ExitthepositionwhenthestockcloseswithaConnorsRSI(3,2,100)valueaboveN(N=50,60

70or80),exitingattheclosingprice.

Letslookateachruleinalittlemoredepth,andexplainwhyitsincludedinthestrategy.

Rule1helpsussteerclearofpennystocksandotherhighlyvolatile,unpredictablecompanies.Though

priceisneveraguarantee,wehavefoundthat$5/shareisagoodpricefloorforselectingmorestable

stocks.

Rule2assuresthatwereinhighlyliquidstockswhichcanbereadilyboughtandsold,withtightbid/ask

spreads.

Rule3confirmsthestrengthoftherecenttrend. ADXisnondirectional,soitwillquantifyatrend's

strengthregardlessofwhetheritisupordown. However,thenextthreeruleswillestablishthefact

that

the

stock

is

currently

in

a

down

trend.

Rule4identifiesabasicpullback:asignificantselloff,measuredasapercentageofthepreviousclosing

price. Sincethisruleusesthelowpriceforthedayratherthantheclosingprice,wedontyetknow

whattodaysoverallpriceactionlookslike,butwedoknowthatthestockfalteredinameaningfulway.

Rule5givesusmorevisibilityintotodayspriceaction. Closingrangeiscalculatedas:

ClosingRange=(CloseLow)/(HighLow)

Forexample,iftodaysLowpricewas$12.00,theHighpricewas$12.50,andtheClosingpricewas

$12.05,thentheclosingrangewouldbe:

ClosingRange=(12.0512.00)/(12.5012.00)=.05/.50=.10=10%

WhileRule4tellsusthatthestockstumbled,Rule5letsusknowthatitdidnotrecoversignificantly

beforetheendofthetradingday,whichinturnisagoodindicatorthatthepriceislikelytofallfurther

tomorrow.


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Rule6isthekeytodeterminingthequalityofthepullback. Ourresearchhasshownthatthelowerthe

ConnorsRSIvalueis,thelargerthebounceislikelytobewhenthestockrecovers.

Rule7allowsustoenterthetradeatanoptimalprice. Weretakinganalreadyoversoldstockas

measuredbyConnorsRSI(3,2,100),andthenwaitingforittobecomeevenmoreoversoldonanintraday

basis.

Becausethe

intraday

price

drop

is

occurring

for

asecond

consecutive

day,

its

often

accompanied

byagreatdealoffear.Moneymanagersgetespeciallynervousandoftentelltheirheadtraderstojust

getmeoutaftertheyhavemadethedecisiontosell.Thispanichelpscreatetheopportunity.

Rule8providesawelldefinedexitmethod.Fewstrategieshavequantified,structured,anddisciplined

exitrules.Rule8givesyoutheexactparameterstoexitthetrade,backedbyoveradecadeofhistorical

testresults.

Letsseehowatypicaltradelooksonachart. Forthisexample,welluseavalueof4%fortheselloff

(W),25%fortheclosingrange(X),AConnorsRSI(Y)valueof10,andanentrylimit(Z)of8%. Wewillexit

whenConnorsRSIclosesabove70.

Chartcreated

in

Amibroker.

Reprinted

courtesy

of

AmiBroker.com.

Figure1:Setup,EntryandExitsignalsforMTL

Onthechartabove,thetoppaneshowsthepricebarsinblack,theverticalgraylinemarksthecurrently

selecteddaywhichisalsothesetupday,thegreenuparrowindicatestheentryday,andthereddown

arrowindicatestheexitday. Themiddlepanedisplaysthevolumeasverticalblackhistogrambars,and

showsthe21daymovingaverageofvolumeasagreenline. ThebottompaneshowsConnorsRSIasa


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redline,andADXasablueline. Nowwellconfirmthateachofourentryandexitconditionswas

correctlymet.

Rule1requiresthepriceofthestocktobeabove$5pershare. Forthedaysshownonthechart,wecan

seethatthepricehasrangedfromjustover$7.50/sharetojustunder$5.50/share,thusmeetingour

condition.

Rule2requiresthatthe21daymovingaverageofthevolumebegreaterthan250,000shares/day. The

averagevolumehasbeenbetween2and4millionshareslately,andonthesetupdayitwas2.9million,

sowevefarexceededthisrequirement.

Rule3statesthatADX(10)mustbeabove30. OnthesetupdaytheADX(10)valueis48.62.

Withourselectedinputparameters,Rule4tellsustolookforalowpricethatsatleast4%below

yesterdaysclose. On5/16/2012(thedaybeforethesetup),MTLclosedat$6.42. Therefore,todays

lowmustbebelow

$6.42x(100% 4%)=$6.42x0.96=$6.16

Theactuallowpriceonthesetupdaywas$5.90,sowehavemetthecriteriaforthisrule.

