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ConnorsResearchTradingStrategySeries

S&P500Trading
withConnorsRSI
By
ConnorsResearch,LLC
LaurenceConnors
CesarAlvarez
MattRadtke
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Copyright 2013, Laurence A. Connors and Cesar Alvarez.



ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a
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This publication is designed to provide accurate and authoritative information in regard
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publisher are not engaged in rendering legal, accounting, or other professional service.

Authorization to photocopy items for internal or personal use, or in the internal or
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U.S. $7.00 per page fee is paid directly to Connors Research, LLC, 1-973-494-7333.

ISBN 978-0-9886931-4-2

Printed in the United States of America.

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Disclaimer

By distributing this publication, Connors Research, LLC, Laurence A. Connors and Cesar Alvarez
(collectively referred to as Company") are neither providing investment advisory services nor acting as
registered investment advisors or broker-dealers; they also do not purport to tell or suggest which
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. You
understand and acknowledge that there is a very high degree of risk involved in trading securities and/or
currencies. The Company, the authors, the publisher, and all affiliates of Company assume no
responsibility or liability for your trading and investment results. Factual statements on the Company's
website, 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 be
profitable or that they will not result in losses. Past results of any individual trader or trading system
published by Company are not indicative of future returns by that trader or system, and are not indicative
of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all
other features of Company's products (collectively, the "Information") are provided for informational and
educational purposes only and should not be construed as investment advice. Examples presented on
Company'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 order
to allow you to form your own opinion regarding investments.

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

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT
LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT
REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER
SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE
RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN
MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN
GENERAL ARE ALSO SUBJ ECT TO THE FACT THAT THEYARE DESIGNEDWITH THE BENEFIT OF
HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO
ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

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Table of Contents
Section1Introduction.............................................................................5
Section2StrategyRules...........................................................................8
Section3TestResults............................................................................16
Section4SelectingStrategyParameters...............................................21
Section5UsingOptions.........................................................................25
Section6AdditionalThoughts...............................................................28
Appendix:TheConnorsRSIIndicator.....................................................30


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Section1
Introduction


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AftermovingfromLosAngeles(theentertainmentcapitaloftheworld)toNewYorkCity(thefinancial
capitaloftheworld)in2007,Igainedtheopportunitytospendqualitytimewithmanytoptradersand
moneymanagerslocatedintheCity.OneofthegentlemenwhoIhadthegoodfortunetospendan
afternoonwithranawellrespectedtradingfirm.Hisbackgroundincludedbeinganequitytraderontwo
exchangesoverthreedecadeswithhisspecialtybeingtradinginS&P500stocks.Hisphilosophywasa
lotlikeanumberofprofessionalswholearnedtotradebeforetheinternetboom/bustofthelate
1990searly2000s.Hisphilosophywasonlybuyquality.
Whatdoesbuyqualitymean?Inhisminditwascompanieswhichhavebeeninbusinessfordecades;
householdnamesthatheknewandunderstood.Itsinterestingbecausethisisthesamephilosophy
popularizedbyWarrenBuffett.ButwhereasBuffetttendstobuyandholdthesestocks,thisgentleman
madehisliving(averygoodliving)tradinginandoutofthesesamestocks.Hefeltthatholdingquality
companiesforafewdayswasfarsaferthanholdinghighvolatilitycompanieswhichhehadbarelyheard
of.
Everyonewhosucceedsinthefinancialmarketsdoessobecausetheytradeatcomfortpoints.This
gentlemanscomfortpoint(asisBuffets)wastobeinstocksthatheknewandthatwouldlikelybein
businessforyearstocome.Hehadnointerestinowningcompanieshehadntheardof.Hetoldmehe
likedsleepingatnightandowningthesecompaniesallowedhimtosleepatnight.Ifyousharethis
samephilosophyofbuyingquality,youreingoodcompany.
WhenIaskedhimhowhetraded,hesmiledandsaidcoyly,Ibuylowandsellhigh.Icordiallysmiled
backandthenprobedfurther.Ultimatelyheopenedupandwithoutdivulginghisexactstrategythe
basisofhisphilosophywasthis:
1.ThemajorityofmoneyinvestedintheUnitedStatesisdonebymoneymanagers.Themajorityof
thatmoneyispensionmoney.Thesemanagershaveamandatetobeinqualitycompanies.Thebest
placetofindandinvestinqualitycompaniesisintheS&P500.
2.ThemajorityofthismoneythatinvestsinS&P500stocksisusuallybuyandholdmoney.
3.Whengiventheopportunity,thesemoneymanagers,especiallythevaluebuyers,looktobuythese
stocksiftheybecomecheaperoverashortperiodoftime.Thebetteronesknowavaluewhentheysee
oneandwillallocatemorecapitaltotheirpositionstotakeadvantageofthelowerprices.
4.Buyingatlowerpricesprovidesashorttermcushiontothesestocks.
5.Thiscushionoftenallowspricestostabilizeandthenriseagain(itsthecorephilosophyofmean
reversiontrading).Havingseenitonthefloorandthenwithinhistradingfirmfordecades,he
understoodthattheresbigmoneyouttherewaitingtobuymoresharesatcheaperprices,which
increasestheprobabilityofthestockpricesmovinghigher(wellbackthisupwithstatisticsinthe
upcomingchapters).

