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Mean reversion
Why is RSI(2) so often the opposite of shorting just because the reading is oversold?
RSI(2) short-term reversion · Connors RSI(2)
What it bets
Inside an uptrend, a very short-period drop that goes too far is a pullback, not the end of the trend.
How the rule is written
Larry Connors' short-period version: a longer average, or a trend filter, is still pointing up, and the 2-period RSI drops very low, so you buy. The exit is often price back at a short average, or RSI(2) back at a high reading. By default it buys the dip in the direction of the trend. It does not short a market just because price is high.
When it fails
If the trend filter is already late, buying the pullback means buying where the trend has just ended. In a continued decline, RSI(2) is very low on every dip, so the buys keep stacking onto the decline.
Do not confuse it with
Ordinary RSI overbought and oversold readings often fade the extreme, and they will take either side. RSI(2) without a longer trend filter is no longer Connors' rule. What remains is a very noisy oscillator.