Rule5requiresthattheclosingpricebeinthebottomX%ofthedaysrange. Weselected25%forthis

exercise,soourcalculationgoesasfollows:

ClosingRange=(CloseLow)/(HighLow)


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Rule8specifiesthatwewillexitthetradewhenConnorsRSI(3,2,100)closesabove70. Forthistrade,

thatoccursontheverynexttradingday,whichisonMonday,5/21/2012. Weexitatorneartheclosing

priceof$6.07,givingusaprofitofover11.6%,excludingcommissions.

Asyoureviewtheexplanationabove,noticethatRules1through5weretrueformostorallofthedays

leadingup

to

the

setup

day.

Price,

volume,

and

ADX

were

all

at

acceptable

levels.

There

were

acouple

ofdecentselloffdays,aswellasclosingpricesinthebottom25%ofthedaysrange. However,

5/17/2012isthefirstdaythatalloftheseconditionsweremetandConnorsRSIdroppedbelow10.

Thatswhythisindicatoristhecenterpieceoftheentirestrategy.

Letsquicklygothroughonemoreexample. Sincewellbefocusingonexitsinalatersection,well

continuetouseanexitofConnorsRSI(3,2,100)>70. However,wellchangetheotherstrategy

parametersasfollows:

Selloff(W)=2%

ClosingRange(X)=10%

ConnorsRSI(3,2,100)=5

EntryLimit(Z)=6%

Hereisthechart,whichusesthesameconventionsasFigure1:

ChartcreatedinAmibroker. ReprintedcourtesyofAmiBroker.com.

Figure2:TradesignalsforWHX


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Theclosingpriceof$9.97fulfillstheRule1requirementof$5/shareorgreater.

The2dayaveragevolumeof286,704meetstheRule2criteriaof250,000.

TheADX(10)valueis51.60,farabovetheRule3requirementof30.

Wecan

see

that

on

7/17/2012

(the

day

prior

to

the

setup

day

shown

by

the

gray

vertical

line)

the

price

ofWHXclosedabitabove$15,whilethelowon5/18/2012wasbelow$10.Alittlementalarithmetic

tellsusthattheselloffwasover30%,sotheresreallynoneedtodotheexactmathtoverifythatweve

exceededthe2%sellofftarget,thusmeetingtheRule4requirement.

Likewise,itsobviousfromthechartthattheclosingpriceon7/18/2012wasinthebottom10%ofthe

daysrange,satisfyingRule5.

ThechartshowsusthattheConnorsRSI(3,2,100)valuewas2.55onthesetupday,whichmeansthatthe

criteriaforRule6hasbeenmet.

Rule7tells

us

to

enter

alimit

order

6%

below

the

setup

days

closing

price

of

$9.97.

That

means

our

limitpricefor7/19/2012willbe:

$9.97x(100% 6%)=$9.97x0.94=$9.37

Theactualpriceon7/19/2012fallsallthewayto$8.20,butwewillenterthetradeatthelimitprice

whichwedeterminedinadvance: $9.37.

Finally,asperRule8,weexitthetradewhenConnorsRSI(3,2,100)closesabove70. Thisoccurstwo

tradingdayslater,onMonday,7/23/2012.

Inthe

next

section

well

take

acloser

look

at

exit

methods,

and

then

well

dive

into

the

test

results

so

thatyoucandeterminewhichstrategyvariation(s)arethebestfitforyourowntrading.


21/41

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Section4

The

Role

of

Exits


22/41

P a g e |22


Uptothispoint,wehavebeenfocusedmainlyontheentryrulesfortheConnorsRSIPullbackStrategy.

Butentriesareonlyhalfthestory. Youdontmake(orlose)moneyuntilyouexitthetrade,sohavinga

precise,quantifiedexitmethodiscrucialtogeneratingpredictablereturns. Unfortunately,many

publishedstrategieseitherglossovertheexitrulescompletely,ortheyrelyonvaguedirectivessuchas

exitwhenyoureachyourprofittarget. Sincetheydontspecifyhowtocalculateareasonableprofit

target,this

is

basically

equivalent

to

saying

exit

when

you

feel

like

youve

made

enough

money,

which

isnotveryhelpfulatall.

Letstalkconceptuallyaboutentriesandexitsforamoment. Bothentryandexitrulescanbethoughtof

intermsofhowstricttheyare,i.e.howeasyordifficulttheyaretoachieve. Youmightalsosaythat

strictnessisameasureofhowfrequentlyorinfrequentlytheruleconditionsoccur. Foroscillatorssuch

asConnorsRSI,valuesthatareclosertotheextremes(0and100)aremorestrict(lesslikelytooccur)

thanvaluesthatareinthemiddleoftherange.

