the RSI 2P strategy from Larry Connors. (2024)

FAQs

What is the 2 point RSI strategy? ›

What Is the 2-Period RSI Strategy? 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.

By combining three different Relative Strength Index (RSI) indicators, you can potentially achieve a win rate of up to 90%. The three RSI indicators used in this strategy are the 14-period RSI, 7-period RSI, and 3-period RSI. Each of these indicators plays a crucial role in identifying market trends and momentum.

The Relative Strength Index (RSI) is a contrarian technical analysis indicator to find “overbought” and “oversold” assets. Technical-only strategies often have mixed results. However, adding fundamental analysis turns RSI into a powerful investment tool.

Calculate the UpDown Length by counting consecutive up or down days and expressing it as a percentage of the longest streak within a specified lookback period (typically 2). Calculate the Rate-of-Change using a specified period (typically 100). Average the three components to get the Connors RSI value.

The 2 period RSI developed by Larry Connors is a mean reversion strategy which provides a short-term buy-sell signal. The strategy gives a probable buy signal when 2-period RSI goes below 10 (lower the better) which is regarded as highly oversold.

The ConnorsRSI indicator is typically used to identify overbought and oversold conditions in shorter trading timeframes. While the traditional RSI typically defines 70 and 30 as the overbought and oversold levels, ConnorsRSI is more volatile and faster-moving, and requires more extreme levels to be set.

The RSI is a widely used technical indicator and an oscillator that indicates a market is overbought when the RSI value is over 70 and indicates oversold conditions when RSI readings are under 30. Some traders and analysts prefer to use the more extreme readings of 80 and 20.

The backtesting results of Macd/Bollinger Band, Moving Average, and Triple RSI trading strategies have shown promising results with a high win rate.

As mentioned before, the normal default settings for RSI is 14 on technical charts. But experts believe that the best timeframe for RSI actually lies between 2 to 6. Intermediate and expert day traders prefer the latter timeframe as they can decrease or increase the values according to their position.

The RSI compares bullish and bearish price momentum and displays the results in an oscillator placed beneath a price chart. Like most technical indicators, its signals are most reliable when they conform to the long-term trend.

What is the RSI 50 line strategy? ›

Determining the Trend using RSI

If you think a trend is forming, take a quick look at the RSI and look at whether it is above or below 50. If you are looking at a possible UPTREND, then make sure the RSI is above 50. If you are looking at a possible DOWNTREND, then make sure the RSI is below 50.

The general formula for it is: RSI = 100/(1+RS), where RS = Exponential Moving Average of gains / -||- of losses.

Relative strength index was designed to measure the speed of price movements. The stochastic oscillator formula works best when the market is trading in consistent ranges. RSI is generally more useful in trending markets and stochastics are more useful in sideways or choppy markets. The Trader's Journal.

What Is a Good RSI Indicator? Traders who are looking for investment opportunities should look for RSI values that hit 30 or fall below that level. This allows them to look for investment options that may be undervalued where the price may increase in the future.

One popular method is the 2% Rule, which means you never put more than 2% of your account equity at risk (Table 1). For example, if you are trading a $50,000 account, and you choose a risk management stop loss of 2%, you could risk up to $1,000 on any given trade.

The RSI is presented on a graph above or below the price chart. The indicator has an upper line, typically at 70, a lower line at 30, and a dashed mid-line at 50. Wilder recommended a smoothing period of 14 (see exponential smoothing, i.e. α = 1/14 or N = 14).

RSI is often used to obtain an early sign of possible trend changes. Therefore, adding exponential moving averages (EMAs) that respond more quickly to recent price changes can help. Relatively short-term moving average crossovers, such as the 5 EMA crossing over the 10 EMA, are best suited to complement RSI.