RSI Oversold/Overbought Mean Reversion

Entry Logic

• Long Entry: RSI (14) crosses below 30.
• Short Entry: RSI (14) crosses above 70.
• Confirmation: RSI crosses back above 30 (for long) or below 70 (for short).
• Timeframe: 15-minute, 60-minute.
• Location: At a known support or resistance level.
• Market Condition: Non-trending.

Exit Logic

• Profit Target: RSI crosses the 50 level.
• Scaling Out: Not typically used.
• Trailing Stop: No.
• Signal Failure: Exit if RSI makes a new extreme beyond 30/70.
• Opposite Signal: Exit on a new overbought/oversold signal in the opposite direction.
• Time Expiration: Exit after 8-10 bars.
• Momentum Loss: Exit if price stalls after entry.

Stop Loss Structure

• Hard Stop: Below the low of the entry candle (for long) or above the high (for short).
• Soft Stop: If RSI fails to move back towards 50.
• Max Dollar Loss: $400.
• Max Percent Loss: 0.8% of account.
• Structural Stop: Beyond the price structure that caused the RSI extreme.

Risk Management Framework

• Risk Per Trade: 0.5%.
• Daily Limit: 3 losses.
• Weekly Limit: 3% drawdown.
• Max Drawdown: 10%.
• R:R Requirement: 2:1.

Position Sizing Model

• Sizing Approach: Fixed dollar risk per trade.
• Volatility Adjustment: Not used.
• Conviction Sizing: Based on the strength of the support/resistance level.
• Scaling In: No.
• Scaling Out: No.

Trade Filtering

• Market Conditions: Avoid strong trends.
• Setups: RSI divergence can be a powerful confluence factor.
• Instruments: Stocks with a history of mean-reverting behavior.
• Time Restrictions: None.
• Chop/News Avoidance: Yes.

Context Framework

• Trend Direction: Neutral.
• VWAP Relationship: Fade moves that are far from VWAP.
• MA Relationship: Price should be overextended from its key moving averages.
• Range Location: Near the highs or lows of the session range.
• Higher TF Alignment: Higher timeframe should not be in a strong trend.

Trade Management Rules

• Breakeven: Not used.
• Scale Out: Not used.
• Add Size: Not used.
• Fast vs Slow Moves: Strategy captures reversals of sharp moves.

Time Rules

• Optimal Window: Any time during the session.
• Times to Avoid: News events.
• Session Notes: Works across all major trading sessions.

Setup Classification

• A+ Setup: RSI divergence at a major support/resistance level.
• A Setup: RSI extreme with a reversal candle.
• B Setup: RSI extreme alone.
• C Setup: RSI extreme in a trending market.

Market Selection Criteria

• Instruments: Large-cap stocks, forex pairs.
• Volume: Adequate liquidity is necessary.
• Volatility: Avoid hyper-volatile instruments.

Statistical Edge Metrics

• Win Rate: 55-60%.
• Avg Win: 2R.
• Avg Loss: 1R.
• Profit Factor: 1.65.
• Expectancy: +0.3R.

Failure Conditions

• Market Conditions: Strong, sustained trends where RSI can stay overbought/oversold for long periods.
• Specific Scenarios: Momentum breakouts.

Psychological Rules

• Discipline: Must wait for RSI to cross back from the extreme. Do not anticipate.

Advanced Components

• Regime Detection: Use a trend filter (e.g., 200-period MA) to trade only when the market is flat.
• Filters: Add a volatility filter to avoid low-probability setups.
• Correlation: Avoid taking signals on highly correlated assets simultaneously.
• MTF Alignment: Check for RSI extremes on multiple timeframes.

Location

• Strongest: At historical support and resistance levels in a ranging market.
• Weakest: In a strong trend with no clear structure.