RSI indicator is a relative strength indicator tool chosen by many investors when analyzing the Crypto market. They help investors forecast current market trends that are likely to occur. So what is the concept of the RSI index? How to apply this index to the Crypto market in the safest and most effective way? Let’s join Crypto Trading to learn details about this indicator tool now!
Learn about the RSI indicator in Crypto
The RSI index is displayed as a chart of the Crypto market. They range in value from 0 to 100.
What is the concept of the RSI index?
RSI’s abbreviation in English is Relative Strength Index. This is a relative strength index that helps investors measure the degree of price change over a short period of time. From there, investors can evaluate the buying or selling conditions through different cryptocurrency pairs.
An RSI indicator value of 70 or higher indicates that the cryptocurrency pair is overbought or overvalued. This causes a trend reversal and subsequent price correction. An RSI value of 30 or less indicates that the coin’s price is in an oversold state. RSI values between 30 and 70 are the middle zone.
If they reach 50 it is a sign there is no trend. The RSI indicator measures the relative strength of a coin’s price to its historical price level. Investors should not use the RSI indicator to compare cryptocurrency pairs with each other.
Learn divergences in RSI
Divergence occurs when the prices of cryptocurrency pairs move in the opposite direction compared to the technical indicator. It warns that the current price trend may weaken. And this can lead to a change in price direction. When the RSI indicator is oversold, a bullish divergence will occur. A high RSI creates highs while falling prices create lows. This phenomenon is called positive anomaly. And it warns of a strong uptrend despite falling prices. When the RSI is at an overbought level, price divergence on the Crypto chart will occur. The RSI is creating a low peak while the price on the chart is rising to create a new peak.
See more: What is so important about RSI that investors?
Basic calculation formula of RSI indicator
The RSI is calculated using the formula 100-[100/1+(average gain/average loss)]. The average gain or loss is the percentage that an investor gains or loses during a specific trading period. Investors should note that the loss level in the RSI calculation formula is always a positive value. The initial RSI parameter is calculated after 14 periods, 14 trading days, or 14 trading hours.
Meaning of RSI index in the Crypto market
Understanding the price fluctuation trends of cryptocurrency pairs will help investors make more effective trading decisions. Based on enhanced RSI, investors can easily identify overbought or oversold conditions in the market. If the RSI index is below 30, the coin price is near the bottom. If the RSI indicator is above 70, the coin price is near the peak and there is a possibility of the risk falling.
RSI helps investors focus on signals and trading techniques that match the trend. During recessions, the RSI relatively rarely exceeds 70. Usually, it reaches 30 or lower. During an uptrend, the RSI remains above 30 and often touches the 70 level.
Notes when using RSI
Investors using the RSI index should note that the RSI indicator is suitable when investors trade in a long-term time frame. Because this is a momentum indicator, even if the coin price changes in quantity, RSI can still be maintained in the long-term session. To put it simply, it is when RSI is at the oversold level. Investors can absolutely decide to buy a coin. And then investors can completely wait for it to increase in price before selling. Advanced RSI will likely be most accurate when applied to a fluctuating market. At this time, the prices of cryptocurrency pairs fluctuate up and down rather than maintaining a trend.
Combine RSI indicator trading
Investors using the RSI indicator tool can completely combine it with other indicators such as MACD, Stochastic,…
Advanced RSI combined with MACD
With divergence signals, combining MACD with RSI will produce a reversal trading strategy. This includes a confirmation signal that is a divergence signal from both the MACD indicator and the RSI indicator. This signal is especially accurate on the Crypto chart on the day trading timeframe. In addition, investors can completely combine other technical indicators to increase the possibility of reversing the divergence signal between the two indicators.
With the image above, investors can see that the market is forming an uptrend for both MACD and RSI. Simply put, it means that the price is forming a lower low while the MACD and RSI indicators are forming a higher low. With this signal, investors can see that the market is tending to weaken. And there is a high possibility that it will reverse in the future. This is a good opportunity for investors to take advantage of buying.
See more: Open an Bybit account – explore the crypto exchange
RSI indicator combined with Stochastic
Stochastic RSI is a combination of two indicators including the relative strength index RSI along with the formula for calculating the Stochastic stochastic oscillator. Combining these two tools together will improve sensitivity and help investors improve reliability when trading. Stochastic RSI looks at the direction of RSI movement over a period of time typically 14 periods. They usually do not pay too much attention to the current market price.
The stochastic RSI ranges from 0 to 1 and revolves around a centerline of 0.5. Most charting platforms multiply this result by 100. Therefore, the indicator ranges from 0 to 100 instead of the original 0 to 1. If the stochastic RSI is less than 20, it is 0.2. Now that cryptocurrency pair is said to be oversold. At this time, the RSI value is trading below the predetermined range.
Conclude
Above is the knowledge about the RSI indicator that we want to share with readers. Investors using this indicator need to research carefully before making trading decisions. In case the price shows no signs of reversing or will take a long time to reverse. This is not the right time to apply RSI when trading. Please follow Crypto Trading daily to get more news about this indicator!
FAQs
When trading Scalping coins, should the RSI indicator be applied?
The RSI indicator works best when trading long-term time frames
Does the TradingView platform support applying RSI indicator settings?
Currently, most Crypto trading software supports investors using RSI indicator settings
When should investors apply the RSI indicator?
The moment when the price has broken the trend line. Or at this time, the RSI indicator shows a confirmed reversal signal
