The RSI(2) strategy

The rules

1. The stock closes above its 200-day simple moving average.
2. Its 2-day RSI closes below 10. Connors found that dips below 5 did better still (StockCharts).
3. Buy at the close.
4. Sell at the first close above the 5-day simple moving average.

That is the whole system. Connors used no stop-loss. We add a limit of five trading days for trades that never bounce, and skip stocks that trade fewer than 1 million shares a day or cost less than $10.

The logic: the 200-day average says the stock is healthy, RSI(2) says it just had an unusually one-sided two days of selling, and the 5-day average marks the level it usually returns to. You buy the overreaction and sell the recovery.

What RSI(2) measures

RSI, the Relative Strength Index, compares how big the recent up-days were with how big the recent down-days were, on a scale from 0 to 100 (Wilder 1978). The usual setting looks back 14 days, and readings below 30 count as oversold, above 70 as overbought.

RSI(2) looks back only two days. Two strong down-days are enough to push it into single digits, and one good day sends it back up. The math, with a lookback of n days:

avg gain = (previous avg gain × (n − 1) + today's gain) / n
avg loss = (previous avg loss × (n − 1) + today's loss) / n
RSI = 100 − 100 / (1 + avg gain / avg loss)

An example with n = 2. Say the average gain is $1.00 and the average loss $0.50, so RSI is 66.7. The stock falls $2.00: average gain becomes $0.50, average loss $1.25, RSI 28.6. The next day it falls $1.50: average gain $0.25, average loss $1.375, RSI 15.4. Two down-days took it from 67 to 15.

Why not the standard 14-day RSI? It is too slow for dips that last two or three days. For S&P 500 stocks in an uptrend, RSI(14) went below 30 on only 0.5% of days; RSI(2) went below 10 on 8.6%, about 17 times as often.

Example: a trade day by day

Deere (DE) pulled back in August 2026 while trading well above its 200-day average (about $556).

Bought at $599.92, sold at $620.94: +3.5% before costs, in three days. The middle of the trade is the part that tests people: two more down-days, 3.2% below the entry, with RSI(2) at 1.3. The rule holds because nothing has changed: the stock is still above its 200-day average and has not yet closed above its 5-day average.

Note that the rule would have flagged Deere again on August 18 and 19. Whether to add to a position that is already open is a sizing decision, covered in position sizing.

Choosing the settings

Entry level. Below 10 is the standard. Below 5 gives fewer trades that did slightly better in our test; below 15 gives more trades that did slightly worse. The differences were small, so the choice is mostly about how many trades you want.

Exit. "First close above the 5-day average" and "first close above yesterday's high" gave almost identical results. Compared with simply holding every trade for five days, both had far more winners and freed the money sooner, at a slightly lower average per trade.

Trend filter. The 200-day average is what keeps the strategy away from stocks in a steady decline. Dips below the 200-day average had far larger losses in their worst trades in our test.

How it has performed

On every S&P 500 stock from 2008 to 2026, the rules above gave about 67% winning trades, an average trade of +0.32% after costs, and an average holding time of 3.2 days. Most of the return comes from many small wins; about one trade in five never bounces and is sold at a loss at the five-day limit. The mean reversion guide covers the losing side and the bad years in more detail.

How to find RSI(2) setups

Any screener that can filter on indicators works. Look for: price above the 200-day simple moving average, RSI with length 2 below 10, average volume above 1 million. Run it after the close or in the last minutes of the session, since the rule buys at the close.

Closing Note publishes this scan for the whole S&P 500 every evening on the swing trade candidates page.

RSI(2) is not ConnorsRSI

ConnorsRSI is a later indicator (Connors, Alvarez and Radtke 2012) that averages three parts: a 3-day RSI of price, a 2-day RSI of the up/down streak length, and the percentile rank of today's return over the last 100 days. RSI(2) is plain Wilder RSI with a two-day lookback, and it is what the original strategy uses.

How Closing Note uses it

Closing Note runs this scan on the S&P 500 after every U.S. close. The full list of qualifying stocks is free on the swing trade candidates page.

The daily email goes a step further: it ranks that list and marks the top-ranked names, then tells you when each one hits its exit. Every top-ranked trade and its result, losers included, is in the track record (806 trades since January 2, 2026; a model record, not account statements).

How much to put into each trade, and how many to hold at once, is covered in position sizing.

Questions

What is RSI(2)?

The Relative Strength Index calculated over two days instead of the usual fourteen. It swings from near 100 to near 0 within a couple of sessions, which makes it a trigger for short pullbacks rather than a trend gauge.

What RSI(2) level counts as oversold?

Connors used below 10, and below 5 for stronger signals. Lower levels give fewer signals; in our test the average trade improved only slightly as the level dropped.

What are the best RSI settings for swing trading?

For pullback trades of a few days: a 2-day RSI, an entry below 10, and the 200-day moving average as a trend filter. The 14-day default reacts too slowly for dips that last two or three days.

Is RSI(2) the same as ConnorsRSI?

No. ConnorsRSI is a later indicator that averages three parts: a 3-day RSI of price, a 2-day RSI of the up/down streak length, and the percentile rank of today's return over the last 100 days. RSI(2) is just Wilder's RSI with a 2-day lookback.

Does the RSI(2) strategy use a stop-loss?

Connors' original rules do not; he reported that stops hurt results on stocks because many eventual winners fall further first. A time limit, such as five trading days, handles trades that never bounce.

References

1. Connors, L. and Alvarez, C. (2008). Short Term Trading Strategies That Work. TradingMarkets Publishing. ISBN 978-0-9819239-0-1. openlibrary.org
   Origin of the RSI(2) rules; tests on 1995–2007 data.
2. Connors, L., Alvarez, C. and Radtke, M. (2012). An Introduction to ConnorsRSI. Connors Research. Presented to the CMT Association, December 12, 2012. cmtassociation.org
   Definition of ConnorsRSI.
3. StockCharts ChartSchool. RSI(2). Accessed September 30, 2026. chartschool.stockcharts.com
   Summary of Connors' rules, the lower-threshold finding and his view on stops.
4. Wilder, J. W. (1978). New Concepts in Technical Trading Systems. Trend Research. ISBN 978-0-89459-027-6. openlibrary.org
   Original definition of the RSI and its smoothing.