STRATEGY
The RSI-2 strategy was created by Larry ‘LC’ Connors with at least some input from Cesa Alvarez. It begins with a simple moving average (SMA) which is 200 periods in length of lookback. This will filter us into an overall trend so we’ll only take buy trades when price is closed above the moving average, and only take sell trades when it’s closed below.
Then we come to the key element of the strategy. The relative strength index (RSI) indicator with nothing more than a 2 period input. It’s still using those classic overbought/oversold signals, but we’ve set them at 95 and 5. LC tested the strategy with levels of 90 and 10, and found that there was a higher success rate with 95 and 5. So that’s what we go for. When the RSI closes at 95 or above we’ll enter a sell trade, and if it closes at 5 or below we’ll enter a buy trade.
When it comes to money management LC didn’t actually believe in the stop loss. He knew it was a real thing, just in this strategy he valued the concept of mean reversion above the stop loss. So what he recommended was to close the trade when the price reverts across a 5 period SMA. If we’re in a buy trade that would mean price closing above the SMA, and for a sell trade closing below.
As that means we won’t know exactly where our stop loss will be, we’re going to use the average true range (ATR) volatility indicator to help us with our risk. It will be 1% capital risk per 1x ATR value at entry time. This should hopefully allow our capital to not get too far away from us. Hopefully it doesn’t go as far as 100x ATR from our entry before recrossing the 5 period SMA.
PART 1: • Larry Connors RSI-2 D1...
PART 2: • Larry Connors RSI-2 D1...
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PART 10: • Larry Connors RSI-2 D1...
RELATIVE STRENGTH INDEX
• Relative Strength Inde...
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SIMPLE MOVING AVERAGE
• Simple Moving Average ...
www.investopedia.com/terms/s/...
AVERAGE TRUE RANGE
• Average True Range (AT...
www.investopedia.com/terms/a/...
POSITION SIZE CALCULATOR
www.babypips.com/tools/positi...
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