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Attheendoftheday,heknowsthatbigmoneywillalwaysbethereincompaniesheknowsandtrusts.
Whenheswrong,helookstogetout.Whenhesrighthemakeshismoneyandthenmovesontohis
nextpositions.
Thissimplicityintradingmakesalotofsense.Intuitivelyitscorrect.Innowaydoesitmeanthatevery
S&Pstockbehavesthiswayeverytimebecauseitdoesnot.S&P500stockslikeEnron,Lehmanand
manymajorbanks(especiallyin2008)wentlowerandinsomecasesoutofbusiness.Butprofessional
tradersaregreatatunderstandingwhatsgoingon(valuebuyersbuyingatlower,betterprices),whyits
goingon(inthemajorityofcasesitssimplyashorttermpullback),andtheyareabletomeasurethe
probabilitiesofthestockmovinghigher.InthisStrategyGuidebook,weregoingtoprovideyouwiththe
statisticsthatsupportthetypeofbuyingbehaviordiscussedabove.
HowtheTestsWereRun
1. WelookedateveryS&P500stockfromJanuary2001throughthefirstquarterof2013(thefinal
quarteraheadofwritingthisGuidebook).
2. Allstocksareincluded,includingtheEnrons,Lehmans.etc.
3. Alltradesignalsweregeneratedontheclose.Entriestookplacethenextdayusingalimitorder,
andexitswereexecutedthenextdayasasimulatedmarketorderusingtheaveragepriceofthe
day.
4. Slippageandcommissionswerenotincluded.
Takingintoaccountallsimulatedtradesfromthisstrategyfromoveratwelveyearperiodoftime,you
willlearnthatasthisgentlemanstatedtomein2009,biginstitutionsliketobuyvaluewhentheyseeit.
Andtheyoftenknowthatbecausemanymarketsaresomewhatefficientlongerterm,shorttermvalues
oftendontlastlong.Andthereforetheyprovidewonderfulopportunitiesforsmarttraders,likethe
gentlemanmentionedabove,tobuytheseS&P500stocksandquicklysellthemforprofits;oftentimes
withinafewdays.
Whatyouwillseeintheupcomingchaptersareexactrules.Buylowandsellhighisnicetoknow,but
wedontwantgeneralities.Wewantspecific,nonoptimized,simpletoapplyrulestobeableto
successfullytradeS&P500stocks.Wewillgiveyoutherules,themanyparametersyoucanapplywith
therules,andthefulltestresultsformorethanadecade.BythetimeyouvecompletedthisStrategy
Guidebook,youllknowwhentobuyS&Pstocks,whentoexitthem,andthehistoricalreturnsforthe
12yearsoftesting;aperiodwherethemarketdropped,rose,crashed,andthenreboundedallinall
aroughtimeforlongterminvestors.Butitwasagreattimeforpeoplewhoknewwhentobuyandsell
thestockswithintheS&P500Index.
WehopeyouenjoythisStrategyGuidebook.AfterreadingtheGuidebookifyouwouldliketolearn
moreabouttradingS&P500stocks,pleasecometoourwebsiteatwww.tradingmarkets.comorclick
here.
Letsnowmoveahead.
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Section2
StrategyRules


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TheConnorsRSIS&P500TradingStrategyexecutestradesusingasimplethreestepprocessconsisting
ofSetup,EntryandExit.Therulesforeachofthesestepsaredetailedbelow.
ASetupoccurswhenallofthefollowingconditionsaretrue:
1. ThestockisacurrentmemberoftheS&P500.
2. ThestockcloseswithaConnorsRSI(3,2,100)valuelessthanW,whereWis5or10.
3. ThestocksclosingpriceisinthebottomX%ofthedaysrange,whereX=25,50,75or100.
IfthepreviousdaywasaSetup,thenweEnteratradeby:
4. SubmittingalimitordertobuythestockatapriceY%belowyesterdaysclose,
whereYis2,4,6,8,or10.
Afterweveenteredthetrade,weExitwhen:
5. ThestockcloseswithaConnorsRSIvaluegreaterthanZ,whereZis50or70.
Letslookateachruleinalittlemoredepth,andexplainwhyitsincludedinthestrategy.
Rule1simplylimitsourtradinguniversetotheS&P500stocks.
Rule2usesConnorsRSItoidentifyapricepullback.AcompletedescriptionofConnorsRSImaybefound
intheAppendix.
Rule3determinestheextenttowhichthepricehascontinuedtodeclineheadingintotheclose.Note
thatvariationswhichuseavalueof100forXareessentiallyeliminatingthisrule,i.e.everypossible
pricewouldbeinthebottom100%oftherange.Weincludedthisvaluesothatyoucouldseethe
resultsofnotusingRule3.
Rule4allowsustoenterthetradeatanoptimalprice.Weretakinganalreadyoversoldstockas
measuredbyConnorsRSIandthenwaitingforittobecomeevenmoreoversoldonanintradaybasis.
Becausetheintradaypricedropisoccurringforasecondconsecutiveday,itsoftenaccompaniedbya
greatdealoffear.Moneymanagersgetespeciallynervousandoftentelltheirheadtraderstojustget
meoutaftertheyvemadethedecisiontosell.Thispanichelpscreatetheopportunity.
Rule5providesawelldefinedexitmethod.Fewstrategieshavequantified,structured,anddisciplined
exitrules.Rule5givesyoutheexactparameterstoexitthetrade,backedbyovertwelveyearsof
historicaltestresults.Aswithallotherstrategyparameters,weselectinadvancethetypeofexitthat
wewilluse,andapplythatruleconsistentlyinourtrading.
Noteveryoneisavailabletoclosetheirtradesrightasthemarketisclosing.Therefore,inourtestingwe
closedalltradesthedayaftertheExitsignaloccurred.Tosimulateplacingamarketorderatarandom
timeduringthatday,weuseanexitpricethatisequaltotheaverageoftheopen,high,lowandclose
fortheday:ExitPrice=(Open+High+Low+Close)/4
***
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Usingthedifferentvariationsoftherulesabovehashistoricallygeneratedanextremelyhighpercentage
ofwinningtrades.WelltakeanindepthlookatthetestresultsinSection3,butfornowheresaquick
previewofthetop20strategyvariationswhensortedbyhighestwinrate:
Top20VariationsByHighestWinRate
#
Trades
Avg
%P/L
Win
Rate
Entry
CRSI
Closing
Range Limit%
Exit
CRSI
278 14.8% 86.0% 5 25 10 50
278 16.9% 84.9% 5 25 10 70
318 13.3% 84.0% 5 50 10 50
317 15.0% 83.0% 5 50 10 70
415 11.2% 82.9% 5 25 8 50
414 12.7% 82.9% 5 25 8 70
325 12.9% 82.8% 5 75 10 50
328 12.8% 82.6% 5 100 10 50
324 14.6% 81.5% 5 75 10 70
327 14.5% 81.4% 5 100 10 70
481 11.6% 81.1% 5 50 8 70
483 10.3% 81.0% 5 50 8 50
493 9.9% 79.9% 5 75 8 50
498 11.2% 79.9% 5 100 8 70
491 11.2% 79.8% 5 75 8 70
500 9.8% 79.6% 5 100 8 50
626 9.4% 77.6% 5 25 6 70
629 7.9% 77.1% 5 25 6 50
652 9.4% 76.8% 10 25 10 50
788 8.7% 76.0% 10 50 10 50

