Larry Connors

What is your favorite method or technique for the futures market?

Larry Connors:

CVR’s for the S+P’s and Dow futures. News reversals for everthing else. These two are my bread and butter.

Submitted by Larry Connors:

I’d like to thank everyone for joining me tonight.The quality of the questions was superb! If you did not get your question answered, I’ll be back in four weeks. Larry Connors

Submitted by terry:

In your book you say when the position moves in your favor you move your stop to breakeven. How do you determine when the position is in your favor?

Larry Connors:

Let’s say you buy Crude at 13.25 with a 13.00 stop. When the market moves to 13.50, the stop has to go to breakeven. From there as it rises the stop continues to get raised. Kevin Haggerty uses a more agressive approach. He’ll buy a stock at 57 1/4 with a 56 7/8 stop (max) and when the stock rises to 57 1/2-5/8 he’s out of at least 1/3 of his position to cover costs. Then he trails the stop tightly. The methods are basically the same; tight protective stops and then trail.

Submitted by zzcan2:

Larry, what’s the role of confirming signals when using the various CVRs?

Larry Connors:

The more signals in one direction, the more likely the move will be in that direction. An example was a couple of weeks ago when on the Market Bias page we had 3 CVR buy signals and two other buy signals the same night. I have never seen that before and the market did as it was supposed to do the next day as it exploded higher.

Submitted by smd4:

Larry, Do you specify any range of volume or volatility to trade stocks intra-day to shake out the noise?

Larry Connors:

I do this more for the futures but it definately applies to all markets. When you factor in the spread and slippage and commision, you need a healthy daily range to make money in the underlying security. Otherwise you will get chewed up.

Submitted by smd4:

Larry, Is there a charting set-up or minder that can be used to monitor your CVR technique?

Larry Connors:

I would think you could get most software packages to do it for you but again I use Bloomberg for this.

Submitted by anyer:

When trading a multiple top breakout, like ABOV, XMCM and GNET today, do you prefer to buy the breakout or only wait for a pullback? This appears to be somewhar subjective!

Larry Connors:

I am not a breakout trader. I personally like pullbacks better.

Submitted by Moderator:

Welcome to the tradingmarkets.COM Live Forum, featuring Larry Connors.

Submitted by iketain:

Do you use any other indicators as confirmation for the market reversals off of the VIX?

Larry Connors:

Anything on the Market bias page that confirms a Vix reading makes the signal stronger.

Submitted by mhigg:

Where can you find CVR signals and the VIX posted on a daily or weekly basis?

Larry Connors:

CVR signals are on the Market Bias page. The vix readings are in most software packages and Bob Pisani plans on adding it to his options page.

Submitted by dlc:

Are you seeing any extremes in the current VIX readings?

Larry Connors:

There is still a small CVR III sell signal from the other day but nothing too exciting today.

Submitted by greek:

When you have a large database, you get many stocks with low historical volatility. How would you filter the list to get the best candidates to trade?

Larry Connors:

Filter for a high 100 day hv first. 40% or higher is a good place to start This will get you focused on the better stocks to trade. I would then add some type of trend filter to it such as ADX, RS or RSI.

Submitted by Trial User:

Larry, what are your favorite intraday indicators, especially for S&P 500 futures trading?

Larry Connors:

I no longer day-trade but when I did I was always focused on the Tick and bonds.

Submitted by KENFRISTOE:

Larry: Are CVR and VIX described in one of your books? Which one? Thanks.

Larry Connors:

They are in “Connors On Advanced Trading Strategies” published last year.

Submitted by bunes:

Larry, thanks for this site and the ATS book; I’ve found them both very informative. can you please explain CVR V? By the way, whatever happened to CVR IV? Thanks!

Larry Connors:

Here are the rules for CVR v. 1. For a buy, the Vix must open and close in the bottom third of its range and the close of the vix must be above its 10 day moving average. It combines mean reversion with volatility being autocorrelated. The CVR IV is an overnight signal only, so we don’t show it on the site. By the time we posted it would be too late to take advantage of.

Submitted by Trial User:

Larry, you mention the market bias page. Could you clarify what that is?

Larry Connors:

Look for it on the home page. There is a button on the left hand side that will take you directly to it.

Submitted by slr:

Is there any relationship to previous signals and/or would it be beneficial to know when they occured as a learning experience in applying them to the market?

Larry Connors:

This is an area I am hoping to research in the near future. My gut tells me there is something there.

Submitted by traderx21:

Larry, what would be a good way to take advantage of CVR signals using options?

Larry Connors:

When you have a CVR buy signal that is correct you will get the best of all worlds being short put premium. Not only is direction moving in your favor but volality is also imploding. Just make sure you are protected via spreads or some type of hedging technique to protect from a major move against you

Submitted by jeanpel:

Larry: Do you use Fibonacci retracement ?

