In early 2005, we published the R2 Strategy on TradingMarkets which quickly became one of our more popular strategies. The strategy was also presented at "The Traders Expo" in Fort Lauderdale last year. In the "MoneyShow.com Best Webcasts of 2006" it was voted the number one presentation in the "Best for Traders" category. We recently updated and improved our research, leading to this article that shares our latest findings with you.
What is the Improved R2 Strategy?
The Improved R2 Strategy is a simple six-rule Market Timing Strategy which uses the 2-period RSI as its primary tool. Our research has shown that there is little statistical evidence using the standard 14-period RSI. But, when you shorten the period to a 2-, 3- or 4-period RSI, test results significantly improve. By using the 2-period RSI as we do here, you can see back-tested results of 84.31% correct in the S&P 500 Index going back to 1995 (12 years).
Here are the Rules:
Here are the simulated results from Jan 1, 1995 to December 31, 2006:
Number of trades: 102
Percent correct: 84.31%
Total S&P points gained: 1013.90
Average holding period/trade: 5.76 days
Here are some recent trade examples using the Improved R2 Strategy to trade the SPY. In each example, the SPY is trading well above the 200-day simple moving average (rule 1) and therefore not shown.



Applying this Research and Strategy to your Trading
You can immediately begin applying the Improved R2 Strategy to your trading using the rules above. If you wish to attend a free live class presented by Larry Connors, CEO and Founder of TradingMarkets.com and Connors Research, click here.
We have often been asked if the R2 strategy is transferable to stock trading, and the answer is yes. We have created simulated portfolios using a variation of the R2 strategy (known as the R3/R4 strategy). If you would like more information on the R3/R4 Strategy, click here.
Summary
As you can see from the above results, the Improved R2 strategy has done an excellent job of identifying buying opportunities in the market going back more than a decade. And, it’s a simple indicator that you can apply immediately. If you have any questions on the research or the strategy please feel free to email us at editor@tradingmarkets.com or call us at 213-955-58585 ext 1.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.
Ashton Dorkins is Editor-in-Chief of TradingMarkets.com.