Key results
- Total return
- +14.4%
- Buy & hold: +136.7%
- Annual return (CAGR)
- +1.4%
- Buy & hold: +9%
- Max drawdown
- -12.9%
- Buy & hold: -40%
- Win rate
- 66.67%
- Profit factor
- 1.3
- Trades
- 72
- Longest losing streak
- 2 trades
- Period
- Oct 4, 2016 to Oct 1, 2026
- 10 years
- Market
- DAX/EUR
- Daily
Equity curve vs buy & hold
Returns year by year
| Year | Return | Trades |
|---|---|---|
| 2017 | +3.7% | 5 |
| 2018 | -0.3% | 9 |
| 2019 | +1.5% | 9 |
| 2020 | +4% | 10 |
| 2021 | -4% | 5 |
| 2022 | +8.5% | 9 |
| 2023 | -1.8% | 7 |
| 2024 | +3.3% | 8 |
| 2025 | -0.5% | 5 |
| 2026 | -0.3% | 5 |
Calendar years, compounded from monthly results. The first and last years can be partial.
RSI(2), popularised by Larry Connors, buys sharp short-term pullbacks inside a long-term uptrend and sells shorts into sharp rallies inside a downtrend. We built it from the rules described in StockCharts' ChartSchool. The DAX is an interesting test because, unlike the US indices, it really did alternate between up and down phases over the last ten years. That gives the short side of the system something to do, instead of leaving it as a long-only strategy by accident.
The rules we tested
- Market and period: DAX (DAX/EUR), daily candles, October 2016 to October 2026.
- Long entry: RSI(2) below 5 and the close above the 200-day simple moving average (SMA).
- Long exit: the close is back above the 5-day SMA, or below the 200-day SMA.
- Short entry: RSI(2) above 95 and the close below the 200-day SMA.
- Short exit: the close is below the 5-day SMA, or back above the 200-day SMA.
- Stop and target: a wide protective stop-loss, hit 3 times in 72 trades, and no take-profit.
- Sizing and costs: 100% of equity per trade, 0.02% commission per side, $10,000 starting capital.
What the backtest shows
Two out of three trades won. The average win was 1.30% and the average loss 2.00%, which puts the break-even win rate near 61%. At 66.7%, the strategy cleared it by about six points: the thinnest margin of the three indices we ran, which matches its profit factor of 1.30.
Where the DAX version stands out is risk. Its worst drawdown was 12.9%, a third of the index's 40.0%, and it never lost more than 2 trades in a row. The return is the price: +14.4% in ten years, or 1.4% a year, against 9.0% a year for buy and hold.
The best year was 2022 (+8.5%, 7 winners out of 9 trades), when the index spent long periods below its 200-day average and the short rules had room to work. The worst was 2021 (-4.0%, 3 winners out of 5). Since then the results have been close to flat: 2023 -1.8%, 2024 +3.3%, 2025 -0.5%, and -0.3% so far in 2026.
The same rules made +26.9% on the Nasdaq 100 and +18.1% on the S&P 500 over the same decade. The ranking follows volatility: the calmer the index, the smaller the bounce.
Why it works, and why it is not enough
The setup buys exhaustion. After two days of heavy selling inside an uptrend, sellers are often spent and the price snaps back toward its short average. The 200-day filter keeps the strategy from buying dips in a falling market, and on the DAX it allowed shorts when the trend turned. What it does not do is stay invested: the exit at the 5-day average captures a bounce of a few days and then steps aside while the index trends. With roughly seven trades a year, a single bad trade weighs on the whole year.
What you could test next
- Raise the entry threshold to RSI(2) below 10 to build a larger sample.
- Test the long side and the short side separately to see which one carries the result on the DAX.
- Replace the 5-day SMA exit with a close above the previous day's high.
- Run the same rules on another European index to see whether the low drawdown holds.
Methodology and assumptions
- Starting capital
- 10,000
- Position size
- 100% of equity
- Commission
- 0.02% per side
- Data window
- Oct 4, 2016 to Oct 1, 2026
- Run date
- October 2, 2026
- No repainting: every signal is computed on closed candles only, so the backtest never acts on a price a trader could not have seen yet.
- Past performance does not predict future results. A backtest is a historical simulation, not a forecast.
Frequently asked questions
Does the RSI(2) strategy work on European indices?
On the DAX it stayed positive over ten years (+14.4%, profit factor 1.30, 67% winners), but it returned 1.4% a year against 9.0% a year for buy and hold. It was the weakest of the three indices we tested with the same rules.
Is RSI(2) a low-risk strategy?
On the DAX its worst drawdown was 12.9% against 40.0% for the index, and its longest losing streak was 2 trades. That lower risk comes from being out of the market most of the time, which is also why the return is small.
What timeframe should I use for RSI(2) on the DAX?
The classic version, tested here, runs on daily candles: RSI over 2 days, a 200-day trend filter and a 5-day moving average exit.
Reproduce it, then change it
Every number on this page comes from the Backtrex engine. Rebuild the strategy in the app, then change the market, the timeframe or a parameter and see whether the result holds.
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