1. 1 How to Build and Trade Quantified Short Term Trading Strategies Larry Connors, CEO and Founder December 8, 2008 Copyright © 2008 The Connors Group, Inc. All Rights Reserved.

2. 2 DISCLAIMER The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. The Connors Group, Inc. 15260 Ventura Blvd., Ste. 2200 Sherman Oaks, CA 91403 Copyright © The Connors Group, Inc., 2008.

3. 3 Welcome!

4. 4 Started at Merrill Lynch in 1982. At the time, the Dow was at 800 (not a typo!) Finished my brokerage career as a Vice President with Donaldson Lufkin and Jenrette (DLJ) in March 1994 in order to trade my own money full time and to run my money, along with a few close friends’ money, in a private partnership in Malibu, CA. My Background

5. 5 Founded TradingMarkets (TradeHard.com) in 1999 along with Kevin Haggerty (Kevin is the former head of trading for Fidelity Capital Markets) and a handful of other professionals in the industry. Our main focus is on trading research and education mostly in the equities, ETFs, E- Mini’s and options markets.

6. 6 I’ve also written a number of books on trading, including Street Smarts with Linda Raschke which was selected by Stocks and Commodities Magazine as one of the “Classics of the 20th Century”. The book that I’m proudest of is How Market Really Work. Many of the concepts found in the Swing Trading College are derived from How Markets Really Work. Also Bloomberg Magazine was kind enough to do a 3-page feature on me and my research in the February 2008 issue.

7. 7 What is the Philosophy Behind Our Trading and Our Research?

8. 8 1) Keep an Open Mind, but Quantify Everything

9. 9 2) Pullbacks Work!

10. 10 3) The 200-day Moving Average is a Solid Trend Filter (Results based on data from 1/1/95 to 10/31/08)

11. 11 3) The 200-day Moving Average is a Solid Trend Filter (Results based on data from 1/1/95 to 10/31/08)

12. 12 3) The 200-day Moving Average is a Solid Trend Filter (Results based on data from 1/1/95 to 10/31/08)

18. 18 4) It Pays To Hold Positions Overnight

19. 19 Overnight vs. Daytrade SPY

20. 20 Overnight vs. Daytrade QQQQ

21. 21 5) Stops Hurt (All Trades from 1/1/95 to 12/31/07)

22. 22 6) Volatility Helps

23. 23 7) We Use Multiple Positions in Order to Lessen Corporate Risk

24. 24 8) Buying on further intraday weakness usually increases average gains per trade but lessens the number of trades. The key is to find more opportunities, if possible.

25. 25 9) On average, statistically 5-8 trading days is usually the sweet spot to locking in gains. Less time usually doesn’t allow the move to be maximized. More time and the gains begin to revert to market averages.

26. 26 9) Suggested Exits To Improve Performance -Close above the 5-day MA -2-period RSI above 70 -New Closing Highs (7 days for example)

27. 27 10) There’s a significant advantage to trading multiple systems as opposed to only one system.

28. 28 Which Oscillator is Best When Building A Quantified System?

29. 29 In my opinion (and more importantly based upon the statistical results), it’s the 2-period RSI.

30. 30

31. 31 Building A Robust ETF System Using Everything We’ve Learned So Far Tonight

32. 32 ETF Strategy RSI 10-6

33. 33 Entry Rules 1. Close is above the 200-day MA. 2. RSI(2) < 10. 3. Buy at the Close. ETF Strategies RSI 10-6

34. 34 Scale-In Rules 1. If anytime while in position, RSI(2) < 6 on close, scale in once. 2. Scale in at Close. ETF Strategies RSI 10-6

35. 35 Exit Rules 1. Close is above the 5-day MA. 2. Sell at the Close. ETF Strategies RSI 10-6

