The RSI(2) strategy — popularized by Larry Connors in Short Term Trading Strategies That Work — is one of the most durable mean-reversion setups in equities. The idea is simple: in an uptrend, buy short-term panic and sell the bounce. We backtested it on real data. It still works.
The rules
- Entry: go long when the 2-period RSI closes below 10 and price is above its 200-day moving average (the trend filter).
- Exit: sell when price closes above its 5-day moving average, or RSI(2) rises above 70.
- Why it works: RSI(2) is hyper-sensitive — a reading under 10 means a sharp, short-term oversold flush. Inside a longer uptrend, those flushes tend to snap back.
The backtest results
Long-only, next-open fills (no lookahead), one position per name, across SPY, QQQ, AAPL, NVDA, MSFT, AMD, TSLA, META, AMZN and GOOGL — roughly 3.6 years of daily bars:
| Metric | RSI-2 + trend filter |
|---|---|
| Win rate | 73.4% |
| Profit factor | 2.45 |
| Avg return / trade | +1.42% |
| Trades | 406 |
| Avg hold | 5.1 days |
The trend filter matters. On futures, the same logic tested on the vault suite showed NQ 60-minute, London session: 80% win rate, 6.82 profit factor (RSI<5, no filter, over 10 trades) and GC 5-minute, NY open: 71.4% win rate, 2.78 profit factor across 21 trades. Different market, same edge.
How Northtape runs it live
RSI-2 on the daily is one of the five algorithms Northtape executes automatically. Every session it scans the watchlist for names where RSI(2) drops under 10 above the 200-day, and arms the entry. As of the last close, no name was armed — the closest were AAPL, GOOGL, MA and UNH on watch. That patience is the strategy.
Key takeaways
- RSI(2) < 10 above the 200-day is a real, backtestable edge — 73% win rate, 2.45 profit factor.
- The 200-day trend filter is not optional; it’s what separates a bounce from a falling knife.
- It wins small and often — expect ~1.4% per trade over ~5 days, high volume of trades.
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FAQ
Is the RSI-2 strategy profitable?
In our backtest on real daily bars it returned a 2.45 profit factor and 73% win rate over 406 trades — profitable, but with small average gains that require consistent execution.
What RSI-2 level is the buy signal?
A close with the 2-period RSI below 10, while price is above its 200-day moving average. Some variants use below 5 for a deeper, higher-conviction dip.
What timeframe is best for RSI-2?
Daily for equities is the classic. On futures it also tested well intraday (e.g. NQ 60-minute, GC 5-minute) during specific sessions.