Connors RSI(2) Mean Reversion, Backtest Video

Connors RSI(2) isn’t about “buying oversold.” It’s about whether a rules-based pullback entry can harvest fast snapbacks inside an uptrend without bleeding when weakness persists.

This Larry Connors RSI(2) trading strategy is an intentionally fast mean-reversion trigger. It waits for a short, sharp pullback while the longer-term trend is intact, buys into that stress, then exits on a mechanical rebound. The idea is simple enough to sound obvious, which is exactly why it needs a hard backtest.

The hard part is the trade-off. A dip-buyer can look brilliant when bounces are frequent and fast, and it can look fragile when oversold stays oversold, volatility clusters, and exits and re-entries start to churn. This episode is built to make that behavior visible, regime by regime, on the equity curve.

This video runs the Connors RSI(2) full rule stack on SPY under explicit timing and assumptions, then reads the evidence in a fixed order: participation and trading behavior first, risk path next, payoff last. You will see what the strategy is doing most of the time, when it is getting paid for it, and when it is simply not working.

Why Connors RSI(2) gets attention

Connors RSI(2) sits near the center of systematic “buy the dip” research because it compresses the whole idea into a compact, testable rule set. Connors RSI(2) uses a two-period RSI trigger, which reaches extremes quickly. It pairs a long-term regime gate with a short-term pullback filter and an ultra-short oscillator that reaches extremes quickly. That makes it easy to implement and benchmark, and hard to evaluate honestly without looking at the full trade distribution and exposure profile.

It also targets a real behavioral pattern in index markets: during uptrends, selloffs often overshoot on the downside, then mean-revert as buyers step back in. RSI(2) is designed to be reactive, treating those air pockets as a repeatable entry condition instead of a discretionary judgment call.

The failure modes are just as clear as the appeal. When the market is trending down, when rebounds are delayed, or when volatility stays elevated, mean reversion stops behaving like a gentle bounce and starts behaving like repeated catching of falling knives. That combination, intuitive logic plus obvious regime risk, is why Connors RSI(2) keeps resurfacing and why this episode focuses on how it behaves, not how it is marketed.

What the video delivers

  1. The full strategy spec. Every input, condition, and decision rule is stated explicitly.
  2. Signal and execution timing. Signal evaluation and trade execution are specified so the backtest is reproducible.
  3. Implementation-grade clarity. Definitions and rules are stated explicitly to reduce ambiguity.
  4. A transparent benchmark. The benchmark is run under the same assumptions for a clean comparison.
  5. On-screen backtest settings. Timeframe, costs, cash treatment, and exclusions are stated in the video.
  6. A head-to-head scorecard with a fixed order. Exposure first, risk second, payoff last.
  7. An equity-curve walkthrough that matches the scorecard. Narration ties the numbers to what actually happened across the backtest window.
  8. Regime-aware interpretation. The episode pressure-tests strategy behavior through distinct market conditions.
  9. Frictions treated as real. Time in market, trades per year, and costs are stated so you can judge whether it clears your trading constraints.
  10. A structured conclusion. Summarized as Benefit, Cost, Role so you can evaluate it quickly and consistently.

Head-to-head scorecard

Watch the video to see the full head-to-head scorecard unblurred. The values are blurred here on purpose because the scorecard is not meant to be skimmed in isolation. In the episode, we reveal it in a fixed order and tie the numbers to the equity curve so you can see exactly what drove each line.

Trading rules

This strategy combines a 200-day regime gate with a 5-day pullback filter and a 2-period RSI oversold trigger, then exits on a mechanical rebound. Let “t” denote the signal bar. Signals are evaluated at Close(t); trades execute at Open(t+1).

Chart labels, indicators and trading logic

Markers identify the bar where the event occurs. They are not plotted at the exact fill price.

  • Red line indicates the 200-day simple moving average of Close, SMA(200)
  • Blue line indicates the 5-day simple moving average of Close, SMA(5)
  • Grey line indicates Wilder RSI, length 2, on Close, RSI(2)
  • Green horizontal line indicates the RSI(2) threshold at 10
  • Yellow circles indicate the entry conditions are met on the entry signal bar at Close(t)
  • Yellow vertical lines indicate entry signal bars at Close(t)
  • Green up arrows indicate entry execution bars at Open(t+1)
  • Yellow down arrows indicate exit signal bars at Close(t)
  • Red down arrows indicate exit execution bars at Open(t+1)

Entry
At Close(t), if Close is above SMA(200), Close is below SMA(5), and RSI(2) is below 10, signal a buy on that bar and execute the trade at Open(t+1).

Exit
At Close(t), if Close is above SMA(5), signal a sell on that bar and execute the trade at Open(t+1).

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