Level 6: Advanced StrategiesInteractive
The RSI-2 Strategy (Larry Connors)
30 min readUpdated Mar 2026
Disclaimer
This educational content is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Trading involves risk of loss. You should consult a qualified financial advisor before making investment decisions. Swingfolio is a trade journaling tool, not a financial advisory service.
The RSI-2 strategy is one of the most extensively backtested short-term mean-reversion strategies in existence. Developed by Larry Connors, the core idea: when a stock in a long-term uptrend experiences a sharp, temporary pullback, it tends to bounce. The 2-period RSI quantifies that pullback with remarkable precision.
Most traders use 14-period RSI with 70/30 levels. Connors shortened RSI to just 2 periods with extreme thresholds (10/90 instead of 30/70), catching aggressive short-term pullbacks within longer-term trends.
All conditions must be met on the same day:
Long Bias
The long side (buying pullbacks in uptrends) has historically been more profitable than the short side. Most RSI-2 practitioners focus on longs, especially in stocks and ETFs.
Connors' backtesting shows that adding a fixed stop-loss reduces the strategy's profitability. The strategy buys stocks that are already oversold. A fixed stop triggers at the point of maximum pessimism, right before the bounce.
Risk management without a fixed stop:
Position Sizing Is Your Stop
If you are not comfortable without a fixed stop, add one at 3x ATR below entry. Your results may differ from the pure backtest, but risk management always comes first. Apply your L4 position sizing rules.
Cumulative RSI-2. Sum the last 2 RSI-2 daily readings. A cumulative reading below 10 provides a different signal set than a single-day reading, filtering out less extreme pullbacks.
Layered Entries. Buy 50% when RSI-2 drops below 10. Add 50% if it drops below 5 the next day. This gives a better average price on deeper pullbacks while still getting exposure on shallower ones.
Weekly RSI-2. Apply the same logic to weekly bars for a longer-term mean-reversion strategy with 1-3 week holding periods instead of 2-4 days.
Strategy developed by Larry Connors. First published in Short Term Trading Strategies That Work (2008). All strategy details presented for educational purposes.
Key Takeaways
Try This
Open a chart of SPY and add a 2-period RSI, 200-day SMA, and 5-day SMA. Scroll back 6 months and identify 3 instances where all long entry conditions were met. For each, track when the exit signal (close above 5-SMA) triggered. What was the average holding period and result?
Track RSI-2 trades systematically in Swingfolio with built-in R-multiple and expectancy calculations.
Start Tracking FreeDisclaimer
This educational content is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Trading involves risk of loss. You should consult a qualified financial advisor before making investment decisions. Swingfolio is a trade journaling tool, not a financial advisory service.