Stricterentryruleswillbesatisfiedlessfrequentlythanmoreleniententryrules,andthusastrategy

thatreliesonthestricterruleswillgenerallygeneratefewertradesthanastrategywhoseentryrulesare

moreeasilysatisfied. Witharobuststrategy,therewardforfewertradesisgenerallyahighergainper

trade,onaverage. Wellquantifythisinthenextsectionwhenwelookattestresults. Fornow,allowus

tosimplystatethatifyoubuyaslightlyoversoldstock,itsmostlikelytohaveamoderaterebound. But

ifyouwaitforastockthatsextremelyoversold,thechancesaremuchhigherthatitwillhavea

significantbounceandcreateabiggerprofit.

Thestrictnessofexitruleshaslittleeffectonthenumberoftradesgeneratedbythestrategy. However,

justliketheentryrules,stricterexitrulestypicallyresultinhigheraverageprofits. Why? Because

stricterexitrulestendtokeepyouinyourtradesforalongertime,givingthestockmoretimeto

experiencethemeanreversionbehaviorthatwereattemptingtoexploitwithastrategylikethe

ConnorsRSIPullback

Strategy.

Thus,

for

entries

the

tradeoff

is

between

more

trades

and

higher

gains

pertrade,whileforexitsthetradeoffisbetweenshortertradedurationsandhighergainspertrade.

Forthisstrategy,wevedecidedtokeeptheexitmethodsverysimple. ItturnsoutthatConnorsRSIis

notjustagreatentryindicator;itsalsoaveryreliablemethodformeasuringthedegreetowhichweve

capturedthemeanrevertingpricebounce. Therefore,ourexitmethodssimplywaitfor

ConnorRSI(3,2,100)toreachapredeterminedlevel. Wevefoundthatvaluesinthe50to80rangeare

themosteffectiveexitindicators,andwewillpresenttestresultsforConnorsRSI=50,60,70and80.

Withthesedifferentexitmethodsinmind,wecanrevisitapreviousexampletoseethetrade

duration/profit

tradeoff

in

action.

Heres

the

chart

for

WHX

that

we

dissected

previously:


23/41

P a g e |23


ChartcreatedinAmibroker. ReprintedcourtesyofAmiBroker.com.

Figure3:TheEffectofExits

Noticethatonthedayfollowingthetradeentry,theConnorsRSI(3,2,100)valuerosetoaround68. If

ourexitcriteriahadbeenaConnorsRSIvalueof65,thenwewouldhaveexitedthetradeafteroneday,

ataprice

around

that

days

close

of

$9.39.

Ouractualexitoccurredtwodaysafterenteringthetrade. TheConnorsRSI(3,2,100)valueonthisday

was75.48,soifourcriteriahadbeenavalueof70or75,wewouldhaveexitedonthisdaynearthe

closingpriceof$10.37. Wewouldhaveachievedahigherprofit,butourtradedurationwouldhave

beendoublewhatitwaswiththemorelenientexit.

Threedaysaftertheentry,ConnorsRSI(3,2,100)closedat79.16,andthepriceclosedat$10.82. Thus,if

ourexitcriteriahadbeenbetween76and79,wewouldhavestayedinthisparticulartradeforatotalof

threedays,butwouldhaveachievedthemaximumpotentialprofit.

Finally,its

worth

noting

that

ConnorsRSI(3,2,100)

never

went

above

80

before

the

price

started

to

declineagain. Inotherwords,ifwemakeourexitcriteriatoostrict,theresadangerthatwewontexit

thetradebeforetheprofitsstarttoevaporate. OurresearchhasshownthatusingaConnorsRSIvalue

of85orhigherasanexitindicatoristoorestrictivetobeeffective,andwilltypicallycauseyouroverall

resultstosuffer.


24/41

P a g e |24


Section5

Test

Results


25/41

P a g e |25


Wecanneverknowforsurehowatradingstrategywillperforminthefuture. However,forafully

quantifiedstrategysuchastheConnorsRSIPullbackStrategydescribedinthisGuidebook,wecanat

leastevaluatehowthestrategyhasperformedinthepast. Thisprocessisknownasbacktesting.

Toexecuteabacktest,wefirstselectagroupofsecurities(sometimescalledawatchlist)thatwewant

totest

the

strategy

on.

In

our

case,

the

watchlist

is

comprised

of

stocks

traded

on

U.S.

exchanges.

No

ETFs,options,futuresorotherderivativeproductsareincluded. Nextwechooseatimeframeover

whichtotest. Thelongerthetimeframe,themoresignificantandinformativethebacktestingresults

willbe. ThebacktestsfortheConnorsRSIPullbackStrategystartinJanuary2001andgothrough

February2014,thelatestdateforwhichwehavedataasofthiswriting. Finally,weapplyourentryand

exitrulestoeachstockfortheentiretestperiod,recordingdataforeachtradethatwouldhavebeen

entered,andaggregatingalltradedataacrossaspecificstrategyvariation.

