TRADING RULES
SHORT TERM TRADING STRATEGIES THAT WORK (Larry Connors and Cesar Alvarez)
Strategy 01
Buy pullbacks, not breakouts. The statistics overwhelmingly prove that. 1) After the market has dropped three days in a row, it has risen more than 4 times it's average weekly gain over the next five trading days. 2) After the market has risen three days in a row, it has on average lost money over the next five trading days.
Strategy 02
Buy the stock market after it has dropped multiple days in a row, not after it has risen. 1) After the market has dropped three days in a row, it has risen more than 4 times it's average weekly gain over the next five trading days. 2) After the market has risen three days in a row, it has on average lost money over the next five trading days.
Strategy 03
Buy stocks above their 200-day moving average.
Strategy 04
Buy stocks when the VIX is 5% or more above it's 10-period moving average. 1) Lock in gains (or short stocks) when the VIX is 5% or more below it's 10-period moving average. 2) If SPY (or SPX) is above it's 200-day moving average, the higher the VIX is above it's 10-day simple moving average it's more likely oversold and a rally is near. 3) The VIX 5% rule - If 5% above it's 10-day SMA, buy the market. - If 5% below it's 10-day SMA, lock in gains (and don't buy).
Strategy 05
Stops are potentially an expensive form of insurance. 1) The tighter your stops, the less money you will make. The wider your stops, the better. 2) You can control losses with position size and money management .
Strategy 06
Hold positions overnight in times of concern. 1) During the test period, buying the SPY on the open and selling the same day's close lost -70.88 points. 2) Buying the SPY on the close and selling on the open gained 171.40 points.
Strategy 07
Buy stocks on intra-day pullbacks in order to increase the edges even more. 1) The greater the intra-day momentum to the upside, the worse the performance has been over the next five days. 2) The greater the intra-day selloff, the better the performance over the next five days.
Strategy 08
Apply the 2-period RSI to all of your trading. It's almost the holy grail of indicators. 1) For stocks above their 200-day moving average, a 2-period RSI above 90 should not be bought. 2) Aggressive traders might prepare to short them. Readings below 10 are oversold. 3) Readings beyond these are even better. 4) These were tested up to one week. 5) Trades held one week did better than less time.
Strategy 09
Buy the market and stocks when the 2-period RSI is below 5.
Strategy 10
Trade with Cumulative RSI's. The lower the Cumulative RSI, the better.
Strategy 11
Trade Double 7's on U.S. and World Indices, and ETF's. 1) If the SPY is above it's 200-day moving average and it closes at a 7-day low, buy. 2) If it closes at a 7-day high, sell your long position.
Strategy 12
Time the market using TRIN, the VIX, the 2-period RSI and price as described in the Market Timing chapter.
Strategy 13
Buy stocks at the end of the month, especially those that have dropped 1 to 2 days in a row. 1) For stocks above their 200-day moving average, gains are higher on the following days of the month, in order from highest to lowest, 25, 24, 1, 27, 26, 29, 28, 30, and are lowest on 3 through 8. 2) If stock dropped the previous day, the best days are 25, 30, 27, 26, 24, 28, 29, 22, 1, 31. 3) If stock dropped two or more consecutive previous days, the best days are 25, 26, 24, 27, 30, 28, 29, 23, 1, 22, 19, 31, 18.
Strategy 14
There are many good exit strategies. 1) The key is to make sure the ones you choose are dynamic. 2) The best are the close above the 5-period moving average and the RSI exits.
Strategy 15
Have a plan in place to deal with the many realities of daily trading. Professional trading requires professional preparation.
Strategy 16
The most important strategy begins with your mind. 1) Your mind will dictate your success. 2) The more focused you are on your targets, the more successful and profitable you will become.
FIVE STRATEGIES TO TIME THE MARKET (Larry Connors and Cesar Alvarez)
VIX Stretches
1) SPY above 200-day SMA. 2) VIX 5% or more above 10-day MA for 3 or more days. 3) Buy the market on the close. 4) Exit when SPY closes above a 2-period RSI reading of 65 or more.
VIX RSI
1) SPY above 200-day SMA. 2) 2-period RSI of VIX above 90. 3) Today's VIX open is greater than yesterday's close. 4) 2-period RSI of SPY is below 30. 4) Buy the market on the close. 6) Exit when 2-period RSI of SPY closes above 65.
TRIN
1) SPY above 200-day SMA and 2-period RSI is below 50. 2) TRIN closes above 1.00 for three consecutive days. 3) Buy on close. 4) Exit on close when 2-period RSI above 65.
Cumulative RSI
1) SPY above 200-day SMA. 2) Sum of last 2 days RSI is below 45. 3) Buy on close. 4) Exit when 2-period RSI closes above 65.
S&P Short
1) SPY below 200-day SMA. 2) Market closes up 4 or more consecutive days. 3) Sell on close. 4) Cover short when SPY closes under it's 5-period MA.