StockFetcher Forums · Filter Exchange · MODIFIED CONNORS RSI(2) FILTER<< 1 2 3 4 5 ... 22 >>Post Follow-up
Kevin_in_GA
4,548 posts
msg #94375
Ignore Kevin_in_GA
6/27/2010 11:12:53 PM

I keep looking at Larry Connors’ basic trading strategies, and then use Stockfetcher to try to optimize them for higher return and win rates. The best system would be one where you are both long and short (dollar neutral), with both long and short strategies demonstrating successful win rates and returns.

Toward that end, I just finished looking at a variation of one of Connors’ filters, which basically is the following:

Long trades:

Fetcher[

Close is above MA(200)
Close is below MA(10)
Close is above 1
Average volume(50) above 500,000

RSI(2) 1 day ago below 2
RSI(2) below 1

]



Buy at close or open of the next session. Sell when RSI(2) crosses above 70, or when the stock closes back above its 10 day moving average.

Short trades:

Fetcher[

Close is below MA(200)
Close is above MA(10)
Close is above 1
Average volume(50) above 500,000

RSI(2) 1 day ago above 98
RSI(2) above 99

]



Short at close or open of the next session. Cover when RSI(2) crosses below 30, or when the stock closes back below its 10 day moving average.


So how well do these filters do?

Since 1/1/2002 (as far back as SF allows for backtesting) there have been

1. 3369 long trades, with a 66.7% win rate, an average return of 1.59%, and an average holding time of only 5.7 days.
2. 3362 short trades, with a 64.0% win rate, an average return of 1.07%, and an average holding time of only 4.8 days.



Given the large number of trades and the highly variable and volatile period over which they occurred, I feel pretty good about this one. There should usually be both a long and short trade that can be entered at the same time, to provide for hedging, but with both likely to return a profit (unlike a typical hedge which usually loses a bit if your trade gains). Make no mistake though – like any trading system, there have been some bad trades and tougher periods in which to make money, but overall the odds are definitely in your favor (that is why I backtest before putting any money on the line).

Here are the long and short trade selections for tomorrow.


Long trades:

DRI - DARDEN RESTAURANTS INC

CAG - CONAGRA INC

COH - Coach Inc

LZ - LUBRIZOL CORP

UAUA - UAL CORP

DTV - Directv A

DAL - Delta Airlines

CAL - CONTINENTAL AIRLINE...

SYY - SYSCO CORP

IFF - INTERNATIONAL FLAV ...

MCD - MCDONALDS CORP

RJF - RAYMOND JAMES FNCL INC

RCI - ROGERS COMMUNICATIO...


Short trades:

FSYS - IMPCO Technologies,...

MDCO - Medicines Company


I would pick two long trades and pair them against the two short trades suggested here.

Running the long trades through several other Connors-based filters (described in a previous thread I posted), I would look closely at DAL, DTV, and RJF (popped up on 6/6 filters from Connors), as well as CAL and DRI (5 of 6 filters returned these two).

Looking a bit further I noticed that DRI and DAL are both below the lower Bollinger Band(20,2) as well as having an RSI(2) below 1. These would be my choices.


My paper trading on this approach – long DRI and DAL at the open tomorrow, while shorting FSYS and MDCO. All trades of equal dollar value to maintain dollar-neutrality. Let’s see how this plays out!


Kevin


johnp
17 posts
msg #94382
Ignore johnp
6/28/2010 2:06:52 AM

I really like your posts. I would eventually like to go to dollar neutral setup. Right now I am trading
crock pot method where profit target is 1/4 of stop, anywhere from 1 & 4 percent to 3 & 12 and only trade one stock per
week (long or short depending on overall market trend and recent volume action).

Kevin_in_GA
4,548 posts
msg #94389
Ignore Kevin_in_GA
6/28/2010 10:46:11 AM

Open prices for today:

DAL - long, opened at 12.09 (827 shares) = $9998.43
DRI - long, opened at 39.29 (254 shares) = $9979.66
FSYS - short, opened at 29.01 (345 shares) = $10008.45
MDCO - short, opened at 8.29 (1206 shares) = $9997.74

Long Trades = $19978.09
Short Trades = $20006.19

Just paper trading this strategy for a few weeks. I'm tracking this approach in Yahoo Finance, so I'll let people see how it plays out.

I am only going to keep one pair trade going at any time, but will report on the overall statistics of the filter trades to see how they also play out.

duke56468
683 posts
msg #94392
Ignore duke56468
6/28/2010 1:17:52 PM

Kevin thanks for the post. As usual it is very informative and well thought out.