OneofthekeystatisticsthatwecangleanfromthebacktestresultsistheAverage%Profit/Loss,also

knownastheAverageGainperTrade. Sometradersrefertothisastheedge. TheAverage%P/Lis

thesumofallthegains(expressedasapercentage)andallthelosses(alsoasapercentage)dividedby

thetotalnumberoftrades. Considerthefollowingtentrades:

TradeNo. %GainorLoss

1 1.7%

2 2.1%

3 4.0%

4 0.6%

5 1.2%

6 3.8%

7 1.9%

8 0.4%

9 3.7%

10 2.6%

TheAverage%P/Lwouldbecalculatedas:

Average%P/L=(1.7%+2.1% 4.0%+0.6% 1.2%+3.8%+1.9%0.4%+3.7%+2.6%)/10

Average%P/L= 1.08%

Forshorttermtradeslastingthreetotentradingdays,mosttraderslookforanAverage%P/Lof0.5%

to2.5%acrossalltrades. Allotherthingsbeingequal,thelargertheAverage%P/L,themoreyour

accountwill

grow

over

time.

Of

course,

all

other

things

are

never

equal!

In

particular,

its

important

to

considertheNumberofTradesmetricincombinationwithAverage%P/L. Assumingthatyouuse

approximatelythesameamountofcapitalforeachtradethatyouenter,youllmakealotmoremoney

ontentradeswithanaverageprofitof10%pertradethanyouwillononetradethatmakes20%.


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AnotherimportantstatisticistheWinningPercentage. Thisissimplythenumberofprofitabletrades

dividedbythetotalnumberoftrades. Inthetableabove,7ofthe10tradeswereprofitable,i.e.had

positivereturns. Forthisexample,theWinningPercentageis7/10=70%.

WhydowecareaboutWinningPercentage,aslongaswehaveasufficientlyhighAverage%P/L?

Becausehigher

Winning

Percentages

generally

lead

to

less

volatile

portfolio

growth.

Losing

trades

have

awayofclumpingup,andwhentheydothat,thevalueofyourportfoliodecreases. Thisisknownas

drawdown. Thosedecreases,inturn,canmakeyoulosesleeporevenconsiderabandoningyourtrading

altogether. Iftherearefewerlosers,i.e.ahigherWinningPercentage,thenlossesarelesslikelyto

clump,andyourportfoliovalueismorelikelytogrowsmoothlyupwardratherthanexperiencingviolent

upanddownswings.

LetsturnourattentiontothetestresultsforthedifferentvariationsoftheConnorsRSIPullback

strategy. First,welllookatthe20variationsthatproducedthehighestAverage%P/L.

Top20VariationsBasedonAvg%P/L

#

Trades

Avg

%P/L

Avg

Days

Held Win%

Sell

Off%

Closing

Range

Entry

ConnorsRSI

Entry

Limit ExitMethod

479 14.79 7.13 78.29 8 10 5 10 CRSI>80

596 13.71 7.10 77.85 6 10 5 10 CRSI>80

886 13.69 7.55 77.09 8 10 10 10 CRSI>80

480 13.67 3.23 79.58 8 10 5 10 CRSI>70

480 13.45 2.16 80.00 8 10 5 10 CRSI>60

747 13.32 7.42 76.04 8 25 5 10 CRSI>80

663 13.26 7.14 77.68 4 10 5 10 CRSI>80

676

13.20

7.16

77.81

2 10 5 10

CRSI>80

480 13.14 1.84 80.00 8 10 5 10 CRSI>50

750 12.84 3.22 79.47 8 25 5 10 CRSI>70

597 12.82 3.21 78.89 6 10 5 10 CRSI>70

751 12.61 2.15 78.96 8 25 5 10 CRSI>60

665 12.51 3.11 79.25 4 10 5 10 CRSI>70

597 12.47 2.17 79.06 6 10 5 10 CRSI>60

678 12.42 3.13 79.20 2 10 5 10 CRSI>70

1104 12.41 7.51 76.09 6 10 10 10 CRSI>80

1438 12.40 7.88 75.87 8 25 10 10 CRSI>80

751 12.37 1.80 78.96 8 25 5 10 CRSI>50

920

12.33

7.39

75.98

6 25 5 10

CRSI>80

597 12.31 1.83 79.56 6 10 5 10 CRSI>50

Hereisanexplanationofeachcolumn.

#TradesisthenumberoftimesthisvariationtriggeredfromJanuary1,2001February28,2014.


