The RSI-2 strategy created by Larry ‘LC’ Connors begins with a simple moving average (SMA) which is 200 periods in length. 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. The overbought /oversold levels were set 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. 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. 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 closes 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 crossing the 5 period SMA.
In our testing we have changes the SMA to EMA


DISCLAIMER:
I am not a financial advisor and I am not offering you financial advice. I am not regulated in any way. The purpose of the content I provide is for educational purposes only. Any information you receive is based on my own knowledge and experience in the financial markets and how you act on the information provided is your own responsibility. I cannot be held responsible for any losses you may incur as a result of ideas taken from my content provided.

#howtoinvest #howtotrade #investing #trading #donchianchannel #stoploss #trailingstop #riskmanagement #trademanagement #portfoliomanagement #capitalmanagement #tradingpsychology #expectancy #tradingedge #tradingsystem #tradingstrategies #rsi #rsistrategy #larryconnors #forextrading #forexstrategy