As I was performing my evening chart-chomping last night, I was struck by the low RSI2 levels on all the major indices. If my memory serves, QQQ was below 1 and SPY was below 4. These are extreme RSI2 readings, yet a quick but not exhaustive search of the blogosphere did not return any articles on the low RSI2 reading. I found that odd because 3 to 5 years ago, RSI2 was all the rage and such an extreme reading would have sparked numerous articles.
Like most fads, it seems the RSI2 popularity has faded.
This is not a surprise as the indicator did hit a period of sub-par performance, and anyone who discovered it during its fad stage likely started trading it as the effectiveness was waning.
But RSI2 is not dead.
The indicator, at extreme readings, is still very effective at predicting short-term, over-sold bounces, similar to what we are seeing this morning.
Last night, I ran a few quick tests on QQQ and SPY, and the extreme readings we saw last night typically lead to a higher close within approximately 5 days, roughly 70-80% of the time. That is an impressive win rate. And those stats include the recent years of sub-par performance.
Starting tonight I will dust off some of the older RSI2 systems and re-evaluate them to see how they have performed since the Armageddon trade of 2008-2009. I may even present a very simple, yet still my favorite RSI2 system, never before published on my blog.
Stay tuned…Until then, enjoy the bounce!
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B, was gonna email you tonight to see if you would mind a little wrting about AlgoRev. I’ll send you something this evening. Good to see you!
Cool. It will probably be Friday before I can get back to you as I have dinner plans tonight and a Met’s day game tomorrow where I will most likely enjoy a few cold ones but I will certainly get back to you on Friday.
Hope you are well. Are you wrapped up for the summer?
Awesome, the Met’s game! We’ve been catching quite a few of our minor league team games. The boys love it.
I’m nowhere near wrapped up for anything. Everything is busy as hell around here. You wouldn’t believe my wife’s business. She’s got me cutting fabric and sewing.
Hi. It will be great to get your thoughts on RSI2 and infact improving RSI2 strategies either with an adjusted RSI or additional indicators incorporated into the mix. I do feel that the shine out of RSI2 has gone recently and I don’t know whether this is due to market dynamics changing temporarily or whether RSI2 has become too popular in the marketplace as it were
Vimal, I’ll be running some studies and then we can make some educated guesses. Off the cuff, I’d guess it is a combination of market dynamics and popularity, but I think the primary reason for it losing its shine is market dynamics.