Kevin_in_GA
4,548 posts
msg #94395
Ignore Kevin_in_GA
modified
6/28/2010 3:58:53 PM

Paper trade update:

Sell FSYS (currently at 27.42) - crossed below the MA(10).

Sell MDCO (currently at 8.39) - rules say to sell if the short closes above the MA(200). It still is a good short candidate (frankly a better one than this morning).

Keeping both long trades for now. Will add two short trades to maintain dollar neutrality at the open tomorrow.

wkloss
230 posts
msg #94398
Ignore wkloss
6/28/2010 7:58:06 PM

Kevin,

On these strategies, does Connors suggest adding to positions as they go against you? If yes, are you considering doing that?

Bill

Kevin_in_GA
4,548 posts
msg #94401
Ignore Kevin_in_GA
modified
6/28/2010 9:10:12 PM

This worked OK today:

DRI (long) – opened at 39.29, closed at 39.67 (gain of 0.97%)
DAL (long) – opened at 12.09, closed at 12.04 (loss of 0.41%)

FSYS (short) – opened at 29.01, closed at 27.42 (gain of 5.48%)
MDCO (short) – opened at 8.29, closed at 8.39 (loss of 1.21%)

Net for the day – gain of 1.21%.

Based on my exit strategies, I would have to sell FSYS (it crossed back below its 10 day MA) and MDCO (it closed above the 200 day MA) at the open tomorrow. Both longs are still in play.

Looking at the options for tomorrow to replace these two, the RSI scan above does not show any short candidates. However, ERII and VOD both showed up on some of my other filters as possible candidates (VOD scored a 6/6 on the Connors’ short filters, and ERII scored only a 1 but closed at 13% above the upper Bollinger Band).

These will be the two replacement short trades for FSYS and MDCO. Longs (DRI and DAL) are both still in play. Will buy at tomorrow's open, keeping dollar neutrality with the two long trades.

As to doubling down, I did not use this approach in my backtesting, so for now I am sticking with what has been validated by me on these filters - hopefully by reviewing each possible trade and only picking those that also scored highly in the Connor's filters instead of just taking them all, I'll be able to get a small edge (???).

EDIT: Since the market futures are unusually negative this morning (-100+ on the Dow) I will hold the shorts for at least part of the day, maybe selling by lunch to see if one can get a better price. Still think VOD and ERII are good plays as well ...

drew9
171 posts
msg #94406
Ignore drew9
6/28/2010 11:17:58 PM

Really impressive Kevin! I have liked the Connor strategies but the neutral strategy could be very interesting. Can't wait to see how this performs. Thanks for the nice work!

Kevin_in_GA
4,548 posts
msg #94407
Ignore Kevin_in_GA
6/28/2010 11:29:56 PM

No work is impressive until it has been traded successfully for a while - this is why I'm willing to post my thinking on this. Keeps me honest.

I like the idea of market neutrality in this fashion, since it is better than simply hedging against a loss by using SPY or one of the inverses. That "traditional" way pretty much guarantees the one trade will offset the other, rather than both being profitable. The combination of multiple Connors-based filters also make me feel more comfortable about the odds being in my favor on each side of the paired trade.

Kevin_in_GA
4,548 posts
msg #94425
Ignore Kevin_in_GA
modified
6/29/2010 2:40:23 PM

EDIT: Since the market futures are unusually negative this morning (-100+ on the Dow) I will hold the shorts for at least part of the day, maybe selling by lunch to see if one can get a better price. Still think VOD and ERII are good plays as well ...

+++++++++++

Good thing I kept in the two short trades, although VOD and ERII are both profitable as short plays today (VOD is down about 1%, and ERII is down a whopping 7.1%).

I actually would have done better selling FSYS and MDCO at the open this morning and buying these two, as the system was designed to do.

UPDATE: Based on the movement of these relative to their 10 day and 200 day MAs, I am out of all 4 today at the close, and will enter new trades off the same filter sets for tomorrow.

DRI (long) - in at 39.29, out at 38.99 (a loss of -0.7%)
DAL (long) - in at 12.09, out at 11.32 (a loss of -6.4%)

FSYS (short) - in at 29.01, out at 26.29 (a gain of +10.3%)
MDCO (short) - in at 8.29, out at 7.92 ( a gain of +4.7%)

Net gain on these pair trades - (10.3 + 4.7 - 0.7 - 6.4) / 4 = +2% (1.97% to be exact).

The other short trades that were considered (VOD and ERII) also did quite well - VOD was down 1%, and ERII down 1.8% from the open, but was down as much as 7% intraday).

StockFetcher Forums · Filter Exchange · MODIFIED CONNORS RSI(2) FILTER<< 1 2 3 4 5 ... 22 >>Post Follow-up

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