Cumulative RSI Strategy: A Smarter Twist on RSI(2) for S&P 500

TL;DR

• Most traders misuse RSI by relying on the default 14-period setting.

• Cumulative RSI smooths RSI(2) values to improve signal stability.

• 3D optimization shows RSI(2) with 2 summed bars and Buy < 40 as the sweet spot.

• Out-of-sample performance from 2021–2025 proves the strategy's robustness.

• Outperforms RSI(2) on S&P 500 with fewer whipsaws and a better equity curve.

Why Most Traders Use RSI the Wrong Way

The RSI indicator is a classic. But most traders slap it on their charts using the default 14-period setting and hope for the best. Spoiler alert: it rarely works.

"RSI(2) used to be a secret weapon. But once it became popular, the edge is slowly degrading." – Ali Casey

 Traders who did their homework moved to RSI(2), a shorter version that’s faster and more reactive. It works well for mean reversion setups, especially on the S&P 500. But RSI(2) has become overused—and like any popular tool, it starts losing edge when too many people jump on it.

Introducing the Cumulative RSI

Enter the Cumulative RSI: a way to smooth out RSI(2) while keeping its benefits. Instead of taking just the latest RSI(2) reading, we add several recent values and average them.

For example:

• RSI today: 22

• RSI 1 bar ago: 18

• RSI 2 bars ago: 20

• Cumulative RSI = (22 + 18 + 20) / 3 = 20

This gives a more stable signal, reducing whipsaws.

### 📺 Want to See It in Action?

 If you’d like a visual walkthrough of this strategy, check out my YouTube video: Most Traders Use RSI Wrong ❌ Do THIS Instead

I break down how Cumulative RSI works, why it's more robust than traditional RSI(2), and walk through the optimization and performance results step by step. It's a perfect companion to this article.

Side-by-side RSI indicators showing the difference between standard RSI(2) and the smoother Cumulative RSI (2,3) on a price chart with 25/75 thresholds

What Makes Cumulative RSI Different?

Because it uses multiple RSI values, this indicator reacts slower than RSI(2). That delay is a feature, not a bug.

• It helps confirm that an oversold condition is persistent.

• It avoids jumping in on one-bar extremes.

Analogy: Instead of reacting to a single shout (RSI(2)), you're listening to a group conversation (Cumulative RSI).

Strategy Rules and Setup

This is a mean reversion strategy on S&P 500 Futures (@ES.D) using daily bars for the past 18 years. Here's how it works:

• Buy when the Cumulative RSI < Buy Level

• Sell when the Cumulative RSI > Exit Level

Parameters Tested:

• RSI Period: 2 to 5

• Sum Bars: 2 to 7

• Buy Level: 5 to 55

• Exit Level: 25 to 95

The 3D Optimization: Finding the Sweet Spot

We tested over 3,900 parameter combinations. Here's what the 3D optimization revealed:

A color-coded 3D surface plot showing how different RSI periods and buy/sell levels impact strategy net profit. Higher peaks indicate stronger profitability zones

The best net profit in a stable region came from:

• RSI period = 2

• Sum bars = 2

• Buy < 40

• Exit > 25

Longer summations (e.g., 5 or 7) had weaker returns. The sweet spot was 2 summed bars and quick exits.

Backtest Results on S&P 500 Futures (2006–2025)

• 542 trades

• 67% win rate

• $367 average trade

• Only one losing year since 2006

A detailed table of Cumulative RSI performance on ES futures from 2006 to 2025 shows yearly profit/loss, average trade, and % profitable years.

The equity curve was smooth even through volatile years like 2022 and 2025.

Cumulative RSI Strategy equity curve on S&P500 futures market

Comparing Cumulative RSI vs RSI(2) on US indexes

While RSI(2) has long been a favorite for mean reversion setups, its overuse and sensitivity often lead to choppy performance, especially in volatile markets.