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Average%P/Listheaverageprofitorlossforalltrades,includingthelosingtrades,expressedasa

percentage.Thetop20variationshaveallshownpositivegainsranging fromover12%tonearly15%.

AverageDaysHeldisthenumberofdaysonaveragethetradewasheld. Inallcasesitslessthaneight

days,andinseveralcasesaroundtwodays.

Win%isthepercentageofsignalswhichclosedoutataprofit.Thetop20variationshaveallbeeninthe

75% 80%range,anextremelyhighlevelinaworldwheremostsuccessfultradershopetobecorrect

55%60%ofthetime.

SellOff%correspondstoRule4ofthestrategy. Itistheminimumrequireddropinpriceonthesetup

day,expressedasapercentage.

ClosingRangeisspecifiedbyRule5ofthestrategy. Itisthemaximumalloweddifferencebetweenthe

closingpriceandthelowpriceoftheday,expressedasapercentageofthetotaldailyrange(high

low).

EntryConnorsRSIisthemaximumallowedConnorsRSI(3,2,100)valueonthesetupday. Thisvalue

correspondstoRule6ofthestrategy.NoticethepreponderanceoftheConnorsRSIthresholdof5.This

highlightsthefactthatthemoreoversoldthestockis,thehigheritwilltypicallyrebound.

EntryLimitistheintradaypullbackusedtotriggeranentry.Thismeansthatthebuytriggeroccursthe

nextdayZ%belowtheclosingpriceonthesignalday,asdescribedinRule7ofthestrategy.Thereforeif

todaygeneratesasetup,thesignalisexecutedonlyifthestockpullsbackfurthertomorrow.Inour

testingwelookedat4%10%limits.Asyoucansee,10%dominatesthelistabove,furtherreinforcing

thefactthatthelargertheintradaypullback,thegreatertheedges.

ExitMethod

is

the

method

used

to

determine

when

to

exit

the

trade.

Many

of

the

top

20

variations

as

measuredbyAverage%P/LusedanexitmethodofConnorsRSI(3,2,100)>80,meaningthatweexitthe

tradeonthefirsttradingdaywheretheConnorsRSI(3,2,100)valueisgreaterthan80attheclose. Thisis

whatweexpectbasedonourpreviousdiscussionofhowstricterexitcriteriagenerallyleadtohigher

gainsbutalsolongertradedurations.

Whatweseeaboveare20differentvariationsoftheConnorsRSIPullbackstrategywhichshow

consistentbehaviorovermorethanthirteenyears.Thekeyistochoosethevariationorvariationsthat

bestcomplementyouroveralltradingplanandthenapplytheminasystematic,structuredmanner.

Nowletsnowlookatthe20highestperformingvariationsasmeasuredbypercentagecorrect.


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Top20VariationsBasedonWin%

#

Trades

Avg

%P/L

Avg

Days

Held Win%

Sell

Off%

Closing

Range

Entry

ConnorsRSI

Entry

Limit ExitMethod

480 13.45 2.16 80.00 8 10 5 10 CRSI>60

480 13.14 1.84 80.00 8 10 5 10 CRSI>50

1057 11.66 3.08 79.66 2 25 5 10 CRSI>70

1031 11.75 3.08 79.63 4 25 5 10 CRSI>70

480 13.67 3.23 79.58 8 10 5 10 CRSI>70

597 12.31 1.83 79.56 6 10 5 10 CRSI>50

750 12.84 3.22 79.47 8 25 5 10 CRSI>70

924 12.20 3.15 79.44 6 25 5 10 CRSI>70

678 11.92 1.81 79.35 2 10 5 10 CRSI>50

665 12.51 3.11 79.25 4 10 5 10 CRSI>70

665 11.99 1.81 79.25 4 10 5 10 CRSI>50

925 11.79 1.77 79.24 6 25 5 10 CRSI>50

678 12.42 3.13 79.20 2 10 5 10 CRSI>70

1058 11.27 1.76 79.11 2 25 5 10 CRSI>50

1032 11.37 1.76 79.07 4 25 5 10 CRSI>50

597 12.47 2.17 79.06 6 10 5 10 CRSI>60

751 12.61 2.15 78.96 8 25 5 10 CRSI>60

751 12.37 1.80 78.96 8 25 5 10 CRSI>50

925 11.92 2.13 78.92 6 25 5 10 CRSI>60

597 12.82 3.21 78.89 6 10 5 10 CRSI>70

Whenlookingatthevariationswhichhavebeencorrectthemostoften,weseeabroaderarrayof

strategyparameters.However,theWinRatesareallverycloseto80%forthetimeperiodfrom2001

throughFebruary2014.Suchconsistentresultsfromavarietyofstrategyvariationsoveralongperiod

oftimeconfirmtherobustnatureoftheConnorsRSIPullbackstrategy.

