Inspiration

The R2 Turbo strategy draws inspiration from Larry Connors' experiences. Reversal strategies are effective in the stock market, where opportunities for profit often arise during pullbacks. In this article, we will discuss the details of the R2 Turbo strategy, covering its key components, historical results, and recommended trading instruments.

Key components

• Detecting pullbacks in an uptrend. The essence of this strategy is the ability to detect pullbacks in an uptrend. The strategy utilizes typical reversal behavior in the stock market and temporary pullbacks, expecting the trend to continue.

• While RSI is at the core of the strategy, it is worth noting that the R2 Turbo strategy includes a more advanced application of this indicator and 2 filters that turn it on and off depending on the conditions.

• The Stockpicker mechanism searches and automatically selects stocks that meet the entry criteria.

Backtest 1, $ Money Management

In this variant, we invest a constant amount of $100k, which is divided by the maximum number of open positions (10). This results in a capital commitment of up to $10k per position.

We are testing the period of the last 30 years from 1994 to May 2024.

The backtest automatically selects stocks that meet the criteria from the Nasdaq 100 index. It is important to note that the list of stocks included in the index changed over the years, which is taken into account in the Stockpicker data (survival bias).

Invested capital: $100k

Number of positions: 10

Maximum investment in 1 position: $10k

Test period in years: 30

Tested years: 1994-05.2024

Tested Index: Nasdaq 100

Equity chart for this test:

Basic statistics and results month by month:

Backtest 2, % Money Management

In this backtest, we are investing in a strategy that constantly uses 100% of the current capital (starting with $100k capital). This means that as the capital grows or decreases, the position value changes proportionally. All other parameters remain unchanged.

The equity chart for this test looks as follows:

Basic statistics resulting from the test:

Additional information about the strategy

Net profit and CAGR

The net profit above 19.9 million USD in the analyzed strategy is over 10x higher than the Benchmark (S&P 500 Index in the form of SPY ETF marked in yellow on the chart), which is above 1.8 million USD, translating to a CAGR of 19.32% vs 10.38%. This means that the analyzed strategy achieves significantly higher net profit and a higher average annual return rate, indicating its exceptional efficiency in generating profits over the long term.

Drawdown and Return/Drawdown ratio

The Max Drawdown in the analyzed strategy was 12.35% vs 55.19% in the benchmark, resulting in a significantly better Return/Drawdown ratio of 15.56 vs 4.41. This means that the analyzed strategy is less risky and more stable, as the maximum capital drawdown is smaller, leading to better risk management compared to the benchmark.

Exposure

The average exposure in the analyzed strategy was only 24% vs 100% in the benchmark. The study was conducted on the underlying instrument, which are stocks of the Nasdaq100 index. Exposure is measured by a dedicated study, which you can read about here.

The analyzed strategy used one-fourth of the capital and therefore was much less exposed to market risk, with the remaining capital available for use in other strategies.

Winning percent

The Winning percent in the analyzed strategy was 71.6%. This means that 71.6% of transactions were profitable, emphasizing the effectiveness of the strategy in generating positive results, giving the user greater confidence in the frequency of profit generation.

SL & TP

The strategy does not use typical stop-loss and take-profit orders. According to our tests, for most stock strategies, these settings worsen results. Instead, the strategy has one exit signal or additional safety exit after X bars (time-based stop-loss). Position diversification within one strategy and across the strategy portfolio serves as protection against the strong impact of a single stock price change on the entire portfolio. Click for more about stop loss order.

Market regime

The strategy was tested in all basic market regimes and includes filters implemented based on this analysis.

Trading costs

Trading costs and slippage were taken into account in the backtests, which occurred in real account tests for the Alpaca broker. With a diversified portfolio of stocks and strategies, transaction costs can significantly impact your profit or loss, so take the time to thoroughly test and choose a broker.

Robustness

The robustness was tested by practically conducting all possible transactions on stocks (max open positions 100) for the period from 1994-2023 for the S&P500 index (29'801 transactions) and the Russel1000 index (47'375 transactions) at %MM. This strategy also passed our tests of parameter modification successfully. We adhere to the principle that the fewer parameters, the greater the strategy's robustness. Therefore, we make efforts to ensure that our strategies have as few parameters as possible and to only select parameters that have a significant impact on the strategy's effectiveness while also aligning with its nature.

S&P500 max transactions: 29'801

Russell1000 max transactions: 47'375

The results are as follows:

Recommended Instruments

The strategy has shown very good results on the Nasdaq 100 over the long term. However, recently it had even better results on the S&P 500. We leave the decision to you on which index to trade. Please note that with the S&P 500, there will be greater exposure. The final decision requires your individual tests.

Primary Instrument: S&P 500

Supplementary Instrument: Nasdaq 100

Pattern Day Trader

The strategy statistically closed 8.77% of trades on the same day, so theoretically it should meet the Pattern Day Trader (PDT) criteria that we write about here. However, the strategy trades relatively less compared to other stockpicker-type strategies, and in the last 30 years on the S&P500 index, there have been only 4 cases of meeting PDT conditions.

Here are the details of this study:

Of course, after combining it in the portfolio with other strategies, there may be more such cases, so we suggest you familiarize yourself with our PDT Finder and Exposure Master tools, which you can receive for free as part of our BONUS.

Correlation

To check the correlation of the strategy with others, visit the correlations page.

Summary & Strengths and weaknesses of the strategy

Strengths of the strategy:

• Outstanding Profits and Stability: In the analyzed strategy, Net Profit was over $19.9 million USD, while the Benchmark achieved over $1.8 million USD. The CAGR was 19.32%, almost 2x higher than the 10.38% for the Benchmark.

• Low Capital Engagement: The strategy involves relatively small capital Engagement (24%).

• Low Drawdown: The Max Drawdown in the analyzed strategy was 12.35% compared to 55.19% in the Benchmark. This shows that the strategy is less risky and more stable.

• High Winning Percent Ratio: 71.6% of trades ended in profit, highlighting the effectiveness and user-friendliness of the strategy.

• Robustness: The strategy was tested on the S&P 500 and Russell 1000 indices, achieving a maximum of 29'801 and 47'375 trades, respectively.

  
  

Weaknesses of the strategy:

• Percentage of Same-Day Trades: A downside of the strategy is the percentage of trades closed on the same day, which is over 8%. This may lead to meeting the Day Trader conditions mentioned above.

  
  

Summary

Over 30 years, the analyzed strategy had two losing years, which is an outstanding result for a Stockpicker strategy. The Max Drawdown was 12.4%, a very low level in the context of long-term investment strategies.

The R2 Turbo strategy is a Stockpicker strategy that demonstrates high efficiency, low risk, and great stability over the long term. Its strengths outweigh its weakness, which is the challenge of applying it to smaller accounts. Such reversal strategies should form the foundation of a good portfolio for trading US stocks.

What do you receive in the package for this strategy?

• An SQX file ready for use on the Algocloud and StrategyQuant platforms.

• An ebook presenting detailed rules and results for the strategy.

• Pseudocode describing all the rules in an easy-to-understand manner.

  
  
  
  

If you need the strategy code in MultiCharts, MT4, or MT5 (MQL) formats, please contact us on this matter.