How to use the Connors RSI2 Strategy using TradeStation, MultiCharts & TradingView

If you are looking for a way to minimize risk on your trades, Connors RSI 2 strategy is one of the best ways to do so. 

In combination with the explanation for Connors’ RSI-2 indicator, this post will teach you how to utilize this approach with TradeStation, MultiCharts, and TradingView so that you may profit from it as well!

We’ll apply this method to the US’s S&P 500 Exchange Traded Fund (ETF) SPY. You will also learn how to create a TradeStation strategy in EasyLanguage for the Connors RSI-2 system.

From Investopedia is “The RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset “.

There are many trading strategies, but one of the most popular is called Connors RSI2. Tom Connor developed it in 1978, and it has been used by traders ever since. 

The Connors RSI2 trading strategy is an excellent way to make money. It’s based on the idea that markets tend to overshoot, which means they go up or down more than people expect. 

So if you buy stocks when there’s a lot of volatility and sell them when things calm down, you’ll profit from both the price rise and fall. The Connors RSI2 trading strategy is designed for long-term traders who don’t want their investments to be tied up in just one stock for too long.

There are many trading strategies, but one of the most popular is called Connors RSI2. Tom Connor developed it in 1978, and it has been used by traders ever since. 

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What is Connors RSI 2 strategy?

The RSI 2 system devised by Larry Connors is straightforward; it takes advantage of oversold or overbought areas. This is the most common type of mean-reverting, which is the polar opposite of trend followers’.

When the 2-period RSI falls below 10, regarded as severely oversold, traders should look for buying possibilities. When the 2-period RSI rises above 90, short-sellers can capitalize on it.

This is a more aggressive short-term technique meant to ride on an existing trend. It’s not set out to spot essential highs or lows.

The first step is to establish the long-term moving average, which Connors suggests using a 200-day moving average.

When a stock is above its 200-day SMA, the long-term trend is up, and when it is below the 200-day SMA, the long-term trend is down. When buying opportunities above the 200-day SMA and short-selling possibilities below it, traders should look for them.

Use RSI to identify buying and selling opportunities

You’ve established the trend with a 200 moving average; now choose an RSI level to identify buying or selling opportunities within the broader trend. For purchasing, Connors used RSI levels of 0 to 10, and for sale, he employed levels ranging from 90 to 100.

RSI strategy for tradestation and multicharts

When investing on an RSI dip below 5, we discovered that returns were higher than when buying on a drop below 10. In other words, the lower the RSI fell, the greater the profits from subsequent long bets.

The advantages of trading before the close

We may even begin a trade just before the stock market closes or at the following open.

There are advantages and disadvantages to each strategy. Connors favors the before-the-close approach. Buying just before the close, on the other hand, puts traders at the mercy of the following open, which might be with a gap.

Of course, a wide gap may cause the new posture to deteriorate more quickly or reduce rapidly with an adverse price change. Traders who wait for the open have greater flexibility and can aid in the creation of entry levels.

How to get out of a trade?

We must ultimately establish the exit point. When utilizing the S&P 500, Connors recommends exiting long positions on a rise above the 5-day SMA and shorting positions on a fall below the 5-day SMA.

eurusd chart rsi strrategy

This is a short-term trading technique that will result in quick exits. Traders should also consider using a trailing stop or the Parabolic SAR, which permits automatic entry and exit on technical analysis. A strong trend might take hold at any time, and trailing stops may be used to keep a position open as long as the trend continues.

Stop losses hurt performance. Here’s why…

Connors does not recommend Stoploss. Yes, that’s right. According to Connors’ extensive quantitative study involving hundreds of thousands of trades, stops “hurt” performance regarding equities and stock indices.

Stops are not needed for the market to go up. You may lose money without them. But trading is risky, anyway. It would help if you decided what’s best based on the information you have.

Connors RSI2 Strategy with stop loss

Why not utilize a stop loss to improve the RSI2 condos strategy?

We believe this video is interesting, as the YouTuber Transparent Trader will look at a trading strategy for the s&p500.