Forsometraders,themostimportantmetricsforevaluatingastrategymayrevolvearoundcapital

management. Forthesetraders,itsacceptabletogiveupaportionofthegainsiftheycangettheir

moneybackmorequicklysothatitcanbedeployedelsewhere. So,letstakealookatthestrategy

variationsthathavetheshortesttradedurationsasmeasuredbyAverageDaysHeld.


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Top20VariationsBasedonAverageDaysHeld

#

Trades

Avg

%P/L

Avg

Days

Held Win%

Sell

Off%

Closing

Range

Entry

ConnorsRSI

Entry

Limit ExitMethod

1032 11.37 1.76 79.07 4 25 5 10 CRSI>50

1058 11.27 1.76 79.11 2 25 5 10 CRSI>50

925 11.79 1.77 79.24 6 25 5 10 CRSI>50

751 12.37 1.80 78.96 8 25 5 10 CRSI>50

1522 8.89 1.80 75.76 2 25 5 8 CRSI>50

665 11.99 1.81 79.25 4 10 5 10 CRSI>50

678 11.92 1.81 79.35 2 10 5 10 CRSI>50

1475 8.98 1.81 75.53 4 25 5 8 CRSI>50

597 12.31 1.83 79.56 6 10 5 10 CRSI>50

1000 9.52 1.83 76.50 2 10 5 8 CRSI>50

1303 9.37 1.83 75.29 6 25 5 8 CRSI>50

2167 6.82 1.83 73.28 4 25 5 6 CRSI>50

2261 6.67 1.83 73.64 2 25 5 6 CRSI>50

480 13.14 1.84 80.00 8 10 5 10 CRSI>50

975 9.63 1.84 76.41 4 10 5 8 CRSI>50

1831 7.44 1.84 72.75 6 25 5 6 CRSI>50

1416 7.27 1.85 74.01 4 10 5 6 CRSI>50

1477 7.07 1.85 74.14 2 10 5 6 CRSI>50

1043 9.94 1.86 75.26 8 25 5 8 CRSI>50

861 9.86 1.87 75.96 6 10 5 8 CRSI>50

Asyoumightexpectfromourearlierdiscussion,thestrategyvariationswiththeshortesttrade

durationsaredominatedbythemostlenientexitthatwetested,whichisanexitwhen

ConnorsRSI(3,2,100)isgreaterthan50. All20ofthesevariationshaveaveragedurationsoflessthan

twodays. Whatyoumightnothaveexpectedistostillseeaveragegainspertradeof6.7% 13%!


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Section6

Trading

Options

Using

theConnorsRSI

PullbackStrategy


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PleasenotethattheoptionssectioninthemajorityoftheConnorsResearchTradingStrategySeriesis

thesamebecausethestrategysetupsofteninvolvelargemovesinbriefperiodsoftime.Inouropinion,

andconfirmedfromfriendswhoareprofessionaloptionstraders(onewithoverthreedecadesof

experience);thereisonebestwaytotrademoveslikethese.

Optionstrading

has

been

amajor

growth

industry

over

the

past

5years

in

the

markets.

This

is

because

spreadshavetightened,liquidityhasincreased,andtheabilitytoeasilytradecomplexoptionshasnever

beensimpler.

Wellnowfocusonapplyingoptionstradingtotheshorttermmarketmoveswehavejustlearned. Like

everythingelseinthisGuidebook,therearedefinitiverulesastohowtoexecuteanoptionstradewhen

astrategysignaltriggers.

Hereiswhatweknowbaseduponthedata:

1. Themajorityofthemovesfromentrytoexithavebeenheldaveryshortperiodoftime(27

tradingdays).

2. Theaveragegainspertradehavebeenlargewellbeyondthenormaldistributionofprices

overthatshortperiodoftime.

3. Ahighpercentageofthemoveshavebeencorrect.

Whenwelookatthistypeofbehavior,itcanleadtomanystrategiesbutonestrategystandsout(and

thishasbeenconfirmedbyprofessionaltraders).Thestrategyistobuyfrontmonth,inthemoneylong

calls.

Whyfrontmonthinthemoneylongcalls? Becausetheywillmovetheclosesttothestockitself.And

thecloseranoptionmoveswiththestock,thegreaterthegainwillbeonapercentagebasiswhenthe

moveiscorrect.

Herearetherules.

1. Asignaltriggers.

2. Buythefrontmonthinthemoneycall.Ifyouweretonormallybuy500sharesofstock,buy5

calls(every100sharesshouldequalonecall).