Larry Connors:

Never. That doesn’t means it doesn’t work. It just means I don’t use them. Haggerty and I were talking this afternoon and he told me he used a Fib. retracement to trade the Spiders today.

Submitted by smd4:

Larry,

Larry Connors:

I’m not sure. I use a Bloomberg terminal and set the daily Vix parameters to it.

Submitted by sturpen:

Larry, My entire trading system revolves around the CHADTP and PADI indicators of yours. Have you by chance tested these indicators using position sizing based on volatility? Thanks, Shanw

Larry Connors:

No, but it is also another area of research on my list. Are you adjusting the signals to volatility?

Submitted by art:

You said news reversals are your favorite. Could you explain exactly how you play them on stocks?

Larry Connors:

A company announces worse than expected earnings before the open. The stock gaps lower as traders bail out on the news. If the stock then moves higher and fills the gap it is a buy. It’s basically telling you that it has discounted the news and is looking to the future for the stock. I very much use this strategy in the futures markets on economic reports and it has stood the test of time.

Submitted by CURBOW:

Larry, please explain in laymen’s terms the rational behind the theory for trading volitility.

Larry Connors:

Historical volatility is simply the standard deviation of day to day logarithmic changes in prices. Periods of short term low volatility vs. the longer term volatility help identify when a large move is likely to happen in a security.

Submitted by obsvr:

Where can I find the formula or the code for the CVR that will enable me to place this indicator in my trading program?

Larry Connors:

Look at the description that’s in our definitions page and see if that helps.

Submitted by agb:

Do you take into account bid/ask size trading listed securities? Or do you follow only price action–as in markets where bid/ask size are meaningless. Thanks.

Larry Connors:

Jeff Coopers Stepping in Front of Size is the best way to exploit bid/ask. He has often said it is one of his bread and butter strategies.

Submitted by Trial User:

How do you use the CVR on S&P500 futures?

Larry Connors:

Unfortunately I can’t give you a simple answer. The subject covered almost 20% of my last book. Go to the Market Bias page and click on the descriptions. I think this may help you .

Submitted by NRUTHA:

Larry, do you have a rule of thumb regarding where to set your stops on stocks after the trade is entered?

Larry Connors:

I am like Jeff Cooper and try to risk less than a point. Kevin only risks 1/4-3/8 of a point. The bottom line is that we all feel a trade should move in your favor immediately. If it doesn’t it increase the liklihood you are wrong and should get out.

Submitted by Moderator:

Larry, let’s talk about the Connors VIX Reversal (CVR) signals, which are based on the CBOE’s volatility index, the VIX. Can you explain the VIX and how it reflects market action?

Larry Connors:

The Vix is the measurement of the implied volatility of the oex options. What markets are extremely volatile or are expected to be volatile (mostly during market declines) the Vix reading is high. When markets are complacent (usually as they are rising), the vix reading tends to be low. I like to look for extreme Vix readings relative to their recent past as a way to identify short-term market reversals.

Submitted by Johnh:

Larry, do you have any trading books you’d recommend for traders trying to learn the business?

Larry Connors:

Self srrvingly I will say my 3 books. I’m obviously a fan of Jeff’s work also. Beyond that, Market Wizards is a fantastic book and I re-read it constantly. For option and volatility trading I strongly recommend Shelly Natenbergs book “Option Volatility and Pricing” I’ve worn my copy out because I constantly re-read it.

Submitted by art:

Regarding filling the gap on the news reversals, does it have to be the same day? Or can it be within three days, like your gap reversal method? Thanks.

Larry Connors:

Same day.

Submitted by Moderator:

Can you explain the basic CVR signals and how they work?

Larry Connors:

I have 5 CVR signals and they all basically exploit the fact that volatility reverts to its mean. They also exploit the fact that volatility is autocorrelated. That means if volatility rises today, it has a higher than normal chance of rising tom. An example is the CVR I signals. They identify Vix readings that make an x day high/low (I like 5 days the best) and then reverse intraday. A Vix reading that makes a 5 period high is beginning to get stretched from its mean. If it then closes below where it opens it is likely to follow-through the next day. Putting these two inherent characteristics together identifies a market that is likely to rise over the next few days.

Submitted by Moderator:

We’ll be closing down our forum shortly. If you have any questions, submit them now. Thanks,

Submitted by hoyler:

Larry,

Larry Connors:

It’s useful but the OEX Vix is better.

Submitted by hoyler:

Larry,

Larry Connors:

No. Outside of using them as a supplemental tool for a more pertinent indicator, I still find them to be over-rated.