Larry Connors

Volatility Trading Strategy from Larry Connors

 Larry Connors is the KING of mean reversion trading strategies, and this article reinforces that royal standing.  :)   In a nutshell, volatility – as a phenomenon – can swing higher and lower in the short term, but it strongly gravitates toward its own comfort zone.  That zone, the average (or mean), can move higher or lower over longer periods of time, but in the short to medium term time frame, it is where the volatility will hover.   This trading strategy is a good way of taking advantage of this reality.
 
One note though, and I’m a bit surprised that Mr. Connors didn’t make this explicit: this is a one direction strategy.  In the setup he discusses using RSI(2) over 90 as the trigger, and often an experienced trader will understand that an inverse strategy would work at the other end of the RSI spectrum.  But not in this case.  Primarily, this is because the VXX (the ETF being traded here) is continually falling (check out a year chart to see what I mean), so trying the same thing from the RSI(2) < 10 side of things is NOT indicated. 
 
With that caveat in mind, please read and enjoy!
 


 

A Low Volatility Strategy for Trading High Volatility

By Larry Connors | TradingMarkets.com | July 13, 2012 09:06 AM
 
 

 

We’re going to show you a volatility trading model for VXX which has correctly predicted the price of VXX 97.3% of the time since VXX started trading in 2009. The test results are up through the end of May 2012.Trading volatility, especially VXX, has become a big game among professional traders. You only have to look at the continuously rising average volume in VXX, combined with the many new volatility products that have been coming to the market over the past year, to know that volatility is beginning to join the ranks of other asset groups such as stocks, ETFs, options, forex, and futures.Much has been written about how to trade VXX; unfortunately the majority of the early volatility trading strategies were incorrect. Too many people were comparing VXX to VIX and had considered them the same instrument. They’re not.VIX is an index that settles on a value each day based on the underlying vehicles in the index. VXX is the expected future value of where traders believe volatility will be in the near-term future. One is today’s value (VIX). The other is the marketplaces prediction of where these prices will be in the future (VXX).

There are certain characteristics of volatility which are inherent (and sometimes in conflict with each other). The academic world has shown decades ago that volatility is mean reverting. When volatility gets too far away from its average price over a period of time, it tends to reverse back to its average . . . .  read the remainder of this excellent article here


Short Squeezes, Turnaround Tuesday and ETF Day Trading


Remember the article last week in which Larry Connors warned of impending short squeezes?  That is part of what hit yesterday – the bear is still roaring, so use this opportunity to look for short entries.  Just be careful and stay timid!
By Larry Connors | TradingMarkets.com | October 05, 2011 08:57 AM
 

That was a terrific 400-point reversal yesterday and the market is now back in neutral territory with the 2-period RSI of our Country Fund ETF Universe at 40.18 and the Main ETF Universe at 48.22.

Yesterday’s rally was a very normal, bear market, short squeeze rally where they allowed the shorts to pile in the previous few days and even further in the morning and then, from a rumor about a bailout of Europe, the buyers came in (some with fresh money but likely even more from panicked short sellers).

Again this is normal and if it follows a traditional path, it could go a few days. If this does occur, we’ll look to be heading into the weekend with some indices short positions. In the meantime, the longer term trend is down, we have the Advanced Micro Devices (AMD | PowerRating) and Direxion Financial Bull 3x Shares (FAS | PowerRating) positions with options, and we’re in a good position no matter which direction the market takes for the remainder of the week.

Special Notice – Today at 1 pm ET I will be doing a 30 minute webinar discussing an ETF Day Trading Program we’ll be teaching at the end of the month. This program has historically thrived in high volatility environments like the one we’re in now and yesterday alone in actual trading there were accounts (in real time) which saw gains of 10% and higher.

If you would like to attend today’s ETF Day Trading webinar (or receive a copy of the recording), please call our office this morning at 973-494-7311, ext. 1.

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan, click here for more information.

Larry Connors is founder of TradingMarkets.com

Wednesday, October 5th, 2011 ETF, Larry Connors, Stock Trading No Comments

ETF Trading with Larry Connors: Markets Price-In Bad News Ahead of Weekend


Here is some great end of week/end of month/ end of quarter analysis from Mr. Connors.  Pay special attention to this admonition: “But with short interest so high and everyone (except the long only crowd) positioning themselves for the worse, any good news is going to lead to large rallies. If the good news is structural, the rally could be very substantial”.  In other words, don’t get caught with your SHORTS down!  :)
 
 
By Larry Connors | TradingMarkets.com | September 30, 2011 08:55 AM 

 

It’s only appropriate that the morning of the last day of the quarter is again dominated by negative news from Europe. The unwinding of long positions followed by the triage has led to one of the more volatile quarters in history. And the media, with their lack of insight, is having a wonderful day leading most stories with “this is the worst month (quarter) in X years for (fill in the index or commodity here)”.

The market is getting to the point where it’s now priced-in a lot of bad news. Should the news get worse, prices will move lower in Q4 (you don’t need me to tell you that). This is especially true as just about everything broke under its 200-day this quarter. But with short interest so high and everyone (except the long only crowd) positioning themselves for the worse, any good news is going to lead to large rallies. If the good news is structural, the rally could be very substantial.