3. Exittheoptionswhenthesignaltriggersanexitonthestock.

Letsgofurther:

1. Whatdoesinthemoneyexactlymeanhere?

Inthiscaseitsdefinedasoneortwostrikepricesinthemoney. Ifthestockisat48andstrikesare$5

apart,thenbuythe40or45calls.


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2. Whatdoesfrontmonthmean?

Becausetheholdingperiodissoshort,youwanttotradetheoptionswhosemonthlyexpirationisthe

closest. Iftheclosestmonthis7tradingdaysorlessfromthefrontmonthsoptionexpirationdate

(meaningthesecondThursdaybeforeorcloser)usethefollowingmonthastheonetotrade.

3. WhathappensifIminthepositionanditexpiresyetthesignalforthestockisstillvalid?

Inthiscase,rolltothenextmonth.Youretradingthestocksignalssoyouwanttohaveexposuretothat

signal.

4. Whataboutliquidityandspreads?

Theressomediscretionhere.Thereisnohardandfastruleastowhatexactlyliquiditymeansin

options. Forexample,comparetheliquidityofyourstocktoSPY,whichisextremelyliquidcomparedto

abluechipstock.Bothcanbeconsideredliquid,butthebluechipsoptionwillbelessliquidthanSPY.

Assumingthere

is

active

volume

in

the

options,

look

at

the

spreads.

If

the

option

is

trading

3.00

bid

3.30offer,thespreadis10%. Canyoureallyovercomea10%spread? Notlikely.Nowcomparethisto

anoptionthatstradingat3.25bid3.30offer. Thisisfarmoreacceptableandtradable.

5. Whataretheadvantagesofbuyingcalloptionsinsteadofthestock?

Assumingthespreadsandliquidityarethere,theadvantagesarelarge:

1. GreaterpotentialROIoncapitalinvested.

2. Lessmoneytiedup.

3. Lesspointsatrisk.Thismeansifastocksignalsat50,itcanloseupto50points.Theoptions

canonlyloseuptothepremiumyoupaid. So,ifyouboughtthe45calls,theriskisonlythe

premium.

4. Theresgreaterflexibility. Forexample,letssaythestocktriggeredabuysignalat50and

youpaid5.50forthe45calls.Ifthestockimmediatelymoveshigher(letssayto56);you

havechoiceshere.Youcanexit,oryoucanrollintothe50callsgettingmostofyourmoney

outandnowturningthisintoanearlyfreetradeifyoubelievethatpriceswillcontinueto

run.

Thereare

numerous

examples

like

this

and

you

can

find

these

types

of

strategy

opportunities

in

most

optionsbooks.Buttradinganythingexoticordifferentthansimplybuyingthecallsisagainsttheadvice

ofthemanyprofessionalsweposedthisquestionto.

Inconclusion,optionsprovidetraderswithagoodalternativetobuyingthestockoutright.The

structuredmethodologyforourstrategiesis:frontmonth,inthemoney,withequivalentsizing(1

optionper100shares),andexitingwhenthesignalexits.


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Theaboveoptionsstrategy,inmanyexpertsopinion,isthebestandmostefficientstrategybasedupon

thehistoricaldatafromthesesignals.

IfyouwouldliketogofurtherwithOptionswerecommendourOptionsTradingwithConnorsRSI

strategyguidebook.Youcanpurchaseitdirectlyfromourwebsite:

http://store.tradingmarkets.com/ebooks/options/connorsresearch

trading

strategy

series

options

tradingwithconnorsrsi.html.
http://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.htmlhttp://store.tradingmarkets.com/ebooks/options/connors-research-trading-strategy-series-options-trading-with-connorsrsi.html


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Section7

Additional

Thoughts


35/41


36/41


37/41

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AbouttheAuthorLaurence

A.

Connors,

CEO

and

Founder

Mr.ConnorsservesasChairman,CEO/CoFounderofTheConnorsGroupwhichpublishesand

distributesfinancialmarketinformationandtechnology.

LarryConnorsisalsothePrincipalManagingPartnerofConnorsGlobalAssetManagementLLC

(www.connorsglobal.com).

HeisalsoaManagingPartnerofConnorsResearch,LLC,ahighlyrespectedfinancialmarketsresearch

firm.

Mr.Connorsistheauthorofanumberoftopsellingbooksonmarketstrategiesandvolatilitytrading,

includingHowMarketsReallyWork,2ndEd.(BloombergPress)andStreetSmarts(M.Gordon

Publishing),whichwasselectedbyTechnicalAnalysisofStocksandCommoditiesasoneofThe

Classicsfortradingbooksofthe20thcentury.
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LearntheLatestAdvancestoConnorsRSItoImproveYourETFTradingAccuracy

NEWfromConnorsResearch:

TheAdvancedConnorsRSITradingStrategyforETFs

Therelease

of

the

ConnorsRSI

quantified

momentum

oscillator

has

generated

atremendousresponsefromactivetradersoverthepast18months.Infact,

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AswecontinuetoexplorenewresearchpossibilitiesforConnorsRSIwe

continuetodiscoverthatincorporatingthisindicatorintotradingsetupscan

oftendeliverextraordinaryresults.

