RSI-2 mean reversion, backtested
Most people meet RSI as a 14-day indicator and are told over 70 is overbought. The short-term mean-reversion version, popularised by Larry Connors, does almost the opposite: it uses a 2-day RSI, which is jumpy enough to hit single digits several times a year, and buys that washout — but only while the market is still in an uptrend. The trend filter is not a detail. Without it the same rule buys every step of a collapse.
The rules, exactly
This is what the run above loads. Every number in it stays editable — change the ticker, widen the stop, and run it again.
- Only consider a buy while the price is above its longer moving averages — the trend filter that keeps the rule out of a falling market.
- Buy at the close when the 2-day RSI closes under 10.
- Sell at the close when the 2-day RSI closes over 70. Holds are short — typically a few days.
- 0.1% commission and 0.05% slippage per side. This matters more here than on a slow system: a strategy that trades often pays the spread often.
Screens for: $10B+ · 2M+ shares a day · profitable. That filter does nothing on the single-stock run above — it is the pool this strategy is really meant to trade, and it comes into play when step 1 is switched from one ticker to the whole US stock market. The momentum screener is a free way to see a ranked pool like it today.
What to watch for
Short-hold mean reversion produces many small wins and occasional large losses, so a headline win rate flatters it — check the average loss against the average win in the results below, not just the percentage green. It also assumes the thing you are buying comes back, which is a statement about the business as much as the chart; that is why the screen attached to this template asks for large, liquid, profitable companies. And frequent trading in a taxable account converts a gross edge into a smaller net one.
Before you trust any backtest
A backtest is a measurement of the past under assumptions you chose, and the assumptions are where results go wrong. Three that matter here: the run covers five years of daily closes, so it has seen one bull market and one bad year rather than a full cycle; fees and slippage are included but your broker’s may differ; and a strategy that fired only a handful of times has told you almost nothing, however good the numbers look. The tool reports the trade count for that reason — read it first.
Want to change the rules rather than the numbers? The full backtester builds a setup out of plain-English conditions, and this template arrives in it already loaded and editable.
The other prebuilt strategies
- Golden Cross — Hold while the 50-day average is above the 200-day; step aside when it crosses back under.
- Trend pullback — In a long uptrend, buy the dip that reclaims the 50-day average — a bounce off the trend.
- Impulse pullback — A fresh 6/18 EMA cross marks a brand-new trend; buy its first small dip as it resumes.
- Donchian breakout — Buy a 20-day high the way the Turtles did; exit on a 10-day low or the 2R target.
- Bollinger reversion — Buy a close under the lower 20-day band; sell the snap back to the middle band.