Findingaquantified,backtestedstrategythatproducesaprofiton75%oftradesignalsissomewhat
unusual;having20differentvariationsthatallgeneratewinners7686%ofthetimeisatestamentto
thepowerandconsistencyoftheConnorsRSIS&P500tradingstrategy!
***


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Nowletsseehowatypicaltradelooksonachart.Fortheexamplebelow,welluseastrategyvariation
thatrequirestheConnorsRSIvaluetobebelow10andtheclosingpricetobeinthebottom25%ofthe
daysrange.Thelimitorderwillbeplaced6%belowtheSetupdaysclosingprice.Wewillexitwhen
ConnorsRSIclosesabove70.Intermsofourstrategyrulesabove,thatmeansW=10,X=25,Y=6,and
Z=70.

Figure1:ISRGTrade
ThechartaboveisforIntuitiveSurgical,Inc.,whosesymbolisISRG.Inthechart,thetoppaneshowsthe
pricebarsinblack,andtheverticalbluegraylinemarksthecurrentlyselecteddaywhichalsohappens
tobetheSetupday.Thegreenuparrowmarkstheentryday,andthereddownarrowindicatestheexit
day.ThelowerpaneshowsConnorsRSIasablueline.Nowwellconfirmthateachofourentryandexit
conditionswerecorrectlymet.
Rule1requiresthatthestockbeamemberoftheS&P500,whichISRGis.
Basedonourstrategyparameters,Rule2requirestheConnorsRSI(3,2,100)valuetobebelow10onthe
Setupday,whichitis:thevalueshownonthechartontheentrydayis9.14.
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Rule3statesthatthestockmustcloseinthebottom25%ofthedaysrange.Theclosingrangecanbe
calculatedas:
ClosingRange =(CloseLow)/(HighLow)
=($489.89$483.38)/($517.44$483.38)
=6.51/34.06=19%

SinceallthreeSetupruleshavebeensatisfied,weenteralimitorderforthenexttradingday.Our
selectedstrategyvariationtellsustousealimitof6%belowtheSetupdaysclosingprice,sowewould
usealimitpriceof:
LimitPrice =Closex(1Limit%)
=$489.89x(1.06)
=$489.89x0.94=$460.50
Wecanseeonthechartthatonthedayafterthesetupoccurs,thepriceofISRGfallswellbelow$460,
soourlimitordergetsfilledatthelimitpriceof$460.50.
Ontheverynexttradingday,March18,2013,thepriceofISRGclosesat$485.52,resultingina
ConnorsRSIvalueof75.33.Sincethisisaboveourexitthresholdof70,weexitthetrade.Noticethatthe
redSellarrowactuallyappearsthenextday,March19
th
.Asexplainedpreviously,thisisbecauseour
testingsimulatesanexitusingamarketorderthedayaftertheexitsignaloccurs.Inthisinstance,the
averagepriceof$481.24ontheexitdayisslightlylessthantheclosingpriceonthesignalday,so
waitinguntilthenextdaytoexitourtradeactuallycostusabitofourgain.However,westillcaptureda
precommissionprofitof4.5%injusttwodays:
Profit =Gain(orLoss)/CostBasis
=($481.24$460.50)/$460.50
=$20.74/$460.50=4.5%


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Letslookatanotherexampleusingthesamestrategyparameters.Thechartbelowisfor
LincolnNational(LNC),andusesthesameconventionsasthepreviouschart.

Figure2:LNCTrade
TheSetupdayforthistradewasSeptember21,2011,adaywhichtriggeredmanysetupsforthis
variationofthestrategy.AsperRule1,LNCisamemberoftheS&P500,andasperRule2the
ConnorsRSIvalueclosedbelow10withavalueof7.31.
Althoughwecouldcalculatetheclosingrange,itisveryeasytoseefromthechartthattheclosingrange
isextremelylow.Theclosingpricewasonlytwocentsabovethelow,onadaythatthetotalpricerange
wasadollarandahalf($17.69$16.19).Alittlementalarithmetictellsusthattheclosingrangewas
lessthan2%,verifyingwhatoureyesalreadyknew.Therefore,Rule3hasbeensatisfiedandallofour
Setupconditionshavebeenmet.
WeplacealimitorderonSeptember22
nd
usingalimitpriceof$15.24,whichis6%belowtheSetup
daysclosingpriceof$16.21.Sincetheintradaypricefellbelow$15.00,ourordergetsfilledandwe
enterthetrade.
ThenextdaytheintradaypriceofLNCrallies,butultimatelyclosesbelowourentryprice.Interestingly,
theConnorsRSIvaluerisesslightlydespitethedecreaseinprice,butisstillwellbelowourexittargetof
70.
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OnSeptember26
th
,thepriceofLNCrisessufficientlytocausetheConnorsRSIvaluetocloseat73.47,
whichtriggersourexit.Wegetoutofthetradethenextday,whentheaveragepriceis$16.33.Unlike
thefirstexample,inthiscaseweactuallybenefitfromclosingthetradethedayaftertheexitsignal
occurs,astheclosingpriceonthesignaldaywas$15.61.
Ourtestinghasshownthatthisistypicalbehaviorformanyrobuststrategies.Whencomparinga
strategyvariationthatexitstradesattheclosewithonethatexitsthenextdayusingaverageprice,the
longtermresultsaregenerallyquitesimilar.Individualtradesmayperformbetterunderonescenario
thantheother,butovertimethesedifferencestendtoaverageout.

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Ourfinalexampleinthissectionwillusestrategyparametersthataredesignedtogetinandoutof
tradesquicklyandfrequently.WellstilllookforaConnorsRSIvalue(W)below10ontheSetup,but
welluseaclosingrange(X)of50,alimit(Y)of2%,andanexitthresholdforConnorsRSI(Z)of50.