For us, we’re going to continue to trade as we have. I’m very grateful for the high cash levels and the short positions we’ve had this past month and our traditional bear market portfolio has begun to take shape. Add the hedging in (for both the long and short side) and we’re well positioned to handle whatever the political and economic environment brings through the end of the year.

For today, the market is still in neutral territory and even though the futures are down 1% at 7 am, there’s still the potential for the powers that be to try to run the market higher as they did yesterday in order to make the month/quarter look better. Overall though, the trend is down and there is no short-term bias on either side (you can further see that with so few set-ups today in The Machine).

Have a great weekend!

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder of TradingMarkets.com

 
Friday, September 30th, 2011 Education, Larry Connors, Stock Trading No Comments

ETF Trading with Larry Connors: Rallying Toward a Short Term Top?

Here are some important thoughts regarding market behavior – think twice if you are looking at placing bets on a long term up trend:


By Larry Connors | TradingMarkets.com | September 28, 2011 08:48 AM
 

The strong rally we were anticipating has now played itself out. With prices significantly higher than they were at the bottom last Friday morning, the market is overbought. This does not mean it can’t run higher for a few days, especially if good news comes out of Europe, but it’s getting closer to a short- term top.

The 2-period RSI of our Country Fund Universe has moved from 2.2 last week to above 80 today and is signaling some very early short signals here in a number of markets. As I mentioned, the Daily Battle Plan is going to be expanded to cover more potential set-ups and ideas each day beyond the ETF set-ups. Therefore there are no trade suggestions today; those we will be covering next week. In the meantime, it’s time to start locking in any long gains you may have if you played the rally and start scaling in on the short side.

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder of TradingMarkets.com

 
Wednesday, September 28th, 2011 Larry Connors, Stock Trading No Comments

Larry Connors: How to Sell ETFs Short 101

By David Penn | TradingMarkets.com | September 06, 2011 11:57 AM
 

 


How many ways were there to sell short the S&P 500 last week, as the market climbed deeper and deeper into overbought territory below the 200-day moving average?

Whether your trade of preference was the SPDR S&P 500 ETF (SPY | PowerRating) or, for those in restricted accounts, the SPY’s inverse, the ProShares Short S&P 500 (SH | PowerRating), the results on Friday were the same: another profitable trade for short term swing traders trading ETFs with Larry Connors’ Daily Battle Plan.

SPYDBP0906 chart

As Larry wrote in a four-part series for TradingMarkets.com earlier this year.

What we want to do, and what you want to do as a trader with your own money, is ultimately to be able to have certain rules in place to help you answer the questions: is a market in an uptrend? Is a market in a downtrend? And how do I appropriately allocate capital during each of those markets?

To read the rest of Larry’s four-part series on ETF Trading and the Daily Battle Plan, click here.

This last trade in the S&P 500 was a textbook high probability trade from Larry Connors’ Daily Battle Plan. Correct 80% of the time since inception in October 2008 – and with an accuracy rate of 80% in 2011, as well – Larry Connors Daily Battle Plan is a great way for traders way to add a quantified, long and short, ETF trading strategy to their overall swing trading portfolio (and if you are not trading more than one strategy in your portfolio, click here to read “Why a Portfolio of Strategies Beats a Portfolio of Stocks.”).

If you are looking to start trading exchange-traded funds, then Larry Connors’ Daily Battle Plan is a great place to start. Click the link below to launch your free, 7-day trial to Larry Connors’ Daily Battle Plan today.

David Penn is Editor in Chief of TradingMarkets.com

 
Tuesday, September 6th, 2011 ETF, Evergreen, Larry Connors, Stock Trading No Comments

ETF Trading with Larry Connors: Stocks Rally on Light Volume Ahead of Holiday

By Larry Connors | TradingMarkets.com | September 01, 2011 08:58 AM
 


Every liquid Country Fund ETF has a 2-period RSI reading above 70 today, with nearly half the universe showing readings above 90. As I mentioned yesterday, this could go on for a few more days (especially with the lightened volume due to the upcoming 3-day weekend) but a pullback is more than due and likely coming very soon.

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder and CEO of TradingMarkets.com

 


 

http://www.tradingmarkets.com/etfs/trading-lessons/etf-trading-with-larry-connors-stocks-rally-on-light-volume-ahead-of-holiday-1578139.html

Thursday, September 1st, 2011 Larry Connors, News, Stock Trading No Comments

ETF Trading with Larry Connors: How Much Longer for the Low Volume, Short Covering Rally?

By Larry Connors | TradingMarkets.com | August 31, 2011 08:52 AM
 

Overbought is now more overbought. The low volume, short-covering rally which went into full force on Monday followed through until the last few minutes yesterday. Then reality set in.

The 2-period RSI of SPDR S&P 500 ETF and PowerShares QQQ are both above 90 and, as we’ve seen so many times in the past, it may last a few more days but it’s not sustainable. A short term pullback is due.

