Over the years we have shown the usefulness of the 2-period RSI and have developed strategies around it.
The following is a study we recently ran which further underscores just how helpful the 2-period RSI is.
This test started on the first day of trading in 2006 and runs through June 2012. We looked at every day of trading for every liquid ETF with an average daily volume of at least 125,000 shares/day for the past 21 trading days.
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.
We then looked at how these ETFs did over the next 5 days. Meaning we took all liquid ETFs on the first day of trading in 2006 and looked to see how they performed exiting 5 days later. We did this for every day through the end of last month (June 2012).
We then sorted the ETFs into ten 2-period RSI buckets (2-period RSI readings of 0-10, 10-20, etc.).
What you have below are the test results:
Connors Research 2-Period RSI Study; January 2006-June 2012.
All Liquid ETFs 5-day Return Sorted by RSI.
As you can see, the best performing ETFs on average over every 5-day period had the lowest RSI readings of 0-10. The second best performing had RSI readings of 10-20. On the other end of the spectrum, the poorest performing ETFs over the next 5 days were the ones with RSI readings above 60. All these buckets averaged negative 5-day returns.
In conclusion, when trading ETFs, start with low RSI readings when you buy. Look at high RSI readings for when to sell or sell short. The differences in the returns, especially at the extremes, is significant and could make a substantial improvement in your trading results.