ChrisMoody

CM RSI-2 Strategy Lower Indicator

RSI-2 Strategy

***At the bottom of the page is a link where you can download the PDF of the Backtesting Results.

This year I am focusing on learning from two of the best mentors in the Industry with outstanding track records for Creating Systems, and learning the what methods actually work as far as back testing.

I came across the RSI-2 system that Larry Connors developed. Larry has become famous for his technical indicators, but his RSI-2 system is what actually put him “On The Map” per se. At first glance I didn’t think it would work well, but I decided to code it and ran backtests on the S&P             100 In Down Trending Markets, Up Trending Markets, and both combined. I was shocked by the results. So I thought I would provide them for you. I also ran a test on the Major forex Pairs (12) for the last 5 years, and All Forex Pairs (80) from 11/28/2007 - 6/09/2014, impressive results also.

The RSI-2 Strategy is designed to use on Daily Bars, however it is a short term trading strategy. The average length of time in a trade is just over 2 days. But the results CRUSH the general market averages.

Detailed Description of Indicators, Rules Below:

Link For PDF of Detailed Trade Results
http://d.pr/f/Q885

Original Post
Larry Connors RSI-2 Trading System!!! Surprising Win Rate!!!
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//Created by ChrisMoody
//Based on Larry Connors RSI-2 Strategy - Lower RSI
study(title="_CM_RSI_2_Strat_Low", shorttitle="_CM_RSI_2_Strategy_Lower", overlay=false)
src = close, 

//RSI CODE
up = rma(max(change(src), 0), 2)
down = rma(-min(change(src), 0), 2)
rsi = down == 0 ? 100 : up == 0 ? 0 : 100 - (100 / (1 + up / down))
//Criteria for Moving Avg rules
ma5 = sma(close,5)
ma200= sma(close, 200)

//Rule for RSI Color
col = close > ma200 and close < ma5 and rsi < 10 ? lime : close < ma200 and close > ma5 and rsi > 90 ? red : silver

plot(rsi, title="RSI", style=line, linewidth=4,color=col)
plot(100, title="Upper Line 100",style=line, linewidth=3, color=aqua)
plot(0, title="Lower Line 0",style=line, linewidth=3, color=aqua)

band1 = plot(90, title="Upper Line 90",style=line, linewidth=3, color=aqua)
band0 = plot(10, title="Lower Line 10",style=line, linewidth=3, color=aqua)
fill(band1, band0, color=silver, transp=90)
RSI-2 Strategy

Indicators Used:
A 2 Period RSI with the upper line at 90 and the lower line at 10 looking for Extremes.
A 200 period Simple Moving Average, and a 5 period SMA.
***That’s it!!!

Entry Rules:
Buy Only When Stock is Above 200-SMA, AND Below 5-Day SMA, With RSI Below 10
Short Only when Stock is Below 200-SMA, AND Above 5-Day SMA, With RSI Above 90

Exit Criteria:
If Buying EXIT when Price goes Above 5 SMA.
If Selling Exit when Price Goes Below 5 SMA.
***The thought process is that the security has “Pulled Back” from it’s Major Trend - And will Continue The Major Trend By Crossing the 5 SMA in the direction of the Major Tend.

Entry Choices:
Conservative - Once Criteria = True THEN Buy at Market on the Next Days Open
Aggressive - Once Criteria = True THEN Buy Near Current Days Close.

The Aggressive Entry would create more Profits However I used the Conservative Entry in my back test.

Rules Used in Backtest:
If Entry Condition True Then Enter Next Day At Market Open.
If Exit Condition True the Exit That Day At Market On Close IF Close is Above the 5 SMA in Up Trend, or Below the 5 SMA in Down Trend.

Dates used for back test…

***For Forex I just tested the last 5 years on The Major 12 Pairs (Page 1), and the last page I tested All forex Pairs (80) from 11/27/2007 to 6/09/2014.

***Starting on Page 4 (PDF Link Below) I Tested S&P 100 in Bull Markets, Bear Markets, and Bull and Bear Markets Combined…I ran the test on the Nasdaq 100 at the end.

***All The Markets I tested Showed Almost Exact Win Percentages…The RSI-2 System Seems to Be VALID…However, in Bull Markets “Buy” Trades significantly out performed “Short” Trades, The opposite for Bear Markets….So Filtering the Direction of Trades You Take Would Significantly Increase The Results.

For S&P 100:
First Period tested was from 11/27/07 through 06/09/2014…which covered a major Down Trend and a Major Up Trend.
Second Period tested was 11/27/07 to 3/13/09 … The beginning of the Major Sell Off in the Market to the Dead Low to test an Extreme Downtrend.
Third Period Tested was from 3/14/09 to 06/09/2014 … To Test a Major Uptrend.

***Results are based on Buying 100 Shares of Stock. Only 1 Entry…No Scaling In. Closing 100% of Trade on Exit Criteria.
***Forex Results are based on buying 1 Standard Lot***Note The Forex results aren’t showing a Dollar Amount…It Shows TOTAL PIPS. So multiply the Pips times your Trade Size.

Results:
S&P 100: Bull and Bear Markets Combined - 11/27/07 through 06/09/2014
Winning Percent - 65%
***Check Out The Equity Curve!!!

S&P 100: Bear Markets - 11/27/07 to 3/13/09
Overall Winning Percent - 66%
"Buy” Winning Percent - 67% but only made $151,127
“Short” Winning Percent - 65.6% but made $1,054,487 … Significantly More Money Made Going With Trend.

