Connors RSI2 Mean-Reversion Entries Filtered by a Trend Average
Summary
The document presents a short-term RSI2 strategy that seeks pullbacks within a broader trend. In its stock-market description, a long-term moving average defines the permitted direction: look for longs above the average when RSI2 is very low, and shorts below it when RSI2 is very high. It discusses closing-price entries, alternative RSI thresholds, and exit choices, including moving-average or trailing stops. The author notes Connors’ finding that stops reduced performance in his tests, while warning that omitting stops can expose traders to large losses. Examples from DIA and Apple illustrate mixed signals: some entries preceded reversals, while others were early or unsuccessful. A separate cryptocurrency futures implementation adapts the lookback and moving-average period to a shorter interval and reports a high win rate, but provides little detail on methodology or full performance statistics. The document cautions that extreme or persistent moves can defeat the mean-reversion premise and suggests additional filters. Its examples do not establish robustness across markets or trading costs.
Key ideas
- A long-term moving average sets the direction in which RSI2 pullback signals are considered.
- Very low RSI2 readings are used for long entries in uptrends, while very high readings support shorts in downtrends.
- Signals can arrive early, and sustained price moves may cause repeated losses for a mean-reversion strategy.
- Stop-loss choices create a trade-off between limiting adverse moves and preserving historical test performance.
- The futures adaptation changes the indicator horizon, so its reported results should not be assumed to generalize.
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.