It has become very difficult for most traders to find stable trading methods that have a history of rendering sustainable profits in such turbulent markets. Since there are so many strategies available in the market, knowing which ones are reliable and last is becoming very difficult. Most of the complicated techniques have become too cumbersome to follow, and decision fatigue starts building up, making one lose track of opportunities.

Actually, the truth is known in data-based trading strategy, and it should not be too hard to implement. Indeed, one of the earliest known figures in trading is Larry Connors, who has developed various strategies that are either mean reversion based or technical analysis based. The adjustment and optimization benefit the historical performance as well as modern adaptation.

Six trading strategies developed by Connors, Larry, will be discussed here. They were designed to make trades successful due to the thorough testing and the consideration of each element’s benefits in controlling the risks involved.

1. Double Five Trading Strategy

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Double Five Trading Strategy: This is the variant of Connors’ original strategy, which he referred to as the Double Seven. We maintain the trading window at five days, so we will hopefully receive the trades with higher frequency. The rules of this strategy are as below. Buy when close is above the 200-day moving average and close was at the five-day low. Sell when close attained a five-day high.

•  Performance: This strategy has given 352 trades with an average profit of 0.65% per trade. Maximum drawdown is modest at 14% and draw downs look short term.
•  Diverseness: Goes well with many other diverse stock ETFs and futures, so it is an excellent addition to a trader’s armoury.
   

2. Multiple Days Up and Down Strategy

Finally, we have the Multiple Days Up and Down Strategy that is a little different. Here, we buy when the close is above the 200-day moving average, however, the close must be below the five-day moving average following a drop of four days in the last five trading days. We will sell when the close is greater than yesterday’s high.

• Performance: This strategy achieves an average annualized return of 4% with a mean of 0.55% per trade that it calls the market only 10% of the time and has low drawdowns of a maximum of 13%.

3. Percent B Strategy

The Percent B Strategy was named for its inspiration, the Bollinger Bands indicator. It sports a five-day lookback with two standard deviations. Buys occur when the close is in the lower half of the indicator for three consecutive days but is above the 200-day moving average. The exit occurs when the close is above yesterday’s high.

This strategy already gained a win rate as high as 87% on only 55 trades and average gain per trade close to 1%. Time for investment is very low at 2.5%.

4. R3 Trading Strategy

The R3 Trading Strategy uses the RSI. It has very well defined rules: a close above the 200-day moving average and the two-day RSI having declined for three consecutive days and is at or below 20. The trader sells when the RSI moves back into the 70s.

• Performance: Strategy has an extremely high win rate at 88% and an average gain of 1.16% per trade but invests only 4.57% of the time; thus, there is some room for cash reserve to build up when the traders should be investing.

5. RSI 30 and RSI 50 Strategy

Another simple approach is the RSI 30 and RSI 50 Strategy with RSI. Here, a trader purchases when the close is above the moving average line of 200 days, the five-day RSI is less than 30, and sells when the RSI crosses above 50.

• Performance: The strategy yields a return almost of 52% with an annual return of 6.1%. It also only spends 12% of its time invested, thus being very effective.

6. Three-Day High Low Strategy

The third one is the Three-Day High Low Strategy. In this, close needs to be above 200-day moving average. Also, today’s high and low must be lower than of previous three consecutive days.

• Performance: Less traded, it shows a return of 3.6% with pretty much an average gain per trade of 0.8% and a good win rate of 79% with no wicked peak drawdowns like 14%.

Key Takeaways

From these six Larry Connors strategies, the following key insights may be extracted:

1. Mean Reversion Effectiveness: If anyone bought dips in the S&P 500, based on mean reversion, since 1985, they would’ve done incredibly well.
2. Use of a 200-Day Moving Average Filter: The use of the 200-day moving average as a filter gives the edge of lower maximum drawdown and makes it differentiation between bullish and bearish markets.
3. Less Market Exposure: Most strategies spend more time on the bench and hence allow traders the opportunity to diversify your trades by including further strategies for better market exposure.
4. Portfolio Strategy Limitations: It would be something so alluring to include all six strategies into one portfolio, but they are just too similar with each other, hence the return becomes diminished. Also, it is very imperative to back test each strategy in order to gauge their performance individually.
5. High Win Rates and Recovery: All the strategies on the list have high win rates and quick recovery from drawdowns. These make them less psychologically daunting to cope with.
6. Risk Management: Minimum maximum drawdowns across all the strategies give a cushion for losses, hence boosting the confidence of the trader.

Conclusion

The six modified Larry Connors trading strategies are excellent means by which the traders would be able to gain a good foothold in the financial markets so as to bring about an improvement in their performance. Hence, these methods could be applied for volcano navigation and return optimization wherein simple rules with robust testing are inserted. These would have the ability to arm a trading novice or even an experienced trader to add more tools to his arms so that he would be able to trade much better and confidently. Today, you can adopt these tried techniques and craft your strategy toward trading.