Figure3:MTGSingleDayTrade
ThechartaboveisforMGICInvestments(MTG).AlthoughMTGwasremovedfromtheS&P500in
October2008,atthetimeofthistradeitwasstillamember.ThuswehavesatisfiedRule1.
TheConnorsRSIvalueontheSetupdayis3.45,meetingourRule2criterionofavaluelessthan10.The
closingpriceisequaltothelow,makingourclosingrangeequaltozeroandsatisfyingRule3.
HavingmetallourSetupcriteria,weentera2%limitorderonJune24
th
atapriceof$7.55.Thelow
priceonJune24
th
was$7.28(belowourlimitprice),soourorderwasfilled.
Noticewhathappensnext:thepriceonJune24
th
closesat$8.14,resultinginaConnorsRSIvalueof
68.44,whichiswellaboveourexitthresholdof50.Thereforeweclosethetradethenextdayatan
averagepriceof$8.32,recognizingatidygainofover10%inapproximately24hours.Hadwebeen
executingourexitsatthecloseratherthanonthedayfollowingtheexitsignal,wewouldhaveheldthis
tradeforlessthan7hours!
Nowthatyouhaveagoodunderstandingofthetrademechanics,welllookatthehistoricaltestresults
fordifferentvariationsofthestrategy.
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Section3
TestResults

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Wecanneverknowforsurehowatradingstrategywillperforminthefuture.However,forafully
quantifiedstrategysuchastheConnorsRSIS&P500TradingStrategydescribedinthisGuidebook,we
canatleastevaluatehowthestrategyhasperformedinthepast.Thisprocessisknownasback
testing.
Toexecuteabacktest,wefirstselectagroupofsecurities(sometimescalledawatchlist)thatwewant
totestthestrategyon.Inourcase,thewatchlistconsistsofpastandpresentmembersoftheS&P500.
Nextwechooseatimeframeoverwhichtotest.Thelongerthetimeframe,themoresignificantand
informativethebacktestingresultswillbe.ThebacktestsforthisGuidebookstartinJanuary2001and
gothroughtheendofMarch2013,thelatestdateforwhichwehavedataasofthiswriting.
Finally,weapplyourentryandexitrulestoeachstockinthewatchlistfortheentiretestperiod,
recordingdataforeachtradethatwouldhavebeenentered,andaggregatingalltradedataacrossa
specificstrategyvariation.
OneofthekeystatisticsthatwecangleanfromthebacktestresultsistheAverage%Profit/Loss,also
knownastheAverageGainperTrade.Sometradersrefertothisastheedge.TheAverage%P/Listhe
sumofallthegains(expressedasapercentage)andallthelosses(alsoasapercentage)dividedbythe
totalnumberoftrades.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%
Average%P/Listheaveragegainbasedoninvestedcapital,i.e.theamountofmoneythatweactually
spenttoentereachtrade.
Forshorttermtradeslastingthreetotentradingdays,mosttraderslookforanAverage%P/Lof0.5%
to2.5%acrossalltrades.Allotherthingsbeingequal,thelargertheAverage%P/L,themoreyour
accountwillgrowovertime.Ofcourse,allotherthingsareneverequal!Inparticular,itsimportantto
considertheNumberofTradesmetricincombinationwithAverage%P/L.Ifyouuseapproximatelythe
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sameamountofcapitalforeachtradethatyouenter,youllmakealotmoremoneyontentradeswith
anaverageprofitof4%pertradethanyouwillononetradethatmakes10%.
AnotherimportantmetricistheWinningPercentageorWinRate.Thisissimplythenumberof
profitabletradesdividedbythetotalnumberoftrades.Inthetableabove,7ofthe10tradeswere
profitable,i.e.hadpositivereturns.Forthisexample,theWinningPercentageis7/10=70%.
WhydowecareaboutWinRate,aslongaswehaveasufficientlyhighAverage%P/L?Becausehigher
WinRatesgenerallyleadtolessvolatileportfoliogrowth.Losingtradeshaveawayofclumpingup,
andwhentheydothat,thevalueofyourportfoliodecreases.Thisisknownasdrawdown.Those
decreases,inturn,canmakeyoulosesleeporevenconsiderabandoningyourtradingaltogether.If
therearefewerlosers,i.e.ahigherWinningPercentage,thenlossesarelesslikelytoclump,andyour
portfoliovalueismorelikelytogrowsmoothlyupwardratherthanexperiencingviolentupanddown
swings.
***
LetsturnourattentiontothetestresultsforthedifferentvariationsoftheConnorsRSIS&P500Trading
Strategy.First,wellsortthetestresultstoshowthe20variationsthatproducedthehighest
Average%P/L.
Top20VariationsBasedonAverageGain
#
Trades
Avg
%P/L
Avg
Days
Held
Win
Rate
Entry
CRSI
Closing
Range Limit%
Exit
CRSI
278 16.9% 3.2 84.9% 5 25 10 70
317 15.0% 3.3 83.0% 5 50 10 70
278 14.8% 2.3 86.0% 5 25 10 50
324 14.6% 3.4 81.5% 5 75 10 70
327 14.5% 3.4 81.4% 5 100 10 70
318 13.3% 2.3 84.0% 5 50 10 50
325 12.9% 2.4 82.8% 5 75 10 50
328 12.8% 2.4 82.6% 5 100 10 50
414 12.7% 3.4 82.9% 5 25 8 70
481 11.6% 3.5 81.1% 5 50 8 70
491 11.2% 3.6 79.8% 5 75 8 70
415 11.2% 2.4 82.9% 5 25 8 50
498 11.2% 3.6 79.9% 5 100 8 70
647 11.0% 4.1 75.6% 10 25 10 70
483 10.3% 2.4 81.0% 5 50 8 50
808 10.2% 4.3 75.1% 10 75 10 70
816 10.2% 4.2 74.9% 10 100 10 70
779 10.1% 4.2 75.5% 10 50 10 70
493 9.9% 2.4 79.9% 5 75 8 50
500 9.8% 2.4 79.6% 5 100 8 50
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Belowisanexplanationofeachcolumn.
#TradesisthenumberoftimesthisvariationtriggeredfromJanuary1,2001March31,2013.
Avg%P/Listheaveragepercentageprofitorlossforalltrades,includingthelosingtrades,basedon
investedcapital.Thetop20variationshaveallshownpositivegainsrangingfromjustunder10%to
nearly17%overthe12+yeartestingperiod.WhentheAverage%P/Lisbrokendownonanannual
basis,15ofthese20variationsshowpositiveresultsforall13years!Onceagain,thatspeakstothe
consistencyofthestrategy.
AvgDaysHeldistheaveragetradedurationexpressedasanumberofdays.Inallcasesitslessthana
week,andinseveralvariationsitslessthan3days.
Win%isthepercentageofsimulatedtradeswhichclosedoutataprofit.Mostofthetop20variations
havewinratesover75%,withseveralinthemid80s.Thisisahighpercentageofprofitabletradesina
worldwheremanytradersareaimingfor60%.
EntryCRSIcorrespondstoRule2ofthestrategy,whichstatesthattheConnorsRSIvaluemustbebelow
theentrythreshold.RecallthatwetestedwithConnorsRSIthresholdsof5and10.Asyoumightexpect,
thelowerConnorsRSIvaluesdominatethelist.
ClosingRangecorrespondstoRule3ofthestrategy.Aclosingrangeof25isthemostrestrictive
criterion,whileaclosingrangeof100encompassesallpossiblescenariosfortheclosingprice,andthus
effectivelyneutralizesRule3.
Limit%isrelatedtoRule4ofthestrategy,anddeterminesthelimitpricethatwillbeusedtoenterthe
trade.Wetestedlimitsof2,4,6,8and10%belowtheSetupdaysclose.
ExitCRSIistheConnorsRSIvaluethatmustbeexceededtosignalanexit.Notethatthemorestringent
exitcriterion(higherConnorsRSIexitthreshold)generallyproduceslongertradedurations.Welldiscuss
thisinmoredetailinafuturesection.

