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RSI(2) Extremesthe short-period oscillator

Evidence: ModerateBeginnerMean reversion · Oscillator

A two-period RSI is deliberately jumpy. It is not there to describe a trend — it is there to register, in one number, that the last two bars have been one-sided. Below 5 means almost everything recently has been selling.

The trade is the close back above 5, in the direction of the longer trend, with the target at the moving average that defines that trend.

The evidence here is for reversion itself, not for this particular measure of it. The ruler below is a way of deciding when price has stretched far enough — it is not what makes it come back.

Category
Mean reversion · Oscillator
Timeframe
H1 primary · D1 for the trend filter
Suitable pairs
EURUSD · GBPUSD · USDJPY · XAUUSD
Session
Signal at the bar close · execute in London or New York
Indicators / tools
RSI(2) · SMA(50) as the trend filter · SMA(10) as the target · ATR(14)

Valid setup

MR-01 · RSI(2) EXTREMES — VALID SETUP EURUSD · H1 · price above the SMA(50), RSI(2) drops under 5, then closes back above it LONG 1.08110 1.08254 1.08397 1.08541 1.08684 1.08828 1.08971 to the mean 1R SMA(50) — long-only above it SMA(10) — the target TARGET = SMA(10) ENTRY STOP 1 2 3 4 1.08695 1.08640 1.08512 RSI(2) 5 95 ① Price holding above the SMA(50) — long-only ② RSI(2) closes under 5 on the pullback ③ Nothing structural broken: the trend is intact ④ RSI(2) closes back above 5 — enter at that close ⑤ Stop 1.5 × ATR below the pullback low ⑥ Out at the SMA(10), or after five bars

Exact rules

Entry

  • Trend filter: price above the SMA(50) means long-only. Fading a downtrend with a two-period oscillator is the fastest way to lose with this.
  • The published daily versions of this use a 200-period filter. On H1 that is roughly eight days of price, which is a different claim — test 50 and 200 separately rather than assuming one stands in for the other.
  • Setup: RSI(2) closes below 5.
  • Trigger: RSI(2) closes back above 5.
  • Enter at that bar's close.
  • Mirror it for shorts — RSI(2) above 95 while price is below the SMA(50).

Stop loss

  • 1.5 × ATR(14) below the low of the excursion.
  • The excursion is short by design, so the stop is close. That is the trade-off: a high strike rate paid for with occasional large losses.
  • Risk 0.5%–1%.

Take profit / exit

  • The SMA(10). That is the mean this is reverting to — not the 50 that gates direction.
  • Or a time exit after five bars, whichever comes first.
  • No trailing. Trailing turns a reversion trade into a trend trade and the evidence does not carry across.

Build RSI(2) Extremes

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More from Mean reversion

Bollinger Band Fadetwo standard deviationsZ-Score Reversionthe distance, stated plainlyVWAP Reversionthe price institutions are measured against

Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.