36. 36 Results (From ETF Inception to 10/31/08) ETF Strategies RSI 10-6 No.# Trades Avg % Profit/Loss Avg Bars Held % of Winners DIA-13284630.494.7876.19 EEM-56064350.795.0380.00 EFA-13552410.684.6182.93 EWH-13170761.224.9277.63 EWJ-13172611.134.4681.97 EWT-13320471.404.7485.11 EWZ-13474581.774.4777.59 FXI-61850201.215.2080.00 GLD-61877260.495.6273.08 ILF-56068531.933.9688.68 IWM-13413590.984.5886.44 IYR-13450500.055.0274.00 QQQQ-13341561.134.7780.36 SPY-32081131.054.3485.84 XHB-565036-0.616.5066.67 XLB-3754620.285.0872.58 XLE-3758681.254.8285.29 XLF-3759530.535.3077.36 XLI-3760580.614.6082.76 XLV-3755670.534.8580.60 ALL10720.934.7580.78

37. 1. FXI is above the 200 day and the 2-period RSI is below 10. Buy on the close. 2. FXI rallies above the 5 ma on the close and you lock in the gains. 3. FXI again drops and the RSI closes under 10. Buy. 4. Buy the second unit on the close as the RSI drops under 6. 5. FXI rallies above the 5 ma and you exit on the close. RSI 10-6 Example 1 1 2 3 3 4 4 5

38. 38 ETF Strategies RSI 90-94 Short

39. 39 Entry Rules (Short) 1. Close is below the 200-day MA. 2. RSI(2) > 90 3. Short at the Close. ETF Strategies RSI 90-94

40. 40 Scale-In Rules (Short) 1. RSI(2) > 94 anytime while in position (scale in once only). 2. Scale in at the Close. ETF Strategies RSI 90-94

41. 41 Cover Rules (Short) 1. Close is less than the 5-day MA. 2. Cover at the Close. ETF Strategies RSI 90-94

42. 42 ETF Strategies RSI 90-94 Results (From ETF Inception to 10/31/08) No.# Trades Avg % Profit/Loss Avg Bars Held % of Winners DIA-13284310.854.9480.65 EEM-560643-0.917.670.00 EFA-13552161.434.4481.25 EWH-13170360.885.2872.22 EWJ-13172630.945.1674.60 EWT-13320301.674.6380.00 EWZ-13474242.274.3383.33 FXI-6185051.944.2080.00 GLD-6187750.225.8060.00 ILF-5606830.934.0066.67 IWM-13413290.864.4565.52 IYR-13450211.725.1980.95 QQQQ-13341341.125.7167.65 SPY-3208441.134.8077.27 XHB-56503122.354.1775.00 XLB-3754320.775.5368.75 XLE-3758261.254.8576.92 XLF-3759331.574.9778.79 XLI-3760371.104.4383.78 XLV-3755320.225.2862.50 ALL5161.144.9674.61

43. 1. The 2-period RSI is above 90. Sell Short at 100.41. 2. The SPY closes under the 5 ma. Cover the short on the close at 96.19. 3. The 2 period RSI is above 90. Sell Short at 88.97. 4. A close under the 5 ma. Lock in the gains on the close at 82.11 RSI 90-94 Example 1 3 1 2 3 4

44. 44 Questions and Answers

45. 45 If you would like to purchase Short Term Trading Strategies That Work, call us toll free at 1-888-484-8220 ext. 1. International Callers please call 213-955-5858 ext. 1. Or Order Online at www.TradersGalleria.com

46. 46 Daily Institutional Report I’ll be publishing a Daily Institutional Report beginning later this month in partnership with StreetBrains. If you’d like a free trial, call Robert Livingston, Director of Sales at StreetBrains at 212-430-3043, or email him at rlivingston@streetbrains.com.

47. 47 Thank You! And if you have any questions please email me at l.connors@tradingmarkets.com

48. 48 DISCLAIMER The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. The Connors Group, Inc. 15260 Ventura Blvd., Ste. 2200 Sherman Oaks, CA 91403 Copyright © The Connors Group, Inc., 2008.