In this video, the trader shows you the conners rsi strategy with the same entry signals but different exits that all work pretty effectively.

He’ll go over the fundamentals and how they work before showing you how to use a fixed stop loss.

As you know, Larry and Cesar don’t utilize a stop loss in their method since they’ve discovered that using this sort of mean-reverting strategy, the stop loss is only harmful to performance.

However, for Transparent Trader, placing money on trading this approach necessitates the use of a stop-loss since it gives him a clear indication of where his worst possible trade loss will be.

Then he’ll look at the results for that new exit and then fine-tune it, as well, for even better results. He’ll be looking to back-test the strategy over a long period (2005 through 2021).

Find out how to use Connors strategy in TradingView

You may use TradingView to track this method. Choose the instrument you wish to trade and the strategy from the options offered. Many strategies will be presented; pick the one that appeals to you most. You have the option of running backtests on your chosen financial instrument.

TradingView is a powerful and robust platform for performing backtested experiments on historical data. We’ve found it very easy to use, with features that make testing trading strategies quick.

connors rsi strategy using tradingview platform


It allows you to select from hundreds of stocks, which means you can do your study in minutes instead of hours or days! You also can analyze thousands of trades at once, so finding profitable patterns becomes much more accessible than anything else today.

connors rsi msft test with tradingview


When you use the Connors RSI2 strategy, choosing actions that respond well with mean-reverting logic is essential. Generally, blue-chip stocks and US indices like S5P500 will work best for this type of trading, while small caps should be traded using trend follower strategies.

Doubt about an RSI 2 automated trading system

We want to raise a few concerns about using this automated trading system before looking at the TradeStation strategy code.

This kind of TradeStation technique, in which the trade management is automated, needs a time frame of at least 1440 minutes. Also, this sort of system will activate the signal on several instruments simultaneously. Today’s market correlation is high, so automating such a strategy has two drawbacks.

The first consideration is the relationship between markets and the difficulty of trade among several instruments when we have numerous indications.

A market scanner is better advised to use this strategy because it would not assign resources to a system with so few transactions.

In addition, there is a lack of adequate capital allocation, which would be tough to optimize and, in any case, would necessitate the use of a sophisticated automatic control system.

During the year, the RSI2 plan on a daily time frame does not provide many indications. A market scanner is preferable to a strategy. It would be irresponsible to devote resources to such a small number of transactions.

We must never forget that an automated system loses time and energy to monitor results and check for performance or mistakes. The EasyLanguage TradeStation Strategy Code is compatible with MultiCharts.

The RSI 2 method for TradeStation and MultiCharts is simple to implement. We’ll show you how to do it yourself.

TradeStation Strategy EasyLanguage Code Tutorial

Open your code editor and start to write your code. 

Firstly, we report the inputs:

Input:
RSI_Period(2),
RSI_OverBought(10),
MA_Exit_Period(5);

Next, the variables:

Variables:
RSI_Value(0),
Exit_MA(0),
Max_Risk(000);

We use the RSI value as a signal and the moving average to get out of a trade:

RSI_Value = RSI(Close,RSI_Period);
Exit_MA = Average(Close, MA_Exit_Period);

Finally, we write the code to send the order to the trading platform and manages the exit:

If ( RSI_Value <= RSI_OverBought ) Then buy("Buy") this bar at close;
If ( MarketPosition <> 0 ) And ( Close > Exit_MA ) Then sell(“Exit”) this bar at close;
If ( Max_Risk > 0 ) Then SetStopLoss( Max_Risk );

Below you can check our trading transaction results using the strategy. 22 trades with an average profit of $44 per trade, with an excellent percentage of trades profitable at 70%.

Equity curve rsi tradestation backtest
Table of tradestation backtest

Conclusions

We’ve encoded the Larry Connors RSI 2 strategy into EasyLanguage for TradeStation, and we love it!

We can improve it by adding a trend filter with position sizing rules. The size of the position should depend upon the implied or historical volatility.

Tradestation Strategy RSI Connors – Easylanguage final code:

RSI Connors Strategy code TradeStation MultiCharts