S&P 100: Bull Markets - 3/14/09 to 06/09/2014
Overall Winning Percent - 64.9%
"Buy” Winning Percent - 69.6% but made $2,665,689 … Significantly More Money Made Going With Trend.
“Short” Winning Percent - 54% Lost $130,840 … Going Against Trend.

Nasdaq 100: Bull and Bear Markets - 11/27/07 through 06/09/2014
Overall Winning Percent - 63%

Forex All Symbols (80): Bull and Bear Markets 11/27/2007 - 6-09-2014
Overall Winning Percent - 58.4% … + 32,552 Pips

Forex Major 12 Pairs: Last 5 Years
Overall Winning Percent - 59.6% … +9,196 Pips

Link For PDF of Detailed Trade Results
http://d.pr/f/Q885

Original Post
Larry Connors RSI-2 Trading System!!! Surprising Win Rate!!!
Reply
ChrisMoody PRO ChrisMoody
2 years ago
Please see Original Post for Comments.

Larry Connors RSI-2 Trading System!!! Surprising Win Rate!!!
+1 Reply
vitosh
2 years ago
I tried to repeat the backtests in amibroker .
I used for backtests 3,000 shares traded on the Nyse from 2000 to 2014.
The result was not impressed...
Initial capital 100000.00
Ending capital 95114.73
Net Profit % -4.89 %
Exposure % 0.39 %
Net Risk Adjusted Return % -1266.84 %
Annual Return % -0.34 %
Risk Adjusted Return % -87.50 %
All trades 1719
Avg. Profit/Loss -2.84
Avg. Profit/Loss % -2.84 %
Winners 347 (20.19 %)
Losers 1372 (79.81 %)

Errors in my formulas, I could not find.
Somebody tried to repeat the backtests ? What results were obtained?
Reply
hdam vitosh
2 years ago
So based on these results if you would short instead of buying it would be profitable.
Reply
Bonavest PRO hdam
6 months ago
I am guessing the coloring is backwards. The candles that are above the 200 SMA and are GREEN should be RED and be SELL signals...?
Reply
ChrisMoody PRO Bonavest
4 months ago
The post at the top on the lower pic if you click on it it take you to the page where I cover the rules in detail. The color codes re correct. Example of the rules.

Entry Rules:
Buy Only When Stock is Above 200-SMA, AND Below 5-Day SMA, With RSI Below 10
Short Only when Stock is Below 200-SMA, AND Above 5-Day SMA, With RSI Above 90

Exit Criteria:
If Buying EXIT when Price goes Above 5 SMA.
If Selling Exit when Price Goes Below 5 SMA.
***The thought process is that the security has “Pulled Back” from it’s Major Trend - And will Continue The Major Trend By Crossing the 5 SMA in the direction of the Major Tend.

Entry Choices:
Conservative - Once Criteria = True THEN Buy at Market on the Next Days Open
Aggressive - Once Criteria = True THEN Buy Near Current Days Close.

The Aggressive Entry would create more Profits However I used the Conservative Entry in my back test.

Rules Used in Backtest:
If Entry Condition True Then Enter Next Day At Market Open.
If Exit Condition True the Exit That Day At Market On Close IF Close is Above the 5 SMA in Up Trend, or Below the 5 SMA in Down Trend.
Reply
parthi1990
4 months ago
Hi Chris!!!!!

I have been through the coding.. it looks great. Would you be able to create a Strategy based on this script? so that, we can test in Trading-view instead of going to third party application....
Reply
ChrisMoody PRO parthi1990
4 months ago
Hello,

I'd like to...I've been slammed. But I'd like to get back to providing data on TradingView. I'll get to it eventually. This is not a method I trade...It was just a published strategy that I showed when I knew TradingView was going to release strategy capabilities. But I could only use Highlight bars since strategies weren't available then.
Reply
tiwarianubhav96
4 months ago
hello sir i am traying to create an alert for rsi 2 lower but failed every time plz help me to create an alert for this


//Created by ChrisMoody
//Based on Larry Connors RSI-2 Strategy - Lower RSI
study(title="_CM_RSI_2_Strat_Low new", shorttitle="_CM_RSI_2_Strategy_Lower new", overlay=false)
src = close,

//RSI CODE
up = rma(max(change(src), 0), 2)
down = rma(-min(change(src), 0), 2)
rsi = down == 0 ? 100 : up == 0 ? 0 : 100 - (100 / (1 + up / down))
//Criteria for Moving Avg rules
ma5 = sma(close,5)
ma200= sma(close, 200)

//Rule for RSI Color
//col = close > ma200 and close < ma5 and rsi < 10 ? lime : close < ma200 and close > ma5 and rsi > 90 ? red : silver
alert_alert = close > ma200 and close < ma5 and rsi < 10 ? lime : close < ma200 and close > ma5 and rsi > 90 ? 1 : 0

//plot(rsi, title="RSI", style=line, linewidth=4,color=col)
//plot(100, title="Upper Line 100",style=line, linewidth=3, color=aqua)
//plot(0, title="Lower Line 0",style=line, linewidth=3, color=aqua)

plot(alert_alert, title="alertisgood", style=line, linewidth=1,color=yellow)

//band1 = plot(90, title="Upper Line 90",style=line, linewidth=3, color=aqua)
//band0 = plot(10, title="Lower Line 10",style=line, linewidth=3, color=aqua)
//fill(band1, band0, color=silver, transp=90)
+5 Reply
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