Larry Connors will be managing money on a full-time basis beginning in 2015. Therefore, this summer will be the final time that he will be teaching his strategies and research to the public.
Starting in July and up through a live 2-day event Larry will be holding in the NYC area in September, he will be teaching his “Top 20 Strategies”.
The Top 20 Strategies represent the best of Larry Connors’ research. The strategies and research are not only what he believes to be the best; they are also the ones that the most number of customers have the highest level of success with.
Larry is hopeful that in teaching these strategies for the final time, you will have the same success.
The ConnorsRSI Pullback Strategy is a high probability trading strategy. More than twenty variations of the strategy have win rates greater than 75%. Average gains per trade for the top twenty variations range from 6.7% to 13%. These variations are fully disclosed in the recently updated guidebook, An Introduction to ConnorsRSI, 2nd Edition, which can be downloaded for free here. This strategy identifies oversold stocks and takes advantage of the tendency for prices to revert to the mean in the short term.
Here are the entry rules for the ConnorsRSI Pullback Strategy:
- The stock price must be above $5 per share.
- The stock’s average daily volume over the past 21 days (one trading month) must be at least 250,000 shares per day.
- The stock’s 10-day Average Directional Index (ADX) is above 30.
- Today the stock’s lowest price is at least W% (W = 2, 4, 6, or 8) below the previous day’s close.
- Today’s close is in the bottom X% (X = 10 or 25) of the day’s range.
- The ConnorsRSI value of the stock is below Y, where Y = 5, 10, or 15.
- If the above rules are met today, buy the stock tomorrow on a further intraday limit Z% below today’s closing price (Z = 4, 6, 8, 10).
- Exit the position when the stock closes with a ConnorsRSI value above N (N = 50, 60 70 or 80), exiting at the closing price.
Let’s look at the reason for each rule.
Rules 1 and 2 are liquidity filters. By using highly liquid stocks we minimize the trading costs and maximize the probability of having orders filled. Illiquid stocks can have large spreads between the bid and ask prices which makes them costly to trade. There also might not be enough market depth to ensure an order is filled at the desired prices.
Rule 3 ensures the stock is trending. ADX measures the strength of a trend but doesn’t offer any information about the direction of the trend. Rules 4, 5 and 6 are used to quantitatively define a downtrend. Rule 7 enters the trade and rule 8 defines the exit for the trade.
Using TradingMarkets Live Screener we can find the information needed to complete an initial screen for buy candidates under this strategy. Although the Screener is a starting point to implement this strategy, the calculations required for rule 5 will need to be done separately. You would then need to enter orders for rule 7 and track open positions to identify when rule 8 is triggered.
The stocks set up as potential buys for Monday are listed in the table below. These stocks meet the setup rules (rules number 1 through 6 above). This list uses a value of 2 for W in rule 4, a value of 25 for X in rule 5 and a value of 10 for Y in rule 6.
Now let’s look at the most overbought and oversold stocks (according to ConnorsRSI) heading into trading for July 28, 2014. ConnorsRSI is a proprietary and quantified momentum oscillator developed by Connors Research that indicates the level to which a security is overbought (high values) or oversold (low values).
For the second consecutive day, CPSS (Consumer Portfolio Services) is the most oversold stock with a ConnorsRSI reading of 1.78.
XSD (SPDR S&P Semiconductor ETF) is the most oversold non-leveraged ETF with a ConnorsRSI reading of 8.15.
SOXL (Direxion Daily Semicondct Bull 3X Shares) is the most oversold leveraged ETF with a ConnorsRSI reading of 8.81.
QLIK (Qlik Technologies) is the most overbought stock with a ConnorsRSI reading of 99.03.
SOXS (Direxion Daily Semicondct Bear 3X Shares) is the most overbought ETF with a ConnorsRSI reading of 91.26.
TradingMarkets Lists provide users pre-populated lists of stocks and ETFs identifying symbols with overbought and oversold ConnorsRSI and Bollinger Bands® readings. The Screener Lists are powered by The TradingMarkets Screener.
All data is as of the end of day on 7/25/2014.