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--- trading_strategies:rsi2 [2019/06/24 19:39]
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+++ trading_strategies:rsi2 [2023/11/21 18:12] (current)
jayanthi [2-Period RSI Strategy FAQs]
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 ====== RSI(2) ======
-===== Introduction =====
+===== What Is the 2-Period RSI Strategy? =====
-Developed by Larry Connors, the 2-period RSI strategy is a fairly simple mean-reversion trading strategy designed to buy or sell securities after a corrective period. Traders should look for buying opportunities when 2-period RSI moves below 10, which is considered deeply oversold. Conversely, traders can look for short-selling opportunities when 2-period RSI moves above 90. This is a rather aggressive short-term strategy designed to participate in an ongoing trend. It is not designed to identify major tops or bottoms. Before looking at the details, note that this article is designed to educate chartists on possible strategies. We are not presenting a standalone trading strategy that can be used right out of the box. Instead, this article is meant to enhance strategy development and refinement.
+Larry Connors developed the 2-period RSI strategy, a fairly simple mean-reversion trading strategy designed to buy or sell securities after a corrective period. Traders should look for buying opportunities when 2-period RSI moves below 10, which is considered deeply oversold. Conversely, traders can look for short-selling opportunities when 2-period RSI moves above 90. This is a rather aggressive short-term strategy designed to participate in an ongoing trend. It is not designed to identify major tops or bottoms. Before looking at the details, note that this article is designed to educate chartists on possible strategies. We are not presenting a standalone trading strategy that can be used right out of the box. Instead, this article is meant to enhance strategy development and refinement.
 ===== Strategy =====
@@ Line 29: / Line 29: @@
 {{:trading_strategies:rsi2:rsi2-02-aapl-bullbear.png|Chart 3  -  RSI(2)}}
-===== Tweaking =====
+===== Tweaking the 2-Period RSI Strategy =====
-As with all trading strategies, it is important to study the signals and look for ways to improve the results. The key is to avoid curve fitting, which decreases the odds of success in the future. As noted above, the RSI(2) strategy can be early because the existing moves often continue after the signal. The security can continue higher after RSI(2) surges above 95 or lower after RSI(2) plunges below 5. In an effort to remedy this situation, chartists should look for some sort of clue that prices have actually reversed after RSI(2) hits its extreme. This could involve candlestick analysis, intraday chart patterns, other momentum oscillators or even tweaks to RSI(2).
+As with all trading strategies, it is important to study the signals and look for ways to improve the results. The key is to avoid curve fitting, which decreases the odds of success in the future. As noted above, the RSI(2) strategy can be early because the existing moves often continue after the signal. The security can continue higher after RSI(2) surges above 95 or lower after RSI(2) plunges below 5. In an effort to remedy this situation, chartists should look for some sort of clue that prices have reversed after RSI(2) hits its extreme. This could involve candlestick analysis, intraday chart patterns, other momentum oscillators, or even tweaks to RSI(2).
 {{:trading_strategies:rsi2:rsi2-03-goog-cross50.png|Chart 4  -  RSI(2)}}
-RSI(2) surges above 95 because prices are moving up. Establishing a short position while prices are moving up can be dangerous. Chartists could filter this signal by waiting for RSI(2) to move back below its centerline (50). Similarly, when a security is trading above its 200-day SMA and RSI(2) moves below 5, chartists could filter this signal by waiting for RSI(2) to move above 50. This would signal that prices have indeed made some sort of short-term turn. The chart above shows Google with RSI(2) signals filtered with a cross of the centerline (50). There were good signals and bad signals. Notice that the October sell signal did not go into effect because GOOG was above the 200-day SMA by the time RSI moved below 50. Also, note that gaps can wreak havoc on trades. The mid-July, mid-October and mid-January gaps occurred during earnings season.
+RSI(2) surges above 95 because prices are moving up. Establishing a short position while prices are moving up can be dangerous. Chartists could filter this signal by waiting for RSI(2) to move back below its centerline (50). Similarly, when a security trades above its 200-day SMA and RSI(2) moves below 5, chartists could filter this signal by waiting for RSI(2) to move above 50. This would signal that prices have indeed made some sort of short-term turn. The chart above shows Google with RSI(2) signals filtered with a cross of the centerline (50). There were good signals and bad signals. Notice that the October sell signal did not go into effect because GOOG was above the 200-day SMA by the time RSI moved below 50. Also, note that gaps can wreak havoc on trades. The mid-July, mid-October and mid-January gaps occurred during earnings season.
-===== Conclusion =====
+===== The Bottom Line =====
-The RSI(2) strategy gives traders a chance to partake in an ongoing trend. Connors states that traders should buy pullbacks, not breakouts. Conversely, traders should sell oversold bounces, not support breaks. This strategy fits with his philosophy. Even though Connors' tests show that stops hurt performance, it would be prudent for traders to develop an exit and stop-loss strategy for any trading system. Traders could exit longs when conditions become overbought or set a trailing stop. Similarly, traders could exit shorts when conditions become oversold. Keep in mind that this article is designed as a starting point for trading system development. Use these ideas to augment your trading style, risk-reward preferences and personal judgments. [[https://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=6&dy=0&id=p75665509237&listNum=30&a=256742750|Click here]] for a chart of the S&P 500 with RSI(2).
+The RSI(2) strategy allows traders to partake in an ongoing trend. Connors states that traders should buy pullbacks, not breakouts. Conversely, traders should sell oversold bounces, not support breaks. This strategy fits with his philosophy. Even though Connors' tests show that stops hurt performance, it would be prudent for traders to develop an exit and stop-loss strategy for any trading system. Traders could exit longs when conditions become overbought or set a trailing stop. Similarly, traders could exit shorts when conditions become oversold. Remember that this article is designed as a starting point for developing a trading system. Use these ideas to augment your trading style, risk-reward preferences and personal judgments. [[https://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=6&dy=0&id=p75665509237&listNum=30&a=256742750|Click here]] for a chart of the S&P 500 with RSI(2).
 ===== Suggested Scans =====
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   and [today's rsi(2) x 95]
 </code>
+===== 2-Period RSI Strategy FAQs =====
+==== What is the 2-period RSI strategy? ====
+The 2-period RSI strategy is a mean-reversion trading strategy developed by Larry Connors, designed to buy or sell securities after a corrective period within an ongoing trend.
+==== What does a 2-period RSI below 10 indicate? ====
+A 2-period RSI below 10 indicates that the security is deeply oversold and presents a potential buying opportunity.
+==== What does a 2-period RSI above 90 indicate? ====
+A 2-period RSI above 90 suggests the security is significantly overbought and may offer a short-selling opportunity.
+==== How do I identify the major trend in the 2-period RSI strategy? ====
+The major trend is identified using a 200-day simple moving average (SMA). If the security is above its 200-day SMA, the trend is up, and you should look for buying opportunities. If it's below, the trend is down, and you should look for short-selling opportunities.
+==== Can the 2-period RSI strategy be used to find market tops or bottoms? ====
+No, the 2-period RSI strategy is not designed to identify major tops or bottoms; it's a short-term strategy aimed at trends.
+==== What is the suggested timing for placing orders using this strategy? ====
+Orders can be placed just before the market close or on the subsequent open. Connors recommends the before-the-close approach.
+==== How can false signals be filtered in this strategy? ====
+False signals can be filtered by waiting for RSI(2) to move back below its centerline (50) for short positions, or above 50 for long positions after reaching extreme levels.
+==== What is Connors' philosophy regarding pullbacks and breakouts? ====
+According to Connors, you should buy on pullbacks, not breakouts, and sell on oversold bounces, not support breaks.