In this article, we’ll show you the famous Connors RSI 2 strategy for TradeStation and MultiCharts realized by Larry Connors. We’ll apply it to the US index using the SPDR S&P 500 Exchange Traded Fund (ETF) SPY.
Moreover, you will learn how to build the TradeStation strategy code for the Connors RSI-2 system in EasyLanguage using the Relative Strength Index.
From Investopedia is “The RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset“.
We coded many strategies with RSI Indicator in EasyLanguage for TradeStation and MultiCharts. This is our custom indicator that also shows the direction
In the chart below, you can see our custom Slope RSI indicator that is very useful for checking and drawing with different colors the RSI direction. You can download from the post you find in this link:
The original Connors RSI strategy
The RSI 2 trading system developed by Larry Connors is straightforward; it takes advantage of the oversold and overbought areas.
It is the most classic of mean-reverting strategies, which are the opposite of trend followers’ strategies.
The RSI indicator is an oscillator, continuously fluctuating from an overbought zone to an oversold zone, using historical data from price closings.
We can summarize the rules of the trading strategy in 2 simple lines.
BUY: When the Relative Strength Index indicator is oversold below the 5 levels.
EXIT: When the price closes above the simple 5-period moving average on PriceClose.
Connors also uses a trend filter through a 200-period moving average to determine the big trend.
Today we will change the original strategy. We are using an oversold level of 10, and we will not use the trend filter.
However, the system will only go long on a daily time frame. Caution: The system does not have adequate position sizing and buys $ 10,000 with an initial capital of $ 30,000 and has a huge stop loss of $ 2,000.
Doubt about an RSI 2 automated trading system
Before looking at the TradeStation Code of this strategy, we would like to automatically raise some doubts about using this strategy.
We have seen that this type of strategy needs a reasonably high timeframe, at least once daily. Also, this type of system will trigger the signal on multiple instruments at the same time. Nowadays, the markets are more and more correlated, and therefore, two problems arise for the automation of a strategy of this type.
The first point to consider is the correlation between markets and the difficulty of selecting a trade between multiple instruments when multiple signals are triggered.
In this case, there is also a problem of correct capital allocation, which would be difficult to optimize or, in any case, require a very advanced automatic control system.
The last problem is that the RSI2 strategy on a daily time frame does not provide many signals during the year.
A market scanner is more advisable to use this strategy because it would not allocate resources for a system with so few operations.
We must never forget that an automatic system still wastes time and energy to monitor the results and verify the performance or any errors.EasyLanguage TradeStation Strategy Code – Compatible with MultiCharts
Building the RSI 2 strategy for TradeStation and MultiCharts in EasyLanguage is therefore very simple, and in this paragraph, we will show you all the steps to do this yourself.
Open your code editor and start to write your code.
First of all, declare the inputs:
Input: RSI_Period(2), RSI_OverBought(10), MA_Exit_Period(5);
Then, we declare the variables:
Variables: RSI_Value(0), Exit_MA(0), Max_Risk(000);
We use the RSI value as the entry signal and the moving average to exit from a winning or losing trade:
RSI_Value = RSI(Close,RSI_Period); Exit_MA = Average(Close, MA_Exit_Period);
Finally, we write the code to send the order to the trading platform and manages the exit:
If ( RSI_Value <= RSI_OverBought ) Then buy("Buy") this bar at close; If ( MarketPosition <> 0 ) And ( Close > Exit_MA ) Then sell(“Exit”) this bar at close; If ( Max_Risk > 0 ) Then SetStopLoss( Max_Risk );
Below you can check our trading operation results utilizing strategy: 22trades with an average profit of $44 per trade, with an excellent percent of profitable trades at 70%.
We coded the Larry Connors RSI 2 strategy in EasyLanguage for TradeStation, and we like it!
We can improve it by adding a trend filter with position sizing rules. The size of the position must depend on implicit or historical volatility.
Tradestation and MultiCharts Strategy RSI Connors – Easylanguage final code:
More from Finance Strategy System
- STATE STREET SPDR: SPDR S&P 500 ETF SPY
- WIKIPEDIA: Larry Connors
- How the Stock Market Moves
- Free TradeStation Indicators
- STOCK TRADING SYSTEM BENCHMARK INDICATOR
- How to calculate the Relative Strength in the Stock Market
- Coppock Curve Indicator
- TradeStation Tutorials
- RSI oscillator (Relative Strength Index) | Essential Tutorial
- The TRIX || Triple Exponential Average Indicator || Tutorial
- The McClellan Summation Index || Technical Analysis
- EasyLanguage Tutorial & PowerLanguage Tutorial – Part 01Connors