Recently,ConnorsResearchdevelopedanewConnorsRSIETFtradingstrategythatoffers:

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StrongGains:15variationswithAvg.P/Lofgreaterthan9%;

Quickprofits:Avg.Holdisoftenlessthan2daysandlessthan3onalmostallvariations.

ThisstrategyseekstoidentifyhistoricallyhighprobabilityETFtradingsetupsandonlysignalsabuy

whenthereisbothahighprobabilityofsuccessandthepotentialforahigherthanaveragegain...with

manyvariationsdeliveringanaveragegainofmorethan4%perday.

ThisguidebookwillteachyouexactlyhowtoapplyourlatestresearchadvanceforConnorsRSItoETFs.

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Here'sHowYouCanSwingTradeS&P500StocksforShortTermGains

Introducing: S&P500TradingwithConnorsRSI

ThisguidebookwillteachyouthehowtoswingtradeS&P500stocksto

captureshorttermgainsfrommispricedopportunitiesidentifiedby

ConnorsRSI.

Theonlyquantifiedmomentumoscillator,ConnorsRSIcombinesprice,

momentum,durationofthetrend,andrelativemagnitudeoftheprice

change allinasingleindicator.

ConnorsRSIgivesyouaquantifiedwaytoidentifystocksmostlikelyto

reverse.Andasyouwillseefromthetestresults,especiallyona

percentagecorrect

basis,

trading

S&P

500

stocks

with

ConnorsRSI

can

be

an

effective

way

to

achieve

growthwithinthecomfortzoneoftheS&P500.

WithS&P500TradingwithConnorsRSI,youwillreceiveover40variationswithspecificEntry/ExitRules

fordefinedbyConnorsRSI,includinglimitorders:

Morethanadozenvariationsshowwinningtraderatesover80%

18variationsshowanAvg.%P/Lofover10.0%

Mostholdsareforlessthan5days

Ifyourelyondata,notopinion,tomakeyourtradingdecisions,andyouwanttheabilitytochoosethe

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ToorderyourcopyofS&P500TradingwithConnorsRSI,pleaseclickhereorcalltollfree1888484

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P a g e |40


ConnorsRSICanChangeYourEntireApproachtoOptions

NewResearchShowsHowYouCanUseConnorsRSItoImproveYourAccuracy

Introducing:OptionsTradingwithConnorsRSI

Optionstradescanhaveareputationasriskyinvestmentsamongmanyretailtraders.ThatperceptionmaychangewhenyouexaminethisnewresearchonapplyingtheConnorsRSI

toSPYOptionsTrading.

Oftenwhenyouhearsomeonerefertooptionstrategies,theyretalkingabout

optionpositionswithmultiplestrikesand/ormultipleexpirationslikevertical

spreads,calendarspreads,butterflies,ironcondorsandahostofothers.

However,thesestrategiesjustdefineasetofrelatedoptioncontracts

withoutanyguidelinesforprofitablyenteringandexitingtrades.

Incontrast,

our

definition

of

strategy

is

aset

of

quantified

entry

and

exit

rules

which

you

can

execute

preciselytimeaftertime.Wesupporttheseruleswithhistoricaltestresultsthatallowyoutoselectthe

variationsofthestrategythatwillbestcomplementyourowntradingplan.

Thisnewapproachgreatlysimplifiestheentireprocessoftradingoptions.Italsoallowsyoutoselect

yourtradeswithamoredefinedlevelofprecision.

InOptionsTradingwithConnorsRSIyouwilllearnhowtoapplyasystematic,quantifiedapproachto

selectingwhichoptionstotradeaswellastothetimingofentriesandexits.Thesimulatedhistoricaltest

resultsindicatethefollowingbenefits:

HigherAccuracy:

Up

to

74%

Winning

Trade

Rates

are

shown

on

the

most

accurate

variations.

QuickProfits:Avg.Holdisonly4daysacrossallvariations

StrongGains:Eachofthetop20variationspresentedshowtestresultswithanAvg.P/Lofover

10%orgreater

OrderOptionsTradingwithConnorsRSI

Ifyouarelookingtotradethemostconsistentquantifiedrule basedstrategiesavailabletotraders

today,orderOptionsTradingwithConnorsRSI.

ToorderyourcopyofOptionsTradingwithConnorsRSI,pleaseclickhereorcalltollfree18884848220

ext.3

(outside

the

US

please

call

973

494

7311).
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