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Next,letslookatthestrategyvariationsthathavehistoricallyhadthehighestrateofprofitabletrades.
Thesearethesamevariationspresentedinthepreviouschapter,butwithsomeadditionalcolumnsin
thetable.
Top20VariationsByHighestWinRate
#
Trades
Avg
%P/L
Avg
Days
Held
Win
Rate
Entry
CRSI
Closing
Range Limit%
Exit
CRSI
278 14.8% 2.3 86.0% 5 25 10 50
278 16.9% 3.2 84.9% 5 25 10 70
318 13.3% 2.3 84.0% 5 50 10 50
317 15.0% 3.3 83.0% 5 50 10 70
415 11.2% 2.4 82.9% 5 25 8 50
414 12.7% 3.4 82.9% 5 25 8 70
325 12.9% 2.4 82.8% 5 75 10 50
328 12.8% 2.4 82.6% 5 100 10 50
324 14.6% 3.4 81.5% 5 75 10 70
327 14.5% 3.4 81.4% 5 100 10 70
481 11.6% 3.5 81.1% 5 50 8 70
483 10.3% 2.4 81.0% 5 50 8 50
498 11.2% 3.6 79.9% 5 100 8 70
493 9.9% 2.4 79.9% 5 75 8 50
491 11.2% 3.6 79.8% 5 75 8 70
500 9.8% 2.4 79.6% 5 100 8 50
626 9.4% 3.7 77.6% 5 25 6 70
629 7.9% 2.4 77.1% 5 25 6 50
652 9.4% 2.6 76.8% 10 25 10 50
788 8.7% 2.6 76.0% 10 50 10 50

All20ofthetopvariationshavehistoricallyproducedaprofitonover75%oftheidentifiedtrades!
CombinedwiththeinformationpresentedintheprevioussectiononAverage%P/L,youcanseethat
wehaveastrategythathistoricallyhaswonconsistentlywhileproducingexcellentedges.


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Section4
SelectingStrategy
Parameters

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Inpreviouschapterswehavedescribedthedifferentvalueswetestedforstrategyparameterssuchas
ConnorsRSIentrythreshold(W),closingrange(X),entrylimit%(Y)andConnorsRSIexitthreshold(Z).In
thissectionwelldiscusssomethingstoconsiderasyoudecidewhichvariation(s)touseinyourtrading.
Letstalkconceptuallyaboutentriesandexitsforamoment.Bothentryandexitrulescanbethoughtof
intermsofhowstricttheyare,i.e.howeasyordifficulttheyaretoachieve.Youmightalsosaythat
strictnessisameasureofhowfrequentlyorinfrequentlytheruleconditionsoccur.Foroscillatorssuch
asConnorsRSI,valuesthatareclosertotheextremes(0and100)aremorestrict(lesslikelytooccur)
thanvaluesthatareinthemiddleoftherange.
Stricterentryruleswillbesatisfiedlessfrequentlythanmoreleniententryrules,andthusastrategy
thatreliesonthestricterruleswillgenerallygeneratefewertradesthanastrategywhoseentryrulesare
moreeasilysatisfied.Witharobuststrategy,therewardforfewertradesisusuallyahighergainper
trade,onaverage.Ifyoubuyaslightlyoversoldstock,itsmostlikelytohaveamoderaterebound.Butif
youwaitforthestocktobecomeextremelyoversold,thechancesaremuchhigherthatitwillhavea
significantbounceandcreateabiggerprofit.
Incontrasttoentryrules,thestrictnessofexitruleshaslittleeffectonthenumberoftradesgenerated
bythestrategy.However,justliketheentryrules,stricterexitrulestypicallyresultinhigheraverage
profits.Why?Becausestricterexitrulestendtokeepyouinyourtradesforalongertime,givingthe
stockmoretimetoexperiencethemeanreversionbehaviorthatwereattemptingtoexploitwitha
strategyliketheConnorsRSIS&P500TradingStrategy.Thus,forentriesthetradeoffisbetweenmore
tradesandhighergainspertrade,whileforexitsthetradeoffisbetweenshortertradedurationsand
highergainspertrade.
***

