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Article Update: Find these ETF Signals with my new program
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In the previous EdgeRater strategy analysis article I analyzed the first of Larry Connors ETF strategies – the Three day high/low method using a long entry. That strategy appeared to test well and gave statistically advantageous entries when tested over the historical period.
In this article I will analyze the short entry method of the same strategy. If the short entry method has a positive expectation in addition to the long entry method then there is something of value here.
So, let’s get started.
Symbol List
I will be using the same set of symbols as in the previous article. To use this list within EdgeRater, create a text file containing the symbols and names (copy and paste the list in the previous article to a new text file) and add it to the {EdgeRater}\Symbols Lists directory in your documents folder.
Historical testing period
The testing period for Larry’s strategies is 1/1/1993 to 12/31/2008.
EdgeRater snapshot
For this analysis I have used the Yahoo! data provider and created my data snapshot using the above symbol list and date range. I was able to just re-use the snapshot that I created for the first article because the only differences between the two strategies are the entry rules.
Entry Rules
Larry’s entry rules for the short trade are the reverse of the long trade entries and are as follows:
- Today’s close price is below the 200 day SMA
- Today’s close price is above the 5 day SMA
- The high price of 2 days ago is above the high price of 3 days ago
- The low price of 2 days ago is above the low price of 3 days ago
- The high price of 1 day ago is above the high price of 2 days ago
- The low price of 1 day ago is above the low price of 2 days ago
- The high price of today is above the high price of 1 day ago
- The low price of today is above the low price of 1 day ago
EdgeRater Chart Script
The entry rules can be written in Chart Script like so:
Below200:= C < SMA(C,200);
Above5:= C > SMA(C, 5);
HL3:= (Ref(H, 2) > Ref(H, 3)) & (Ref(L, 2) > Ref(L, 3));
HL2:= (Ref(H, 1) > Ref(H, 2)) & (Ref(L, 1) > Ref(L, 2));
HL1:= (H > Ref(H, 1)) & (L > Ref(L, 1));
Event: Below200 & Above5 & HL3 & HL2 & HL1;
Running the Analysis
Once the Chart Script has been entered into EdgeRater it will appear as a Chart Script selector in the Edge Runner tab (because it has an output line named ‘Event’). To run this analysis over the prepared snapshot of data, first ensure that the snapshot has been chosen in the Snapshot pane and then make sure to select the ‘Use global exclusion lists’ check box in the Snapshot Filters. This will ensure that the _INDEX symbol that is automatically added to every snapshot will not be considered during the analysis run.
Once everything has been set up, hit the ‘Run’ button to start the analysis.
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Article Update: Find these ETF Signals with my new program
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Results
So, what do these setups look like? Here are a couple of examples – one that fulfilled the premise and one that didn’t:
GLD ETF successful entry
Successful entry point in the GLD ETF – following bars show a sell-off
GLD ETF unsuccessful entry
Unsuccessful entry point in GLD ETF – following bars show a rally
In both cases you can see that the setup conditions were met – three consecutive days of higher highs and higher lows with stock closing on the signal day below the 200 day SMA and above the 5 day SMA. Clearly not every trade will be a winner, but it is important to know the statistics of this strategy to see if it is a strategy that is a) profitable in the long run, and b) fits your trading personality so that you are comfortable trading it.
Statistics
The Next N Bars report shows that this short entry was profitable during the analysis period when holding anywhere from 1 through to 10 days (I didn’t examine any longer than a 10 day hold) with a 5 day hold period performing best at an average -0.71% loss. In order to compare to the long entry strategy of the previous article I will show the histogram of the 4 day hold:
4 day hold statistics
3 day High/Low short entry with 4 day hold period
Baseline
The baseline scan is identical to the one in the previous article due to identical symbol list and timeframe, I have repeated the result here for convenience.
Next N Bars baseline
Baseline scan mean gain of +0.0944% with standard deviation of 3.4776
Summary
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Article Update: Find these ETF Signals with my new program
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Larry Connors’ three day high/low strategy – short entry method had a positive expectation over the testing period and interestingly was profitable in addition to the long entry method using the same time period and set of ETFs.
If this strategy is something that fits your personality you should definitely enter it into EdgeRater and experiment with the results for yourself. Once you have seen the various instances of setups and looked at all of the reports I have a couple of suggestions for further analysis.
- In the setup instance charts above you can clearly see that even though all the entry conditions were met in the failure case, the 200 day SMA was in fact moving higher indicating that the long term trend could be changing. An extra entry condition worth looking at would be that the 200 day SMA has to have a downward slope.
- In practice it would not be possible to enter positions at the close of the day when the conditions required to determine the entry rely on the actual closing price. The Next N Bars report in EdgeRater can be set to a baseline price of the following day’s open. An extra analysis step could be to experiment with these different baseline prices by changing the radio button setting.
Once you have a strategy that you want to trade, run EdgeRater each evening to update the snapshot with the latest data and run the selector over that snapshot. The last column in the event grid will contain the symbols that triggered for trading tomorrow.
This analysis is presented as information only and is not a recommendation to trade any particular symbol or strategy. All trading involves risk and you alone are responsible for your trades.
