In today’s formal indicator article, we will get into a powerful trading tool known in the technical analyst realm. This trading tool is known as the Relative Strength Index. Many traders refer to the Relative Strength Index as RSI, so we will do the same for the rest of the article! The RSI tool has always been one of my favorites, and I use it in my daily crypto trading regimen.
The definition of the RSI is the measurement of the speed and magnitude of a security’s recent price changes to evaluate overvalued or undervalued conditions in the price of that security (crypto). To make that statement easier to understand, look at the RSI tool as a momentum indicator. As stated in the definition, it will show when a crypto (security) is overbought or oversold. Thus, in either of those territories, the price will tend to go in the opposite direction of being overbought or oversold. When the price is “oversold,” you will generally see the price start to move back up. When the price is “overbought,” you will generally see the price decrease. Let’s look at a Trading View chart picture to help understand the RSI:
I placed the large yellow arrow to point to the purple RSI line. The purple line (RSI) will increase or decrease based on the crypto price and overall momentum (buyers vs. sellers). On the right side of the RSI indicator, you can see numerical values in ascending values. When the RSI line is above a value of 70, it usually means the crypto (stock) is overbought and could see some downside not long after. When the RSI value is below 30, the crypto (security) is oversold and could see some upside soon. When the RSI value is in the middle at 50, the crypto (stock) is not overbought or oversold.
I use the RSI in my daily trading regimen when the crypto (stock) is in the overbought or oversold territory. I will use the RSI indicator on the 4-12 hour, daily, or weekly timeframe. When the RSI value is oversold, I will look at buying more of that crypto as there is a higher chance of upside. When the value is overbought, I will look at selling some of my cryptos as there is a higher chance of downside. There are no guarantees that this trading indicator will work this way for you, and it takes time and practice to get used to it. Do not take any information as financial advice within this article, and know any trades are at your discretion. The RSI is another tool you can add to your arsenal if you’d like!
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Written by: Matt Senn