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder and CEO of TradingMarkets.com.

 
Wednesday, August 31st, 2011 Larry Connors, Stock Trading No Comments

Larry Connors: An Evening with CNBC’s Special Market Crisis Crew


By Larry Connors | TradingMarkets.com | August 19, 2011 08:58 AM
 
 

Yesterday I mentioned that with so many stocks under their 200-day ma, the path of least resistance was lower. That path was taken, the market is now oversold and fear is extremely high coming into Friday morning.

Things were so bad after yesterday that CNBC decided to do a special “market crisis” show last night bringing in the “best minds in the world” to let us know what we should do from here.

Obviously I was interested.

First I heard Jim Cramer say that it was not too late to sell the banks. Got it.

Then Ron Insana, former CNBC reporter, then unsuccessful hedge fund manager (now I don’t know what he does) came on and said he disagreed with Cramer. Now was the time to buy the banks.

Then he clarified things and said he was really looking 3-5 years out. I was hoping he could tell me who would win the World Series 3-5 years out, but maybe next time.

The money manager sitting next to Insana said he was already knee deep in banks. Therefore he would buy “like 10% here” and trade around his positions, so he doesn’t need to drive himself crazy and double up.

Insana agreed. He said we should buy the banks “like a piece at a time every month over the next five months or something like that”. I like definitive people with definitive game plans like this.

I then watched further because CNBC promised they were going to bring out “the one and only Suzy Orman” to guide us very soon.

Four commercial breaks later (and a few innings of the Yankees game) there she was!

Her advice? “If you’re scared, it’s ok to sell some stocks now”.

Wow, that was helpful. Super! I wanted to stay for more professional insight like this, but I knew it was best to spend the rest of my evening rearranging my sock drawer.

So there you have it from the best minds on CNBC. In exact order: Sell banks, buy banks for the next 3-5 years, trade around banks, or scale into banks “like over the next 5 months”. And if you’re scared, you have Suzy Orman’s permission to sell some stocks here – “BUT NOT ALL!!!” as she was pointed her finger into the camera. (She also told everyone she was 60 years old and she looked better than the 40 year old reporter to her right – yep, it was officially time for me to call it a night).

Please use extra caution today as the futures are down another 1.5% this morning and volatility is likely going to spike even higher on the open. Europe remains the tail that is wagging this dog. A coordinated effort may allow for a short-term bottom to come in, followed by a bear market rally which we’ll short into. Having high cash positions has been a luxury this week.

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder and CEO of TradingMarkets.com.

 
Friday, August 19th, 2011 Education, Larry Connors, Stock Trading No Comments

ETF Trading with Larry Connors: Bear Market Behavior Taking Hold of the Markets

By Larry Connors | TradingMarkets.com | August 18, 2011 08:49 AM
 

 

An overnight, global sell-off is weighing on the futures early this morning as the bear market behavior begins to take hold. With so many stocks under their 200-day ma, the path of least resistance is down until a reversal occurs.

For those of you trading from the signals within The Machine, you’re beginning to see the healthy gains on the short positions – especially in stocks. This would be expected especially this early into the bear cycle as its beginning to replicate the same behavior seen in 2001-2002 and also 2008.

The market is likely going to require some sort of major event, either political or a string of unexpectedly strong economic reports, to reverse course from here.

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder and CEO of TradingMarkets.com.

 
 
Thursday, August 18th, 2011 Education, ETF, Larry Connors, Stock Trading No Comments

Larry Connors: Bear Market Bounce or More Selling?

By Larry Connors | TradingMarkets.com | August 15, 2011 08:55 AM
 

 

In spite of the two-day rally, the overall market is in neutral territory because it was so oversold after Wednesday’s sell-off. The 2-period RSI of our Country Fund ETF Universe and the Main ETF Universe are both in the 60s.

Friday closed poorly. Even though the averages held into the close, many underlying stocks, especially the ones most sensitive to the economy, closed near their lows for the day. Today will be a be a sign of whether this was a just two-day bear market bounce if the market resumes its sell-off. This will be especially true if no negative news comes in and the market just glides down.

The one good thing this market has going for it is an extremely high level of fear and -skepticism. VXX is near 5 month highs and nearly every financial newspaper ran lead stories this weekend on how investors can protect their money going forward. Some of the products and ideas are a bit bizarre (for example those mentioned in this article in Saturday’s New York Times [http://www.nytimes.com/2011/08/13/your-money/asset-allocation/investors-find-new-ways-to-strategize-amid-volatility.html?pagewanted=all]) but everyone is looking for protection and that’s a good sign.

This week will again be dominated by news from Europe. If the Obama administration or the Fed had any solid plans, they would have showed their hands last week. On Thursday (right after Wednesday’s major sell-off) President Obama was in Michigan promoting green technology; this is his administration’s solution to creating new jobs and spurring the long-term economy (I wish I was kidding).

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder and CEO of TradingMarkets.com.

 
Monday, August 15th, 2011 Education, ETF, Larry Connors, Stock Trading No Comments