Beating the Market with RSI and SPY Rotation

Expert_CBCD · 2026-07-22T13:05:48+00:00

=== SUMMARY === - The author presents a systematic rotation strategy using RSI calculated on EMA20 (RSI-EMA) applied to the top 20 S&P 500 stocks; when a stock’s RSI-EMA crosses above 30, it is bought, and capital otherwise stays in SPY, with exits after a fixed holding period (optimized to 15 trading days). - Backtest from 2010–2026 shows the 15‑day hold variant achieves a 23.1% CAGR vs. SPY’s 15.13%, but with significantly higher volatility (std dev ~22%) and large drawdowns in certain years (e.g., -31% in 2022). - The author claims the RSI-EMA modification produces smoother, more consistent signals, but the strategy’s real‑world robustness is unproven due to limited out‑of‑sample testing and potential overfitting of the holding period. === SENTIMENT === MIXED === TRADE IDEAS === SPY - LONG | confidence: 0.50 | sentiment: +0.30 Speaker: u/Expert_CBCD Thesis: 1. THE FACT: The strategy’s default position (no crossover) is long SPY, and the backtest shows SPY buy‑and‑hold returns average 15.13% annually with a 1.20 Sharpe. 2. THE BRIDGE: Although the full rotation system outperforms, its intermittent SPY exposure acts as a safe haven during low‑signal periods, implying a tactical long bias in SPY when the system is not triggered. 3. THE VERDICT: Long SPY is the core “cash” position of the strategy; it benefits from broad market growth when no individual stock entry signal appears, making it a low‑conviction but reasonable trade for investors who adopt the framework. 4. RISKS: The strategy can remain in SPY for extended periods (e.g., 2013—only 0.65% return); a pure SPY long ignores the rotation’s alpha from stock selection. Timeframe: medium-term Key Points: - Default position when no crossover signal - SPY B&H avg 15% return since 2010 - Lower volatility than full strategy - Not the primary source of alpha - Risk of underperformance in strong bull runs No other actionable trade ideas (the post describes a system, not current ticker‑specific entry/exit signals).

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The author presents a systematic rotation strategy using RSI calculated on EMA20 (RSI-EMA) applied to the top 20 S&P 500 stocks; when a stock’s RSI-EMA crosses above 30, it is bought, and capital otherwise stays in SPY, with exits after a fixed holding period (optimized to 15 trading days).
Backtest from 2010–2026 shows the 15‑day hold variant achieves a 23.1% CAGR vs. SPY’s 15.13%, but with significantly higher volatility (std dev ~22%) and large drawdowns in certain years (e.g., -31% in 2022).
The author claims the RSI-EMA modification produces smoother, more consistent signals, but the strategy’s real‑world robustness is unproven due to limited out‑of‑sample testing and potential overfitting of the holding period.

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Hello again everyone, I want to share another strategy that I've been working on that I thought I would share with you folks to hear your thoughts.

The whole strategy is based on using the RSI indicator but instead of using it on the close, using it on the EMA 20 (RSI-EMA). I find that it is much smoother and gives stronger signals across timeframes vs. traditional RSI. A few backtests that I've done also find that the RSI-EMA is a fairly strong modification that produces more consistent wins and better results.

I of course wanted to turn this into a trading systems and had played around with various formulas, and entries and exits but believe that I finally found a system that may work well.

The set up is as follows. I use a universe of the top 20 companies in the S&amp;P 500 by market cap (data goes back to 1989 and can be found [here](https://www.finhacker.cz/en/top-20-sp-500-companies-by-market-cap/#2010); my own backtest is 2010 to present). The tickers used for a current year are based on the top 20 companies from the previous year to avoid any lookahead/survivorship bias.

Within a given year, when an equity's RSI-EMA in the top 20 crosses over 30, I buy that stock. If there are multiple crossovers, I buy the one with the lowest RSI (but over 30 as it's crossing over). When there isn't an equity crossing over, capital is shifted into SPY. Exits occur after 10 trading days with all entries/exits happening at the next open. This system also uses 100% of the capital in each trade.

That's it!

