2 – Period RSI Trading Systems for Nifty

We consider the Relative Strength Index (RSI) to be one of the best indicators available. There are a number of books and articles written about RSI, how to use it, and the value it provides in predicting the short-term direction of stock prices. Unfortunately, few, if any, of these claims are backed up by statistical studies. This is very surprising considering how popular RSI is as an indicator and how many traders rely upon it.

Most traders use the 14-period RSI, However, when you shorten the timeframe you start seeing some very impressive results. Most research shows that the most robust and consistent results are obtained by using a 2-period RSI and traders built many successful trading systems that incorporate the 2-period RSI.

Before getting to the actual strategy, here’s a little background on the RSI and how it’s calculated

Relative Strength Index

The Relative Strength Index (RSI) was developed by J. Welles Wilder in the 1970's. It is a very useful and popular momentum oscillator that compares the magnitude of a stock's recent gains to the magnitude of its recent losses.


A simple formula (see below) converts the price action into a number between 1 and 100. The most common use of this indicator is to gauge overbought and oversold conditions – put simply, the higher the number the more overbought the stock is, and the lower the number the more oversold the stock is.

RS = Average of x days up closes / Average of x days down closes

As mentioned above, the default/most common setting for RSI is 14-periods. You can change this default setting in most charting packages very easily but if you are unsure how to do this please contact your software vendor.


Backtesting over seven million trades from 1/1/95 to 6/30/06*. The table below shows the average percentage gain/loss for all stocks during our test period over a 1-day, 2-day, and 1-week (5-days) period. These numbers represent the benchmark which we use for comparisons.

We then quantified overbought and oversold conditions as measured by the 2-period RSI reading being above 90 (overbought) and below 10 (oversold). In other words we looked at all stocks with a 2-period RSI reading above 90, 95, 98 and 99, which we consider overbought; and all stocks with a 2-period RSI reading below 10, 5, 2 and 1, which we consider oversold. We then compared these results to the benchmarks, here's what we found:


Oversold 

The average returns of stocks with a 2-period RSI reading below 10 outperformed the benchmark 
1-day (+0.06%), 2-days (+0.21%), and 1-week later (+0.50%). 
The average returns of stocks with a 2-period RSI reading below 5 significantly outperformed the benchmark 
1-day (+0.12%), 2-days (+0.33%), and 1-week later (+0.65%). 
The average returns of stocks with a 2-period RSI reading below 2 significantly outperformed the benchmark 
1-day (+0.22%), 2-days (+0.51%), and 1-week later (+0.87%).
The average returns of stocks with a 2-period RSI reading below 1 significantly outperformed the benchmark 
1-day (+0.27), 2-days (+0.62%), and 1-week later (+1.05%).


When looking at these results, it is important to understand that the performance improved dramatically each step of the way. The average returns of stocks with a 2-period RSI reading below 2 were much greater than those stocks with a 2-period RSI reading below 5, etc.

This means traders should look to build strategies around stocks with a 2-period RSI reading below 10. 

Overbought 

The average returns of stocks with a 2-period RSI reading above 90 underperformed the benchmark 
2-days, and 1-week later. 

The average returns of stocks with a 2-period RSI reading above 95 underperformed the benchmark 
2-days later, and were negative 1-week later (-0.03%).

The average returns of stocks with a 2-period RSI reading above 98 were negative 1-day (-0.02%), 

The average returns of stocks with a 2-period RSI reading above 99 were negative 1-day (-0.08%), 
2-days (-0.24%), and 1-week later (-0.31%).

When looking at these results, it is important to understand that the performance deteriorated dramatically each step of the way. The average returns of stocks with a 2-period RSI reading above 98 were significantly lower than those stocks with a 2-period RSI reading above 95, etc.

This means stocks with a 2-period RSI reading above 90 should be avoided. Aggressive traders may look to build short selling strategies around these stocks.
2-days (-0.13%), and 1-week later (-0.18%).


As you can see, on average, stocks with a 2-period RSI below 2 show a positive return over the next week (+0.87%). Also shown is that, on average, stocks with a 2-period RSI above 98 show a negative return over the next week.


Check the Live 2- period RSI(SCO) for NSE Stocks

http://www.editgrid.com/user/nmtamijselvam/SCO_Calculator_for_Stock_(1)

Data is updated realtime using Y! Finance. You can get the RSI(2) values for
any kind o
f nse stocks for your analytics or trading purpose by just changing
the symbols of Yahoo stocks in [A1, B1, C1......Z1] cells

For Example B1 contains the value IDEA.NS…. if you change the value to 
RCOM.NS you would get the values for Reliance Communication

Last 10 values of  2-period RSI has been computed in the sheet

And A20,B20,C20….Z20 REPRESENTS CURRENT LIVE 2-PERIOD RSI VALUE
And A21,B21,C21,….Z21 REPRESENTS YESTERDAYS 2-PERIOD RSI VALUE
And A22,B22,C22,….Z22 REPRESENTS DAY BEFORE YESTERDAY 2-PERIOD RSI VALUE


AND SO ON

Just Check out the returns of Nifty and Essar Oil and whatever stocks mentioned in that List
….. Its simply amazing!!!!!!

