"RSI Mean Reversion Alpha Study"

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Quantitative Research # Technical Trading Alpha Evaluation

Date: February 2026

Methodology: Walk-Forward Out-of-Sample Study

Sample: 957 Strategies, 100 Stocks, 5 Years

## Executive Summary

Key Finding: RSI mean reversion is the single strongest alpha source, producing +6.1% average per trade with 75% win rates. IS/OOS correlation of 0.909 indicates LOW overfitting.

## Methodology

- 957 strategies tested across 20 categories

- 100 liquid US stocks over 5 years (2021-2026)

- Walk-forward validation: 70% in-sample / 30% out-of-sample

- Transaction costs: 10 basis points round-trip deducted

- Statistical significance: t-test, p

## TIER 1: Proven Alpha (High Significance)

Category Avg/Trade Win Rate Sig Rate RSI Mean Reversion+6.1%75%99% Price Position (near lows)+5.8%74%100% RSI + Volume Confirmation+5.5%76%100% RSI + MACD Combo+4.0%77%83% Bollinger Band MR+3.2%71%100% MFI Mean Reversion+4.5%69%90%

## Why RSI Mean Reversion Works

### Behavioral Finance Explanation

Loss Aversion People feel losses 2x more than gains. When stocks drop, panic selling amplifies the move. RSI Herding "Everyone's selling, I should too" creates oversold conditions beyond fundamentals.

Recency Bias Stock down 3 days = "It's going to zero!" Reality: 75% of RSI Mean Reversion is Physical Extreme readings are temporary by definition. Entropy pushes back toward equilibrium.

## TIER 4: Negative Alpha (Avoid)

Strategy Avg/Trade Assessment 5-day momentum-1.5%Short-term trend chasing LOSES money ADX(20) tight threshold-1.3%Strict ADX filter enters too late ATR breakout 5-day hold-0.8%Short-term volatility breakouts FAIL

*Walk-forward validated study | IS/OOS correlation: 0.909 | p