With respect to exits, I tested using an ATR based exit (1.0 in either direction) and an RSI-EMA based exit (when it crosses above 70 or crosses back below 30). I also included a slippage penalty of 5 bps (0.05%).

Here are the results based on the various exits **(initial capital $100,000; backtest starts in 2010**):

Yearly results:

|**Year**|**SPY B&amp;H**|**1. Time (10d)**|**2. RSI Target/Redrop**|**3. ATR (1.0x)**|
|:-|:-|:-|:-|:-|
|**2010**|15.06%|22.85%|17.38%|9.70%|
|**2011**|1.89%|4.07%|3.08%|\-8.03%|
|**2012**|15.99%|31.31%|12.03%|2.11%|
|**2013**|32.31%|\-0.49%|0.65%|16.93%|
|**2014**|13.46%|34.68%|18.43%|\-8.65%|
|**2015**|1.25%|\-12.50%|\-12.84%|\-17.62%|
|**2016**|12.00%|17.88%|13.21%|5.88%|
|**2017**|21.70%|21.34%|28.49%|9.28%|
|**2018**|\-4.56%|24.74%|\-3.02%|\-32.06%|
|**2019**|31.22%|37.67%|18.69%|29.36%|
|**2020**|18.37%|16.11%|22.22%|\-3.15%|
|**2021**|28.75%|10.55%|\-19.53%|2.38%|
|**2022**|\-18.17%|\-31.10%|\-18.92%|\-46.60%|
|**2023**|26.19%|27.41%|24.82%|\-7.01%|
|**2024**|24.89%|63.29%|86.76%|14.41%|
|**2025**|17.72%|20.98%|30.48%|\-20.81%|
|**2026**|10.16%|45.43%|9.36%|126.31%|
|**---**|**---**|**---**|**---**|**---**|
|**Avg Return**|**15.13%**|**19.66%**|**15.96%**|**4.28%**|
|**Std Dev**|**12.60%**|**21.95%**|**24.52%**|**37.38%**|
|**Sharpe**|**1.20**|**0.90**|**0.65**|**0.11**|

|**Strategy**|**Final**|**Net Profit**|**Return**|**Trades**|**Win Rate**|**Avg Ret**|**Avg Hold**|**Worst Trade**|
|:-|:-|:-|:-|:-|:-|:-|:-|:-|
|**1. Fixed 10-Day Time Limit**|$1,565,613|$1,465,613|1465.61%|231|58.01%|1.00%|10.0d|\-26.72%|
|**2. RSI &gt; 70 Target (Redrop &lt; 30 Exit)**|$625,288|$525,288|525.29%|245|61.22%|0.67%|10.2d|\-22.03%|
|**3. 1.0x ATR Stop (Pure Intraday)**|$93,071|\-$6,929|\-6.93%|37|2.70%|1.47%|105.7d|\-5.76%|

What if we experiment with the different number of holdings days? We see that generally 12 - 16 days is the ideal hold time with returns being lower on either side of that range. To minimize slippage and the number of trades, I would likely pivot to 15 trading days instead of 10.

|**Hold Days**|**Trades**|**Win Rate**|**CAGR**|**Final Equity**|
|:-|:-|:-|:-|:-|
||||||
|**5**|326|54.3%|8.79%|$401,551|
|**6**|306|54.6%|8.17%|$365,193|
|**7**|288|53.8%|9.72%|$461,591|
|**8**|262|55.3%|13.95%|$862,307|
|**9**|243|54.3%|13.18%|$770,630|
|**10**|231|58.0%|18.15%|$1,565,613|
|**11**|220|54.1%|13.75%|$837,275|
|**12**|206|57.3%|18.59%|$1,664,395|
|**13**|197|57.4%|17.48%|$1,424,912|
|**14**|189|58.7%|20.72%|$2,231,678|
|**15**|183|59.0%|23.10%|$3,082,154|
|**16**|177|55.9%|19.40%|$1,862,937|
|**17**|170|54.7%|12.81%|$730,494|
|**18**|162|54.9%|11.27%|$582,300|
|**19**|156|57.1%|11.47%|$599,320|
|**20**|147|58.5%|8.87%|$406,290|

And that's that! I would love to hear any feedback including criticisms, general thoughts and suggestions to improve.

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