Laurence A. Connors

The matter that sets Larry Connors' writings apart from all the rest is quantification. He backtests his strategies and publishes the results so that his readers can know the probability of making a winning trade with a given strategy. It is not unusual for his strategies to achieve 80% winning trades. It is also not unusual for his strategies to employ no more than three easily remembered, easily executed, trading rules.

Connors focuses on strategies that work over time, a rare accomplishment for a market trader. Typically, a trading strategy will work until it becomes popular. When the masses begin to use the strategy, its performance declines and may even reverse. Connors, on the other hand, has discovered trading strategies that, popular or not, seem to keep on working.

The short term trading strategies promoted by Connors take longer to mature than intraday trades but are much shorter than typical trend following trades that may go on for months. Consequently, Connors' approach to trading can be called swing trading, a method of trading that incorporates the best features of extremely short term intraday trading paired with the best features of much longer term trend following strategies. These short term trades can be entered and exited in 5 to 15 days.

For example, a trend follower would advise you to buy on breakouts after the market has risen. Connors, on the other hand, advises his readers to buy on pullbacks after the market has dropped. This approach allows traders to buy on weakness and sell on strength (buy low, sell high). All of Connors' trading strategies exploit the use of pullbacks.

With respect to the big picture, however, Connors agrees with trend followers. Both swing trading and trend following strategies challenge partisans to buy stocks when they are trading above, not below, their 200-day moving averages.

My Favorite Chapter: Are you looking for the holy grail to trading stocks? Most will tell you it doesn't exist. But not so fast, says Connors. In Chapter 9, Connors writes about the 2-period Relative Strength Indicator (RSI), a well-known momentum oscillator, coming oh so close to identifying it as "the trader's Holy Grail of indicators." RSI(2) is the backbone of the trading strategies discussed in this book. Here's my take on a simplified short term plan of action. Buy stocks with RSI(2) readings less than 30. Sell stocks with RSI(2) readings greater than 70. This is not unlike the classic RSI(14) strategy. Connors reveals how to make the RSI(2) even stronger by compounding it.

I like the fact that Connors balances his entry strategies with appropriate exit strategies. It is good to learn about market entry methods that give the trader a winning edge. It is even better to discover market exit procedures that lock in profits.

Lessons Learned: I was pleased to learn that all of Connors' short term trading strategies work with my preferred investments, namely, Exchange Traded Funds (ETFs). Moreover, it was good to confirm a hard lesson I had already learned by experience, an observation taught by Connors in Chapter 6, to wit, Stops Hurt.… (altro)