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Using RSI(2) to Trade Leveraged ETFs

Posted in Technical Trading

A subscriber asked about the effectiveness of applying a two-period Relative Strength Index, RSI(2), to leveraged exchange-traded funds (ETF), suggesting two pairs of trade entry (oversold) and exit (overbought) settings:

  1. Buy when RSI(2) falls below 10 and sell when it subsequently rises over 90 (10-90).
  2. More conservatively, buy when RSI(2) falls below 5 and exit when it subsequently rises over 70 (5-70).

To investigate, we run simple tests on ProShares Ultra S&P 500 (SSO) with RSI(2) calculations based on the RSI template from StockCharts. Using daily adjusted SSO opens and closes during July 2006 (the first full month SSO is available) through March 2018, we find that:

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