Larry Connors 2 Period RSI & Month End Trading

Month End Trading

If you’re a beginner in the Indian stock market, you might have come across the terms “Larry Connors 2 period RSI” and “month end trading”. These are two popular strategies that traders use to identify potential stock market opportunities. In this blog post, we’ll provide you with a comprehensive guide to both these strategies, along with examples and FAQs.

Part I: Larry Connors 2 Period RSI

What is 2 period RSI strategy by Larry Connors?

Larry Connors developed the 2 RSI (Relative Strength Index) strategy. He is the main man behind TradingMarkets.com. He has written many books like Buy the Fear Sell the Greed and Short Term Trading Strategies that Work. The 2-period RSI is a sign of momentum that measures how fast and how much prices change. The 2 RSI strategy aims to identify oversold and overbought market conditions. When the RSI dips below 5, it suggests that the stock is oversold. Similarly, when it rises above 95, it suggests that the stock is overbought.

What is the best setting for Connors RSI?

The best setting for Connors RSI depends on your trading style and the time frame you’re using. Generally, traders use a 2-bars setting of RSI with a range of 0-100 for short-term trading. Similarly, they use a 3-period RSI with a range of 0-100 for longer-term trading. However, you can experiment with different settings to see what works best for you.

How do you use the 2 period RSI?

To use the 2 RSI strategy, you can follow these steps:

  1. Identify stocks that have a strong uptrend and are trading above their 100-month moving average.
  2. Look for stocks whose 2-period RSI has dipped below 5.
  3. Buy the stocks immediately or when the RSI rises above 5.

What is the difference between RSI and Connors RSI?

The main difference between RSI and Connors RSI is that the latter uses a shorter time period (2 or 3 periods) compared to RSI, which typically uses a longer time period (14 periods). Additionally, Connors RSI is designed to identify extreme oversold and overbought market conditions, while RSI is used to measure the momentum of price movements.

Part II: Month End Trading

What is month end trading?

Month end trading is a strategy where traders buy or sell stocks at the end of the month. The idea behind this strategy is that institutional investors often make adjustments to their portfolios at the end of each month. This can lead to price movements in certain stocks, which traders can take advantage of.

Do stocks go down in month end?

Stocks don’t always go down at the end of the month. But, there is a higher probability of price movements due to institutional investors making adjustments to their portfolios. These adjustments can lead to buying or selling pressure, which can cause the prices of certain stocks to rise or fall.

What is end of month effect in stock market?

The end of month effect in the stock market refers to the tendency of stock prices to rise during the last few trading days of the month. This is because of the buying activity of institutional investors who adjust their portfolios at the end of each month.

What is the 3.75 rule in trading?

The 3.75 rule in trading is a risk management strategy that suggests traders should not risk more than 3.75% of their trading capital on any single trade. This rule helps traders to manage their risk and avoid large losses.

Part III: Using 2 Period RSI in Monthly Charts to Find Extreme Stocks on Trading the Month End

Now that you know about Larry Connors 2 period RSI and month end trading, it’s time to explore how you can combine these strategies to find potential opportunities in the Indian stock market. By using the 2 period RSI on monthly charts, you can identify extreme oversold or overbought stocks at the end of the month.

How you can use this month end trading strategy?

  • Step 1: Look for stocks that are trading above their 100-month moving average. This indicates that the stock has a strong long-term trend.
  • Step 2: Check the monthly chart for the stock and identify the 2 period RSI.
  • Step 3: If the 2 period RSI is below 5, it indicates that the stock is oversold and could be a potential buy opportunity at the end of the month.
  • Step 4: On the other hand, if the 2 period RSI is above 95, it indicates that the stock is overbought and could be a potential sell opportunity at the end of the month. We can do short selling only in the futures market.
  • Step 5: Wait until the end of the month to see if institutional investors make any adjustments to their portfolios that could cause price movements in the stock.
  • Step 6: If the stock is oversold and the end of the month effect is in play, consider buying the stock. If the stock is overbought and the end of the month effect is in play, consider selling the stock.
Larry Connors 2-Period RSI Generates Buy Signal on Monthly Charts
Larry Connors 2-Period RSI Generates Buy Signal on Monthly Charts

It’s important to note that this strategy is not foolproof and requires a thorough understanding of the stock market and technical analysis. Additionally, it’s crucial to manage your risk and not invest more than you can afford to lose.

How to scan stocks in Chartink as per this Larry Connors RSI 2 strategy?

I have created a scanner in Chartink using this Larry Connors 2 period RSI strategy. You can use this scanner for your month end trading. This scanner finds the long-term bullish stocks from the Nifty 200 universe that are temporarily oversold in the monthly charts. You need to check this screener on the Chartink website on the last day of the month. You need to enter the trades just before the market close on the same day or just after the market opens on the first trading day of the next month. Check the image below to understand what the Chartink Scanner looks like.

Chartink Scanner for Month End Trading
Chartink Scanner

Conclusion

In conclusion, the Larry Connors 2 period RSI and month end trading strategies are popular among traders for identifying potential opportunities in the Indian stock market. By combining these strategies and using the 2 period RSI on monthly charts, you can identify extreme oversold or overbought stocks at the end of the month. However, it’s important to understand that these strategies are not foolproof. They require a thorough understanding of the stock market and technical analysis. Additionally, it’s crucial to manage your risk and not invest more than you can afford to lose. Happy trading!


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4 thoughts on “Larry Connors 2 Period RSI & Month End Trading”

  1. Sir for intraday trading which time frame is best for rsi 2 strategy.
    And sir once stock or index dropped below 5 if i buy then it is not exactly going to up directly mean while stock is roming here and there there only.

    1. Chandrakanth, RSI-2 is best suited for end of day trading. Better not to use it for intraday. However, you can use 14-period or 7-period RSI in intraday.Also a stock well above 200 day MA and RSI-2 below 5 means it is oversold and chance for a bounce back is really high.

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