Connors RSI(2) Mean-Reversion Strategy with Trend Filtering
Summary
The article presents Larry Connors’ short-term RSI(2) mean-reversion approach, which seeks pullbacks within a broader trend. A long-term moving average defines the trend regime, while very low RSI readings signal potential long entries in an uptrend and very high readings signal potential shorts in a downtrend. Connors’ suggested reference is the 200-day average, with entry thresholds around 10 and 90; the article also discusses more extreme levels and entering near the close. It describes exits using a short moving average or other stop approaches, while noting that Connors’ tests reportedly found stops reduced results.
Examples for an index-tracking fund and Apple illustrate that signals can be early and may lose money when prices keep moving against the entry. The article also adapts the rules for a 15-minute Bitcoin futures backtest using a 70-period average and one-times leverage. It reports that extreme moves can hurt mean-reversion strategies and suggests filtering some short signals by waiting for RSI to fall below its midpoint. Results depend on exit choices, market regime, and parameter settings; the described examples do not establish broad robustness.
Key ideas
- The strategy uses a long-term moving average to determine whether to seek long or short setups.
- RSI(2) extremes identify potential entries against short-term price moves within the defined trend regime.
- The article describes close-based entries and several possible exit or stop approaches.
- Chart examples show that signals can arrive early and may lose when the price continues against the trade.
- The Bitcoin futures adaptation uses a 15-minute interval, a 70-period average, and one-times leverage.
- Extreme market moves can damage mean-reversion strategies, and filtering signals may reduce some exposure.
Tags
Cited by
- Strategies Double 7s (Connors/Alvarez via pinkfish, Farrell Aultman) - SPY Daily Close-at-7-Day-Low Buy / Close-at-7-Day-High Sell, SMA200-or-SMA70 Regime Filter, 15% Stop, 2x Reg-T - Faithful Port on USEQ
- Hypotheses Double 7s (Connors/Alvarez via pinkfish, Farrell Aultman) - SPY Daily Close-at-7-Day-Low Buy / Close-at-7-Day-High Sell, SMA200-or-SMA70 Regime Filter, 15% Stop, 2x Reg-T - Faithful Port on USEQ
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.