Does the RSI(2) pullback strategy work? A backtest on stocks
The 2 period RSI strategy, made popular by Larry Connors, buys a stock in a long term uptrend after a sharp short term drop and sells on the first bounce. We tested every signal in liquid US stocks from mid 2018 to May 2025, then the 18 months after that separately.
MixedTwo out of three trades made money, but on average they did no better than the average stock. The most recent 18 months were better.
Signals62,532
Vs the average stock, per trade−0.04%
Trades that made money65.8%
Median trade+1.0%
A high win rate is what makes this strategy popular. But stocks were rising over the same few days anyway: after costs, the trades were no better than buying the average stock on the same day.
The rules we tested
Uptrend: the close is above the 200 day moving average.
Signal: the 2 period RSI closes below 10.
Entry: buy at that close. Exit: sell at the first close above the 5 day average, or after 10 trading days.
Stocks: US stocks above $10 trading at least $20 million a day on average, including companies that later stopped trading.
Judged against: the average eligible stock over the same days, after a 0.1% round trip cost, and against random stocks bought on the same day.
RSI(2) result by year, against the average stock, per trade
*2025 runs to May.
The most recent 18 months
In the most recent 18 months, which we held back and checked separately, RSI(2) trades did 0.16% better than the average stock across 18,564 trades, with 68% winners. That is close to our bar for a real result, but the earlier seven years show nothing, so we class it as mixed.
What it means for your trading
The bounce after a sharp dip is real, but small: often smaller than trading costs.
A high win rate is not the same as an edge. Always compare with what the average stock did over the same days.
If you trade it, costs matter most. Wide spreads and frequent trading can turn a small edge into a loss.
Limits: daily closes from mid 2018, which includes one bear market (2022). Results are averages over thousands of trades; any single trade can do far better or worse.
A short term pullback strategy: in a stock above its 200 day average, buy when the 2 period RSI drops below 10 and sell on the first close above the 5 day average.
What is the RSI(2) win rate?
In our test, 65.8% of trades made money, with a median gain of 1.0% and an average hold of 4 trading days.
Does RSI(2) beat the market?
Not over 2018 to May 2025: trades were 0.04% behind the average stock after costs. In the 18 months after that they were 0.16% ahead.
Backtest results are hypothetical. They are based on historical prices, include a simple trading cost and leave out taxes and other costs of real trading. Past results do not guarantee future returns. For informational and educational purposes only. Not investment advice, and not a recommendation to buy or sell any security.