The 2-period Relative Strength Indicator (RSI) strategy was developed by Larry Connors. It is based on the principle that market prices return to a mean after significant highs or lows. A buy signal is generated when the 2-period RSI goes below 5 and the market price is above the 200-period MA. A long position is closed when the market price closes above the 5-period MA. In this backtest, we used the components of the Russell 3000 index as a stock universe. The condition 'price ca sma(5)' in the formula for closing a position reads as 'price crossed above the 5-period simple moving average'.
Type of Positions
Long
Position Opening
Criteria for Opening a Position:
index(russell3000) and rsi(2) < 5
Order Execution Model:
Close Prices
Position Closing
Criteria for Closing a Position:
price ca sma(5)
Order Execution Model:
Close Prices
Backtest Parameters
Initial Capital:
$10,000
Capital at Risk:
5%
per trade
Portfolio Max Size:
20 positions
Comm. per Trade:
0.05%
Avg Bid-Ask Spread:
0.1%
Period:
1/1/2020 - 12/31/2020
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Backtesting Results Disclaimer
Past hypothetical backtest results are neither an indicator nor a guarantee of future returns. Actual results may vary from the analysis. Hypothetical performance results have many inherent limitations and cannot fully account for market factors such as bid-ask spread, slippage, and commission costs. There are numerous other factors related to the markets, which cannot be fully accounted for in the backtesting algorithm, but all of which can adversely affect actual trading results.
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