Enjoy the first chapter of The Advanced ConnorsRSI Trading Strategy for ETFs below to learn how to improve your ETF Trading Accuracy with ConnorsRSI:
We continue to research ConnorsRSI and continue to find that strategies incorporating this indicator into the trade setup can deliver extraordinary results. In this Guidebook, we will detail a strategy that has historic win rates of more than 90% on a number of variations. Along with a high probability of success, this strategy has delivered large gains with average trades showing gains of more than 10% in many cases. Holding periods average less than two days in many cases and less than three days on almost all variations.
The success of this strategy is due to the ConnorsRSI indicator and that indicator most likely provides valuable information because it quantifies not only how overbought or oversold prices are but it also considers the duration of the recent trend and the magnitude of the most recent price change. Combining these factors into a single indicator seems to identify the best trading opportunities. Traditional momentum indicators quantify only the degree that prices are overbought or oversold and usually do that with a significant amount of lag because of the way they are calculated. ConnorsRSI is different in that it is designed to be more responsive to the current market action.
It is obvious that traders need new tools and new ideas to succeed. The Relative Strength Index (RSI) was first described in 1978 and many traders still rely on the exact same rules that were based on data from the 1970’s. Markets have changed a great deal in the past 35 years but traders using the typical default settings for RSI have not kept up with those changes.
Although markets have changed over time, some basic rules about markets have withstood the test of time. In the short run, market prices show a tendency to be mean reverting. This is the reason that overbought/oversold indicators work. When prices move too far, too fast, they are likely to reverse. The question traders need to address is how they can quantify the concept of” too far, too fast.”
Over the years, we have quantified a number of tools that help traders address this question. ConnorsRSI works very well as we have shown in other Guidebooks and as you will see in this Guidebook. If there is one drawback to the strategy we describe in this book, it is that the strategy trades infrequently. To overcome this drawback, we believe it is best to trade several strategies. Diversification is generally understood to mean that you should own stocks in several different sectors. We believe diversification should also be applied to trading strategies and believe the Advanced ConnorsRSI Strategy could be part of a diversified trading plan for many traders.
We hope you enjoyed this first chapter of the Connors Research Strategy Guidebook Series: The Advanced ConnorsRSI Trading Strategy for ETFs.