RSI SPY Trading Strategy (RSI(2) On SPY )

Last Updated on June 19, 2022 by Quantified Trading

SPY is very mean revertive and RSI is a mean revertive indicator. Does this mean that RSI works on SPY? In this article, we test an RSI SPY trading strategy.

It turns out that our hypothesis is correct: the RSI works well on SPY. Even better, we improve the strategy by adding one extra indicator.

Before we go on to test the RSI SPY strategy, please make sure that you know what Relative Strength Index (RSI) is and what mean-reversion is:

You might also be interested in our RSI QQQ trading strategy.

RSI SPY trading strategy:

Lets’s make a simple RSI SPY strategy:

The trading strategy is really simple and reads like this in plain English:

  1. If RSI(2) is less than 15, then enter at the close.
  2. Exit on close if today’s close is higher than yesterday’s high.

Here is the accumulated profit curve from 1993 until today:

The trading performance metrics look like this:

All in all, this is a very solid strategy, yet simple. Keep trading simple!

RSI SPY improved trading strategy:

Is it possible to improve the trading strategy by adding an extra parameter?

Yes, it is. We added one simple parameter that reduces the number of trades from 470 to 377 but still the total returns increase:

The trading performance metrics look like this:

The RSI SPY strategy is improved significantly with one additional parameter. We don’t want to reveal the additional indicator because this is the stuff we send out to those who subscribe to our monthly trading edges.

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If you would like to have the Amibroker and Tradestation code for this strategy plus 80+ other free trading strategies published on this website, please click on this link:

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RSI SPY strategy conclusions:

As you can see, you don’t need to do anything fancy to make trading strategies. The RSI SPY is as simple as it can get, and still, it performs just as well as buy and hold despite spending much less time in the market and having just half the drawdown.

 

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  • Is the 2 period RSI on SPY below 0.15 or 1.5 or 15? Just looking at the last 3 years of SPY chart, I don’t see many entries if it’s near 0, ie, 0.15? In fact I am not able to show a value lower than 1 in a ToS chart. Thanks!

    • Hi,
      I wrote 0.15, but you are right: RSI varies between 0 to 100. If it’s below 15 then go long on close.

      The reason I wrote 0.15 i that I use numbers a bit different….. But 15 is the correct number 🙂

  • I tried to build this strategy, also.

    But I cant’t follow your results…. I got an average gain of 0,1% for the profits….. And some buy and hold would bring much better results in my backtests…. 🙁

    Can you give some more details when you close your trade?
    How many trades do you get for each month or each year?

    • Hi,
      Perhaps you have RSI calculated wrongly? Exit is if today’s close is higher than yesterday’s high. If SPY yesterday was max at 237.54 and SPY today closes at 237,85, then exit.

  • dear Grotte
    Searched many places formula to calculate RSI(2).could not get
    can you share the formula
    thank you