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