Double 7s Trading Strategy for ThinkOrSwim
Larry Connors and Cesar Alvarez promote the Double 7s trading strategy in their excellent book, “Short Term Trading Strategies that Work“. The basic idea is that, statistically, you only want to be buying the market on dips — you really don’t want to be buying breakouts. Breakouts work, but only in limited circumstances, so they take extra care, practice, and analysis. Trend pullbacks are much lower risk and much easier to succeed at, having an obvious statistical edge, so all of Connors’ and Alvarez’s strategies revolve around those types of setups. And toward that end, the Double 7s strategy offers an elegantly simple and sweet implementation of the pullback concept.
This strategy can be tested and optimized on any timeframe and any instrument. The authors focused on the SPY, QQQ, China’s FXI, and Brazil’s EWZ in the book, all of which showed stellar win/loss ratios.
The Authors’ Stats:
- Instrument: SPY
- Test dates: 1/29/93 – publication date
- Win Rate: 80.4%
- # Trades: 153
- Avg. P&L: .85%
- Net points: 122.36
- Strategy locked in more than all of the gains the SPY made during the test period, while only being exposed to the market less than 25% of the time.
The QQQs, FXI, and EWZ each boasted 79.4%, 76.9%, and 81% win rates, respectively, and the book further details their results.
What You Get
- The Double 7s strategy file for thinkorswim
- All parameters are customizable in the properties menu, including pullback and follow-through lengths
- Customizable market hours
- Option to use a percentage-based stop or not to use a stop
- Specify the size of stop to use, if any
- Customizable colors
Why You Want It
- The extremely high win/loss ratio on the SPY and other instruments, as demonstrated by the authors, makes it an easy strategy to trade from a psychological standpoint
- Option to add a stop makes the strategy even more easy to trade
- Long-only strategy further makes it suitable for almost anyone, regardless of the type of account they trade out of
- Ability to quantitatively backtest the strategy on multiple instruments, timeframes, and conditions affords more peace of mind and encourages traders to fully trust in their system
How it Works
The Double 7s strategy is simple and sweet, and that’s what makes it so good. You look to buy when the market closes at a new x-number-of-days low, and look to sell when the market closes at a new x-number-of-days high. The default settings are those specified, tested and verified by the authors in the book.