Important Thing

If your trade to be more confident 

For Stpcls RSI Values => If Less then 1 – Confirm then Buy When Greater then 99 – Confirm then Short 

And for Nifty RSI Values => If closed Less than 5 then start go long next day and start average every day if RSI(2) closed below 5 and sell above 50 or higher values as Nifty is expected to turn upside in next 1-2 days

And for Nifty RSI Values => If closed Greater than 95 then go short next day and start average shorts above every day and sell below 50 or even lower as Nifty is expected to turn downside in next 1-2 days


Just icharts.in is enough to calculate –  2 period RSI…. 

OCT 24 – 4.84
OCT 27 – 3.90
OCT 28 – 52-98
OCT 29 – 56.43
OCT 30 – 86

Just Check it out in RSI(2) Values





Important Decisions Before Choosing the Stocks

1)when the stock is trading above 200 day Moving average(Bull Market)
We should look for only Long Signal in RSI(2) for Better Returns

2)When the stock is trading above 200 day Moving Average (Bear Markets) 
We should look for only Short Signal in RSI(2) for Better Returns

Unfortunately none of the stocks are trading above 200 day Moving Average 

So short selling is the only oppurtunity in the current market scenario for better returns
in our markets


How to USE this RSI 2 for Any kind of Stocks?

1)Have a Edit Grid Login and Save the RSI indicator sheet to your profile
So that you can vary the edit the parameters in the Spread Sheet
http://www.editgrid.com/user/nmtamijselvam/SCO_Calculator_for_Stock_(1)

2) TO Get the RSI(2) values for a particular stock say RNRL then the corresonding
yahoo stock code for RNRL is RNRL.NS

3)So delete ^NSEI in A1 cell and type RNRL.NS then you will get the corresponding
RSI(2) Values and the stock price values in the Coloumn A.


4)Changes only the Symbols in the A1,B1,C1,D1…..etc present in

the CLOSING RATE Sheet…… Thats enough


5)To look for any stock symbol use http://finance.yahoo.com/lookup

6)RSI(2) values below 5 and above 95 will be highlighted in red color


Reference

1)http://www.tradingmarkets.com/.site/stocks/commentary/editorial/2-Period-RSI.cfm

2)http://tradewhileworking.blogspot.com/2007/10/new-research-on-rsi2-profitable.html

3)http://www.tradingmarkets.com/.site/stocks/commentary/editorial/The-Improved-R2-Strategy.cfm

4)http://tradinggoddess.blogspot.com/2007/10/rsi2-in-short-term-trading.html

5)http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:relative_strength_index_rsi

Choose the stocks as what RSI(2) indicator Suggest You

Dont pick the stocks and see the indcator levels to meet your expectations

Let them work for you. Dont Expect anything from it

Happy Trading !!!!




Related Readings and Observations

Comments

  1. mynac says

    Dear Sir,
    As I am regular day trader since 2002,my experience is that this concept is useful for only “very sharp day trader only”.After taking any position or trade by this concept i.e. + or -- one has to run fast for the result i.e squaring off order,other wise the chances of losing the capital are very much high.In stead of above if you will adopt 9 or 14 RSI then definitely you will get less chances in day trading but the probability of the correct trade is rather more.
    In 2 RSI concept,whatever position you take is before the trend confirmation of the trend or one can say premature trending without confirmation of the trend.

  2. rahul says

    This will not work ….. don’t waste your time.

    Techincal analysis can not provide you an edge on its own.

    Mr Rajender appreciate your benevolence but if you really are a profitable trader why don’t you post a one year statement, we can get it verified from the broker concerned just deelte the a/c number and other personal info

    there are literally hundereds of thousands of people who read a few books and post a few charts with historical results in an attempt to fool people into thinking they have some expertise in trading the markets

    Parlor tricks look neat to the uninitiated but not to those who know the sleigh of hand.

    From what you post I am certain you are not a profitable trader long over the long term.

    • says

      @Rahul : The system is more than 4 years old. When it is exposed to public and major people starts following at some point of time the system losses its value.
      Its frank 2-period RSI system is outdated. If you are a good trader you need to constantly keep updated of your tradiing system rather sticking to the very old trading system and relying for profits.

  3. shekhar says

    I am trading this system on demo account since last two months. It works nicely in sideway markets. Can you explain how one can trade in trending markets?

    Regards.

  4. milind says

    Dear

    This system I read from book by Mr. Connors and Alvarez in 2009 ( U.S.). The author’s name shd have been mentioned some where in yr article. The book can be downloaded freely from net.

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