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NowletsturnourattentionbacktothestrategydescribedinthisGuidebook.Inthetablebelow,we
compareeightvariationsofthestrategythatallusethesamelimitentry(6%)andthesameexitmethod
(ConnorsRSI>70).OnlytheConnorsRSIentrythresholdandClosingRange(theSetupvariables)are
different.
VariationswithConstantLimit%andExitConnorsRSI
#
Trades
Avg
%P/L
Avg
Days
Held
Win
Rate
Entry
CRSI
Closing
Range Limit%
Exit
CRSI
626 9.4% 3.7 77.6% 5 25 6 70
1629 5.7% 4.4 71.6% 10 25 6 70
731 8.2% 3.8 75.9% 5 50 6 70
1953 5.1% 4.5 70.1% 10 50 6 70
751 7.9% 3.8 75.5% 5 75 6 70
2061 5.0% 4.5 69.8% 10 75 6 70
761 7.9% 3.9 75.6% 5 100 6 70
2087 4.9% 4.5 69.7% 10 100 6 70

NoticethatthefirsttwoentriesinthetablehaveidenticalstrategyparametersexceptforEntry
ConnorsRSIthreshold.Thefirstentryusesastricterrequirementof5,andhasgenerated626trade
signalssince2001,withanAverage%P/Lof9.4%.Thesecondvariationusesamorelenientcriterionof
10fortheConnorsRSIthreshold,andhasgenerated1629tradesignalswithanAverage%P/Lof5.7%.
Thesamepatternholdstruewhencomparingthethirdandfourthentries,thefifthandsixthentries,
andthefinaltwoentries.
WeseethatthepatternalsoholdstrueifwecomparealltheentrieswiththesameConnorsRSIentry
threshold,thatis,thefirst,third,fifthandseventhentriesinthetable.AstheClosingRangebecomes
morelenient,thenumberoftradesincreaseswhiletheAverage%P/Ldecreases.Likewiseforentries2,
4,6and8.

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Itshouldcomeasnosurprisethatthepatternemergesagainwhenweholdallparametersconstant
excepttheLimit%usedtodeterminethelimitentryprice.IfwekeeptheSetupconditionsconstant,
thentherewillobviouslybemorestocksthatexperienceapricedropof2%orgreaterthenextdaythan
therewillbethosethatdropbyatleast6%.
VariationswithDifferentLimit%Entries
#
Trades
Avg
%P/L
Avg
Days
Held
Win
Rate
Entry
CRSI
Closing
Range Limit%
Exit
CRSI
779 10.1% 4.2 75.5% 10 50 10 70
1181 7.6% 4.3 72.8% 10 50 8 70
1953 5.1% 4.5 70.1% 10 50 6 70
3593 3.1% 4.7 68.4% 10 50 4 70
8052 1.5% 4.9 66.6% 10 50 2 70

Wehaveconfirmedthatstricterentryrulesresultinfewertradesbuthigheraveragegains.Nowlets
lookattheexits.HereweagainholdtheSetupcriteriaconstant,butfortwodifferentLimit%valueswe
varytheexitthreshold:
VariationswithDifferentConnorsRSIExitThresholds
#
Trades
Avg
%P/L
Avg
Days
Held
Win
Rate
Entry
CRSI
Closing
Range Limit%
Exit
CRSI
1181 7.6% 4.3 72.8% 10 50 8 70
1196 6.5% 2.7 72.4% 10 50 8 50
3593 3.1% 4.7 68.4% 10 50 4 70
3652 2.6% 2.7 66.9% 10 50 4 50

ThefirsttwoentriesbothuseaLimitof8%,andaswepredictedearlier,theyvegeneratedverysimilar
numbersoftradesignals.However,thevariationthatusesthestricterConnorsRSIexitthresholdof70
hasanaveragetradedurationof4.3days,ascomparedtothe2.7dayaveragedurationofthevariation
usinganexitthresholdof50.Alsoasexpected,theAverage%P/Lisslightlylowerwiththemorelenient
exitthreshold.Thesamepatterncanbeseenwiththelasttwoentries,whichbothuseaLimitof4%.
Armedwiththisinformation,youwillnowbeabletoselectstrategyparametersthataremostlikelyto
producethenumberoftradesignals,averagegains,andtradedurationthatbestcomplementyour
overalltradingplan.


