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Check out the new article: Day Trading Larry Connors RSI2 Mean-Reversion Strategies.
Larry Connors is a renowned trader and author, best known for his work in quantitative trading and strategies like the 2-period RSI (RSI2), which helps identify short-term overbought and oversold market conditions. In this article, we’ll first explain the motivation behind our research, then recreate three of Connors’ most famous strategies in MQL5 and apply them to intraday trading of the S&P 500 index CFD.
Larry Connors has developed numerous retail quantitative strategies throughout his career and documented his research on his website. Most of his strategies are tested and traded on the US stock market using daily timeframes, with extensive backtests proving their profitability. However, few traders have adapted his ideas to lower timeframes for intraday trading.
This article investigates this approach by coding three of Connors' most famous strategies in MQL5 and testing them on the US500 CFD using a 30-minute timeframe. The goal is to determine whether his mean-reversion concepts can provide value in higher-frequency trading, where noise increases but trading opportunities and sample sizes expand. We selected the US500 index CFD to mirror US stock market volatility, as Connors originally designed his strategies for stocks. The 30-minute timeframe strikes a balance—reducing excessive noise while providing sufficient trading activity. The backtest will cover the past year to ensure data recency.
This strategy builds on Larry Connors' framework, but I’ve tweaked it by adding the requirement of multiple consecutive extreme RSI readings and introducing an unusual exit rule. We exit the position once it surpasses the previous candle’s high or low. This exit idea comes from noticing that short-term reversals often show a reversal bar that exceeds the prior candle’s high or low, allowing us to exit fast and lock in a small profit.
Signal rules:
Author: Zhuo Kai Chen