The Cumulative RSI strategy, on the other hand, delivers more consistent results across US indexes. As seen in the strategy comparison table below, the Cumulative RSI outperformed standard RSI(2) on many metrics across the S&P 500 (ES), Nasdaq (NQ), and Dow (YM). The smoother equity curve above highlights its durability during market shocks, offering better reliability in live trading conditions.

Table comparing RSI(2) vs Cumulative RSI on ES, NQ, and YM futures. Showing important strategy metrics. The advanced columns show weighted and asymmetrical RSI performance.

Advanced Enhancements

Looking to improve further? Here are some ideas:

• Weighted averaging: Give more weight to recent RSI values. Check the results in the chart above.

• Asymmetrical summation: Use more bars for entry and fewer for exit. Check the results in the chart above.

• Strategy Filters: Combine with the filters like Direction, Volatility, or Volume

Is It Robust? Let’s Look at the Out-of-Sample Period

"Four years out-of-sample. One losing year. That’s the kind of durability traders dream of." – Ali Casey

This strategy was first published in June 2021 with a moving average filter on the SP500 ETF (SPY). The performance since then:

• 2021 (6 months): +$10,417

• 2022: -$3,478

• 2023: +$3,171

• 2024: +$19,420

• 2025: -$5,553

That’s four years of OOS (out-of-sample) performance, with $23,997 net profit.

Why This Matters More Than Ever?

RSI(2) works, but as it’s being over used, cumulative RSI is the evolution.

• It reduces false signals

• Provides smoother entries

• Offers robust, OOS-verified performance

Related Strategy Enhancers to Try Next

• Volume Oscillator: Confirm oversold zones with volume weakness

• Ultimate C%: A custom indicator with equity-curve boosting features

• Robustness Testing Guide: Learn to test like a hedge fund

Final Thoughts: Don’t Just Copy RSI(2), Understand the Edge

The edge here is persistence—not just one bar dropping below 25, but a pattern of weakness. Cumulative RSI gives you that edge, and the test results prove it.

If you’re still using RSI(2) on its own, try adding this layer. You might just smooth out your equity curve.

🧠 Cumulative RSI Strategy Quiz

Ready to test your skills? This short quiz covers everything from RSI basics to advanced insights from the Cumulative RSI strategy. Whether you're new to indicators or already using RSI(2), these questions will help you check your understanding—and maybe even spark a few new trading ideas. Let’s see how much you’ve learned!

FAQs

1. What is the best RSI period for short-term trading?

RSI(2) is commonly used for short-term setups. However, cumulative approaches provide smoother entries.

2. How do you use RSI for mean reversion?

Look for oversold readings (e.g., RSI < 25) and pair with a strategy filter like volume filters.

3. Why does RSI(2) produce so many false signals?

RSI(2) reacts quickly, which can lead to whipsaws. That’s why smoothing with Cumulative RSI helps reduce noise.

4. Can I use RSI for long-term investing?

RSI is better suited for short-term timing within larger trends. For investing, use longer periods on weekly bars.

5. Is RSI(14) still relevant?

It's the default setting, but often too slow for active strategies. It could be used as a strategy filter, but RSI(2) or Cumulative RSI offers more usable trading signals.

6. What’s the difference between RSI and Cumulative RSI?

Cumulative RSI averages multiple RSI readings, offering smoothed but more stable signals for cleaner entries and exits.

7. How do I optimize RSI parameters?

Use backtesting with tools like 3D optimization charts to find profitable zones rather than a single “best” setting.

8. Can I use RSI strategies in crypto or forex?

Yes, but results vary across markets. Always backtest using appropriate strategy filters on liquid markets.

9. Does RSI work better with filters?

Absolutely. Volume, volatility, and trend filters all improve the quality of RSI-based signals.

10. Can I combine RSI with other indicators?

Yes, try pairing with the Volume Oscillator, Bollinger Bands, or even Cumulative RSI as a filter or trigger.