An RSI reading below 30 says selling has dominated the last 14 sessions. It does not say the selling has finished. The RSI Oversold Bounce strategy waits for that reading to turn back up, and takes the trade only where a longer uptrend is already in place. The entry then rests on a change in momentum, not on a guess at where the low sits.
What follows is the trigger, the two filters around it, the exits, the position-size arithmetic, and the record that has to exist before any of it tells you anything.
What the RSI oversold bounce strategy is
The Relative Strength Index is a momentum oscillator plotted on a scale of 0 to 100. J. Welles Wilder Jr. introduced it in his 1978 book "New Concepts in Technical Trading Systems", and 14 periods is the standard look-back (Investopedia, "Relative Strength Index (RSI)", read 2026-09-12). Readings of 70 or above are conventionally called overbought, readings of 30 or below oversold.
The same page names the failure mode of that convention: the indicator "may also remain in oversold territory for a long time when the stock is in a downtrend". So a low reading on its own is not an entry. Price can keep falling for weeks while the reading stays under 30.
The strategy trades the cross back above 30 instead. RSI rises when up closes gain weight against down closes across the look-back, so the cross marks a change in the balance of recent closes. That is a smaller claim than calling a bottom, and it is the only claim the indicator supports.
The three entry filters
All three are read at the close.
- RSI (14) crosses above 30. The reading has to leave the band, not sit in it. A stock parked at 20 has not triggered anything.
- Price is above the 200-day SMA. This is the trend filter. Below that line, the same cross keeps happening inside a longer downtrend, which is the case the Investopedia page describes.
- Volume is above its 20-day average. Volume counts shares traded. A cross that happens on a below-average day moved fewer shares than a normal session for that stock, and the filter keeps those out.
Exits and profit taking
Two exits, both decided before the order goes in.
The profit exit is the RSI (14) crossing above 70, the other end of the same band. The protective exit is a stop 5% below entry. Five percent is this article's parameter, not a rule of the market, and every figure below moves with it.
One thing to settle before the first trade: an RSI 70 cross and a 2R profit target are two different exits, and they rarely fire at the same price. The 2R target sits 10% above entry when the stop is 5% below. An RSI cross can arrive at 4% or at 20%. Pick one of the two and hold to it, because a trade that switches rules mid-flight produces a result you cannot attribute to either.
Risk management and the 2R arithmetic
Risking 2% of equity per trade on a $50,000 account puts $1,000 at risk. With the stop 5% below entry, the position that risks exactly $1,000 is $1,000 / 0.05 = $20,000. That is 40% of the account in one holding. A tight stop and a small risk cap produce a large position, and the position size is the part the rule itself never states.
The breakeven win rate at 2:1 is 1 / (1 + 2) = 33.3%. At a 40% win rate the expectancy is 0.40 x 2 - 0.60 x 1 = +0.20R per trade before costs. Fees, slippage and overnight gaps come out of that 0.20R, so the margin over breakeven is thinner than the headline ratio suggests.
A worked example
The numbers below are invented to show the arithmetic. No company is named and no trade like this happened.
A hypothetical stock has held above its 200-day SMA all year, then sells off for a week. Wednesday's RSI (14) reads 24. Thursday's close puts it at 32, so the cross has happened, and Thursday's volume is above the 20-day average. Entry is $120.00, the stop sits at $114.00, and risk per share is $6.00.
The 2R target is $120.00 + 2 x $6.00 = $132.00. Held to the RSI rule instead, a cross above 70 at $135.00 is a gain of $15.00 per share, which is 2.5R and a 12.5% move. Same entry, same stop, two different results, which is why the exit gets decided first.
Keeping the record
Swingfolio ships a strategy template under this exact name. On the new-strategy page, press "Import from Library" and the Strategy Library sheet lists "RSI Oversold Bounce". Hover the row and press Preview. The modal prints three entry rules: "RSI (14) crosses above 30", "Price is above 200-day SMA" and "Volume above 20-day average", the third carrying an Optional badge. Below them sit two exit rules, "RSI (14) crosses above 70" and "Price hits stop loss", and a Risk Management block reading Stop Loss 5%, Target R-Multiple 2R and Position Size 2%. Preview only appears while the pointer is on the row, so on a touch screen the control you get is "Use Template".
Using the template fills the New Strategy form. The strategy exists on your account once you save that form. Trades carry no tags. The trade form has a select labelled Strategy that reads "No Strategy" until you choose one. Choosing this strategy on a new trade fills two fields from the template: the stop loss from its 5%, and the target price from its 2R, both worked off the entry price you typed. It leaves a field alone once you have edited it, and it does none of this while you edit an existing trade. It does not size the position. The trade form's risk block prints Exp. Risk, Exp. Reward, R:R Ratio and Port. Risk from the unit count you entered. For a share count worked back from a risk percentage, the calculator at /tools/position-calculator takes Entry Price, Stop Loss Price, Account Value and Risk Percentage and prints a number of shares.
Once trades close, the Strategy Performance page prints a row per strategy with Win, Avg R, Trades, Rules, P&L and PF. The Average R-Multiple card at the top of the Analytics page's Performance tab shows a "Low sample" pill with your count over 20. That pill stays until 20 closed trades carry a computable R-multiple, and under that count the card prints the raw average and skips the outlier trimming. Twenty is where the app starts trimming outliers, not where a win rate becomes trustworthy.
Where this goes wrong
- Buying the reading, not the cross. A stock at RSI 20 is in the band. Nothing has turned.
- Skipping the trend filter. The oversold cross fires just as often below the 200-day SMA, on stocks in a longer decline.
- Running both profit exits at once. Hold for RSI 70 on one trade and exit at 2R on the next, and the results describe no single rule. You cannot say afterwards which one you tested.
- Widening the stop. A stop moved down after entry is a different trade with different arithmetic, and the record no longer matches the rules.
Decide which of the two profit exits you are trading and write the number down. Then put the next run of these trades under one strategy, so the Win and Avg R columns describe one set of rules rather than a blend. Start the 30-day trial if you want that record kept as you go.