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Section5
UsingOptions

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PleasenotethattheoptionssectioninthemajorityoftheConnorsResearchTradingStrategySeriesis
thesamebecausethestrategysetupsofteninvolvelargemovesinbriefperiodsoftime.Inouropinion,
andconfirmedfromfriendswhoareprofessionaloptionstraders(onewithoverthreedecadesof
experience);thereisonebestwaytotrademoveslikethese.
Optionstradinghasbeenamajorgrowthindustryoverthepast5yearsinthemarkets.Thisisbecause
spreadshavetightened,liquidityhasincreased,andtheabilitytoeasilytradecomplexoptionshasnever
beensimpler.
Wellnowfocusonapplyingoptionstradingtotheshorttermmarketmoveswehavejustlearned.Like
everythingelseinthisGuidebook,therearedefinitiverulesastohowtoexecuteanoptionstradewhen
astrategysignaltriggers.
Hereiswhatweknowbaseduponthedata:
1.Themajorityofthemovesfromentrytoexithavebeenheldaveryshortperiodoftime(210
tradingdays).
2.Theaveragegainspertradehavebeenlargewellbeyondthenormaldistributionofprices
overthatshortperiodoftime.
3.Ahighpercentageofthemoveshavebeencorrect.
Whenwelookatthistypeofbehavior,itcanleadtomanystrategiesbutonestrategystandsout(and
thishasbeenconfirmedbyprofessionaltraders).Thestrategyistobuyfrontmonth,inthemoneylong
calls.
Whyfrontmonthinthemoneylongcalls?Becausetheywillmovemostcloselytothestockitself.And
thecloseranoptionmoveswiththestock,thegreaterthegainwillbeonapercentagebasiswhenthe
moveiscorrect.
Herearetherules.
1.Asignaltriggers.
2.Buythefrontmonthinthemoneycall.Ifyouweretonormallybuy500sharesofthestock,
buy5calls(every100sharesshouldequalonecall).
3.Exittheoptionswhenthesignaltriggersanexitonthestock.
Letsgofurther:
1.Whatdoesinthemoneyexactlymeanhere?
Inthiscaseitsdefinedasonetotwostrikepricesinthemoney.Ifthestockpriceisat48,buythe40or
45calls.
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2.Whatdoesfrontmonthmean?
Becausetheholdingperiodissoshort,youwanttotradetheoptionswhosemonthlyexpirationisthe
closest.Iftheclosestmonthis7tradingdaysorlessfromthefrontmonthsoptionexpirationdate
(meaningthesecondThursdaybeforeorcloser)usethefollowingmonthastheonetotrade.
3.WhathappensifIminthepositionanditexpiresyetthesignalforthestockisstillvalid?
Inthiscase,rolltothenextmonth.Youretradingthestocksignalssoyouwanttohaveexposuretothat
signal.
4.Whataboutliquidityandspreads?
Theressomediscretionhere.Thereisnohardandfastruleastowhatexactlyliquiditymeansin
options.Manytraderslookforminimumvolumeand/oropeninteresttodetermineliquidity.
Assumingthereisactivevolumeintheoptions,lookatthespreads.Iftheoptionistrading3.00bid3.30
offer,thespreadis10%.Canyoureallyovercomea10%spread?Notlikely.Nowcomparethistoan
optionthatstradingat3.25bid3.30offer.Thisisfarmoreacceptableandtradable.
5.Whataretheadvantagesofbuyingcalloptionsinsteadofthestock?
Assumingthespreadsandliquidityarethere,theadvantagesarelarge:
1.GreaterpotentialROIoncapitalinvested.
2.Lessmoneytiedup.
3.Lesspointsatrisk.Thismeansifastocksignalsat50,itcanloseupto50points.Theoptions
canonlyloseuptothepremiumyoupaid.So,ifyouboughtthe45calls,theriskisonlythe
premium.
4.Theresgreaterflexibility.Forexample,letssaythestocktriggeredabuysignalat50andyou
paid$5.50forthe45calls.Ifthestockimmediatelymoveshigher(letssayto56);youhave
choiceshere.Youcanexit,oryoucanrollintothe50callsgettingmostofyourmoneyout
andnowturningthisintoanearlyfreetradeifyoubelievethatpriceswillcontinuetorun.
Therearenumerousexampleslikethisandyoucanfindthesetypesofstrategyopportunitiesinmost
optionsbooks.Buttradinganythingexoticordifferentthansimplybuyingthecallsisagainsttheadvice
ofthemanyprofessionalsweposedthisquestionto.
Inconclusion,optionsprovidetraderswithagoodalternativetobuyingthestockoutright.The
structuredmethodologyforourstrategiesis:frontmonth,inthemoney,withequivalentsizing(1
optionper100shares),andexitingwhenthesignalexits.
Theaboveoptionsstrategy,inmanyexpertsopinion,isthebestandmostefficientstrategybasedupon
thehistoricaldatafromthesesignals.
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Section6
AdditionalThoughts

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1.AsyouhaveseenthroughoutthisGuidebook,theConnorsRSIS&P500TradingStrategyhashadlarge
quantifiededgeswhenappliedinasystematicmanner.
2.Thereareliterallydozensofpotentialvariationsforyoutouse.Byadjustingtheinputvariables
describedintherules,youcancustomizehowthestrategywillperformforyou.Wantmoretrades?
LookatvariationswithahigherConnorsRSIentryvalueorClosingRange.Biggeraveragereturns?Check
outthevariationsthathavethestrictestentrycriteria(lowentryvalueforConnorsRSIandhighLimit%)
andlongestdurations(ConnorsRSI70exitmethod).Wanttogetinandoutoftradesmorequicklyto
reduceovernightriskandfreeupyourcapitalforothertrades?Trythevariationsthatutilizethe
ConnorsRSI50exitmethod.
3.Whataboutstops(andweincludetheanswertothisinallourStrategyGuidebooks)?
WehavepublishedresearchonstopsinotherpublicationsincludinginourbookShortTermTrading
StrategiesThatWork.
Whatwehavefoundisthatstopstendtolessenperformanceandinmanycasestheycompletely
removeedges.Yes,itfeelsgoodwhenastockkeepsmovinglowerandlowerandastopgotyouout.On
theotherside,theresearchwhichisbackedbyuptotwodecadesoftestresultsonmanyshortterm
tradingstrategiessuggeststhatstopsgethitoftenandaccumulatemany,manylosses.Fewtrading
strategiescanovercometheseaggregatedlosses.
Formanytradersstopsareamust.Psychologicallyitallowsthemtotaketrades,especiallydifficult
trades.Whetheryouusethemornotisapersonalchoice.Onthewholethough,theedgesyouseein
thisstrategyandmanyothershorttermstrategiesarelowerwhenstopsareappliedtothem.Againthis
isapersonalchoiceonlyyoucanmakeforyourself.Weknowsuccessfultradersinbothcamps.
4.Slippageandcommissionwerenotusedinthetesting.Factorthemintoyourtrading(theentriesare
atlimitpricessoslippageisnotanissue)andmakesureyouretradingatthelowestpossiblecosts.
Mostfirmsarenowallowingtraderstotradeforunder1centashare,soshopyourbusiness,especially
ifyouareanactivetrader.Theonlinebrokeragefirmswantyourbusiness.
WehopeyouenjoyedthisadditiontotheConnorsResearchTradingStrategySeries.Ifyouhaveany
questionsaboutthisstrategypleasefeelfreetoemailusatinfo@connorsresearch.com

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Appendix:
TheConnorsRSI
Indicator


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LarryConnorsandConnorsResearchhavebeendeveloping,testing,andpublishingquantifiedtrading
strategiessincethemid1990s.Duringthattime,wehavehadtheopportunitytoevaluateagreat
numberofdifferenttechnicalindicatorsandtoassesstheireffectivenessinpredictingfutureprice
action.Nowwevetakenthenextstepandcreatedanindicatorofourown:ConnorsRSI.Inthischapter
wewilldescribetheindicatorandprovidedetailsonitscalculation.
ConnorsRSIisacompositeindicatorconsistingofthreecomponents.Twoofthethreecomponents
utilizetheRelativeStrengthIndex(RSI)calculationsdevelopedbyWellesWilderinthe1970s,andthe
thirdcomponentranksthemostrecentpricechangeonascaleof0to100.Takentogether,thesethree
factorsformamomentumoscillator,i.e.anindicatorthatfluctuatesbetween0and100toindicatethe
leveltowhichasecurityisoverbought(highvalues)oroversold(lowvalues).
BeforewediscusshowtocalculateConnorsRSI,letsreviewWildersRSI.RSIisaveryusefulandpopular
momentumoscillatorthatcomparesthemagnitudeofastock'sgainstothemagnitudeofitslossesover
somelookbackperiod.Wilderhimselfbelievedthat14periodswastheideallookback.Weoftenuse
theshorthandnotationRSI(14)forthe14periodRSI.TheformulabelowcomputesRSI(14)foraseriesof
pricechanges:

