December 9, by Larry Connors. This article was originally published inand was based on research involving 7, trades from Jan 1, to June 30, This research has been updated through and currently involves 11, simulated trades. There are a number of option and articles written about RSI, how to use it, and the value it provides in predicting the short-term direction of stock prices. Unfortunately, few, if any, of these claims are backed up by statistical studies. This is very surprising considering how popular RSI is as an indicator and how many traders rely upon it. Click here to learn exactly how you can maximize your returns with our new 2-Period RSI Stock Strategy Guidebook. Included are dozens of high-performing, fully quantified stocks strategy variations based around the 2-period RSI. Most traders use the period RSI, but our studies have shown that statistically, there is no edge going out that far. However, when you shorten the timeframe you start seeing some very impressive results. Our research shows that the most robust and consistent results are obtained by using a 2-period RSI and we have built many successful trading systems that incorporate the 2-period RSI. Relative Strength Index The Relative Strength Index RSI was developed trading J. The most common use of this indicator is to gauge overbought and oversold conditions — put simply, the higher the number the more overbought the stock is, and the lower the number the more oversold the stock is. You can change this default setting in most charting packages very easily but if you are unsure how to do this please contact your software vendor. These numbers represent the benchmark which we use for comparisons. We then quantified overbought and oversold conditions as measured by the 2-period RSI reading being above 90 overbought and below 10 oversold. In other words we looked at all stocks with a 2-period RSI reading above 90, 95, 98 and 99, which we consider overbought; and all stocks with a 2-period RSI reading below 10, 5, 2 and 1, which we consider oversold. When looking at these results, it is important to understand that the performance improved dramatically each step of the way. The average returns of stocks with a 2-period RSI reading below 2 were much greater than those stocks with a 2-period RSI reading below 5, etc. This means traders should look to build strategies around stocks with a 2-period RSI reading below Overbought The average returns of stocks with a option RSI reading above 90 underperformed the benchmark 2-days 0. The average returns of stocks with a 2-period RSI reading above 95 underperformed the benchmark and were negative 2-days later The average returns of stocks with a 2-period RSI reading above 98 were negative 1-day The average returns of stocks with a 2-period RSI reading above 99 were negative 1-day When looking at these results, it is important to understand that the performance deteriorated dramatically each step of the way. The average returns of stocks with a 2-period RSI reading above 98 were significantly lower than those stocks with a 2-period RSI reading above 95, etc. This means stocks with a 2-period RSI reading above 90 should be avoided. Aggressive traders may look to build short selling strategies around these stocks. Also shown is that, on average, stocks with a 2-period RSI above 98 show a negative return over the next week. Recent Examples Chart 1 below is an example of a stock that recently had a 2-period RSI reading below 2: Chart 1 Chart rsi below is an example of a stock that recently had a 2-period RSI reading above Chart 2 Our research shows that the Relative Strength Index is indeed an excellent indicator, when used correctly. This statement cuts to the very essence of what TradingMarkets represents — we base our trading decisions on quantitative research. For example, greater results can be found by looking for multiple day readings under 10, 5 or 2. The 2-period RSI is the single best indicator for swing traders. Learn how to successfully trade with this powerful indicator with The 2-Period RSI Stock Strategy Guidebook. Click here to order your copy today. CommentaryRecentShort Term Trading Tagged With: ConnorsRSI is the first Quantified Momentum Indicator -- the next-generation improvement to traditional RSI indicators. At Connors Research, we are using it as an overlay to many of our best strategies to make them even better -- now you can, too. Enter your email address to get your FREE download of our Introduction to ConnorsRSI - 2nd Edition - Trading Strategy Guidebook with newly updated historical results. Larry Connors has over 30 years in the financial trading industry. For over 15 years, Larry Connors and now Connors Research has provided the highest-quality, data-driven research on trading for individual investors, hedge funds, proprietary trading firms, and bank option desks around the world. The Connors Group, Inc. About Careers Contact Us Testimonials Link To Us. TradingMarkets PowerRatings Connors Research. ConnorsRSI Learn More About ConnorsRSI Recent Articles Store Books Free First Chapters Free Newsletters PowerRatings Buy the PowerRatings Algorithm Recent Trading. Home Articles Connors Research ETFs Options Stocks Volatility Contributors Larry Connors Kevin Haggerty Matt Radtke Education Connors Research Glossary Moving Averages Options Options Trading VIX Interview Archive Trading Lessons Videos Guidebooks Courses Newsletters Store June 19, Why RSI May Be One of the Best Short-Term Indicators December 9, by Larry Connors. Have You Switched To ConnorsRSI? Company Info The Connors Group, Inc. About Us About Careers Contact Us Testimonials Link To Us. Properties TradingMarkets PowerRatings Connors Research. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products collectively, the "Information" are rsi for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. All analyst commentary provided on TradingMarkets. The analysts and employees or affiliates of TradingMarkets. This information is NOT rsi recommendation or solicitation to buy or sell any securities. Your use of this and all information contained on TradingMarkets. Please click the link to view those terms. Follow this link to read our Editorial Policy. Return to top of page.
Harrison had to come out of his last start against the Royals on Saturday after six scoreless innings because of the blister, and it did not improve enough for him to pitch on Thursday.
Microeconomics is the branch of economics which caters with individual firms, consumers, and industries as they produce, buy and sell goods and services.
The Walt Disney Company is one of the largest media and entertainment corporations in the world.
Harrison had to come out of his last start against the Royals on Saturday after six scoreless innings because of the blister, and it did not improve enough for him to pitch on Thursday.
Microeconomics is the branch of economics which caters with individual firms, consumers, and industries as they produce, buy and sell goods and services.
Greenhouse gases are gases such as Carbon dioxide, Methane, and Nitrogen oxides.
The Invisible Man by Ralph Ellison: A Search of Identity and True Self.