CM RSI-2 Strategy - Upper Indicators.

The CM RSI-2 Strategy - Upper Indicators indicator provides a comprehensive visual framework for Larry Connors’ mean reversion system by highlighting specific entry and exit points directly on the price chart.

Usage

The Usage section describes how to interpret the signals generated by the script, which is primarily optimized for daily timeframes. The indicator uses a color-coded bar system to signal potential trade transitions based on mean reversion logic.

• Long Entry: Identified when the price is trading above the 200-period SMA (indicating a long-term uptrend), the price closes below the 5-period SMA, and the 2-period RSI drops below 10. The bars will turn green during this condition.
• Long Exit: Triggered when a long position is active and the price moves above the 5-period SMA. The bars will turn blue to signal the exit.
• Short Entry: Identified when the price is trading below the 200-period SMA (indicating a long-term downtrend), the price closes above the 5-period SMA, and the 2-period RSI rises above 90. The bars will turn red during this condition.
• Short Exit: Triggered when a short position is active and the price moves below the 5-period SMA. The bars will turn blue to signal the exit.

Details

This script is an implementation of the RSI-2 strategy developed by Larry Connors. The core concept relies on the principle that prices tend to return to a mean during an established trend. By using an extremely short-term RSI (2 periods), the indicator identifies deep pullbacks within a broader trend.

The script utilizes two Simple Moving Averages (SMA):

• 200-period SMA: Acts as the primary trend filter. Trades are only taken in the direction of this moving average to increase the probability of success.
• 5-period SMA: Serves as the "mean" for short-term price action. It is used both as a filter for entry (price must be on the "wrong" side of the mean) and as the target for exits (price returning to or crossing the mean).

Settings

• Source: Determines the price data used for the calculations (default is Close).
• RSI Length: The lookback period for the Relative Strength Index (default is 2).
• Short MA Length: The lookback period for the short-term mean reversion moving average (default is 5).
• Long MA Length: The lookback period for the long-term trend filter moving average (default is 200).
• RSI Overbought Level: The threshold for short entries (default is 90).
• RSI Oversold Level: The threshold for long entries (default is 10).

FAQ

What timeframe is most effective for this indicator?

While it can be applied to various intervals, the strategy was originally designed and optimized for Daily bars, typically resulting in short-term trades lasting approximately two days.

What do the different bar colors represent?

Green bars indicate a long entry condition, red bars indicate a short entry condition, and blue bars indicate that an exit condition has been met for either a long or short position.

How do I get access to the CM RSI-2 Strategy - Upper Indicators?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.