IfwewantedtocomputeRSIforadifferentnumberofperiods(N),thenwewouldreplace14inthe
formulaabovewithN,andreplace13withN1.Regardlessofthenumberofperiodsusedinthe
calculation,theresultwillalwaysbeanumberbetween0and100.TraderswhouseRSI(14)typically
lookforvaluesgreaterthan70toidentifyoverboughtconditions,andvalueslessthan30toindicate
oversoldconditions.
OurpreviousresearchhasshownthatusingshorterlookbackperiodsmakesRSImoreeffectivein
predictingshorttermpricemovements.WehavepublishedmanystrategiesthatutilizeRSI(2),aswell
asseveralthatuseRSI(3)andRSI(4).ChangingthenumberofperiodsalsohasaneffectontheRSIlevels
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thatbestidentifyoverboughtandoversoldconditions.Forexample,anRSI(2)valueoflessthan10is
usuallyareliableindicatorofanoversoldcondition,whileanRSI(2)valueover90isagoodbenchmark
foranoverboughtcondition.
NowletsturnourattentionbacktoConnorsRSI.Asmentionedpreviously,ConnorsRSIcombinesthree
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
thatthelongerthedurationofadownstreak,themorethestockpriceislikelytobouncewhen
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 3
7 $19.35 0
8 $19.40 1

TheclosingpriceonDay2ishigherthanonDay1,sowehaveaonedayupstreak.OnDay3,
thepricecloseshigheragain,sowehaveatwodayupstreak,i.e.theStreakDurationvalueis2.
OnDay4,theclosingpricefalls,givingusaonedaydownstreak.TheStreakDurationvalueis
negative(1)becausethepricemovementisdown,notup.Thedownwardtrendcontinueson
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Days5and6,whichourStreakDurationreflectswithvaluesof2and3.OnDay7theclosing
priceisunchanged,sotheStreakDurationissetto0indicatingneitheranupclosenoradown
close.Finally,onDay8theclosingpricerisesagain,bringingtheStreakDurationbackto1.
ThesecondaspectofthesolutionistoapplytheRSIcalculationtothesetofStreakDuration
values.Bydefault,ConnorsRSIusesa2periodRSIforthispartofthecalculation,whichwe
denoteasRSI(Streak,2).Theresultisthatthelongeranupstreakcontinues,thecloserthe
RSI(Streak,2)valuewillbeto100.Conversely,thelongerthatadownstreakcontinues,the
closertheRSI(Streak,2)valuewillbeto0.Thus,wenowhavetwocomponentsRSI(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,theonedayreturn
is($81.60$80.00)/$80.00=0.02=2.0%.
TodeterminethePercentRank,weneedtoestablishalookbackperiod.ThePercentRank
valueisthenthenumberofvaluesinthelookbackperiodthatarelessthanthecurrentvalue,
dividedbythetotalnumberofvalues.Forexample,ifthelookbackperiodis20days,thenwe
wouldcomparetodays2.0%returntotheonedayreturnsfromeachoftheprevious20days.
Letsassumethatthreeofthosevaluesarelessthan2.0%.WewouldcalculatePercentRankas:
PercentRank=3/20=0.15=15%
ThedefaultPercentRanklookbackperiodusedforConnorsRSIis100,orPercentRank(100).We
arecomparingtodaysreturntotheprevious100returns,orabout5monthsofpricehistory.To
reiterate,largepositivereturnswillhaveaPercentRankcloserto100.Largenegativereturns
willhaveaPercentRankcloserto0.
ThefinalConnorsRSIcalculationsimplydeterminestheaverageofthethreecomponentvalues.Thus,
usingthedefaultinputparameterswouldgiveustheequation:
ConnorsRSI(3,2,100)=[RSI(Close,3)+RSI(Streak,2)+PercentRank(100)]/3
Theresultisaveryrobustindicatorthatismoreeffectivethananyofthethreecomponentsused
individually,andinmostcases,alsomoreeffectivethancombiningthethreecomponents
independently.
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ReceiveConnorsRSIReadingsforFreefromtheTradingMarketsScreener

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TheS&P500LowVolatilityGrowthPortfolio
AreYouLookingForGrowthInBullMarkets&SafetyIn
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YouAlreadyLearnedThisOverthePastDecade'BuyandHold'isDead!
Youunderstandthatmarketschangeastheyhaveoverthepastdecade.Inordertotakeadvantageof
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MorefromtheConnorsResearchTradingStrategySeries

TradingwithBollingerBandsAQuantifiedGuide
ThisSystematicApproachtoTradingwithBollingerBandsBringsYouResultsQuickly
BollingerBandsareusedbyhundredsofthousandsoftradersaroundtheworld.Infact,itsconsidered
oneofthemostpowerfultradingtoolsavailabletotraders.Overthepasttwodecadesmany
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Nowforthefirsttime,wearemakingavailabletothepublicafullysystematic,quantifiedapproachto
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ConsistentTradingResultsWhatyouwilllearnwiththisstrategyaredozensofBollingerBandsstrategy
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TheLongPullbacksStrategy
In2005wepublishedwhatweconsidertobeourmostpowerfulshorttermtradingstrategythatwe
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today.Sincethattimewehaveupdatedandimprovedthestrategy,addednewentryparameters,added
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Whatyouwilllearnwiththisstrategyaremanyhundredsofvariationsthathavebeencorrectfrom
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Youwilllearnhowtoidentifythesetup,select,theentrylevel,wheretoplacetheorderandwhereto
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