What is the stochastic RSI crypto? For a new trader entering the Crypto market, learning some indicators is extremely necessary. In particular, RSI is a momentum indicator that best supports trading. In particular, RSI will be extremely effective when combined with MA, MACD, etc. indicators. So what exactly is the RSI indicator? How to apply RSI in cryptocurrency trading? Let’s find out about Crypto Trading in this article!
What is stochastic RSI crypto?
In financial trading in general and cryptocurrency in particular, RSI is a familiar indicator. The RSI indicator was developed by J. Welles Wilder in 1978, and published in the book New Concepts of Technical Trading Systems.
What is RSI indicator?
RSI stands for Relative Strength Index, which means Relative Strength Index. (RSI in coin trading) helps measure the magnitude and speed of price fluctuations. Thereby, traders can assess the level of oversold and overbought.
RSI trading indicator is an oscillation chart, a collection of RSI indicators with values from 0 to 100. The RSI indicator is a tool to measure the rate of change or price fluctuations. When the RSI is on an upward trend, it is a positive buy signal. When the RSI is on a downward trend, it shows that traders are losing interest in products on the electronic market.
Calculation formula stochastic RSI crypto
The RSI index is determined by the following simple formula:
RSI = 100 – 100/(1 + RS)
In there:
- RS (Relative Strength) = Difference between average rising price and average falling price = Σ(rising price)/Σ(falling price).
- The default RSI parameter is 14 periods.
What is Stoch RSI?
Besides RSI, another related concept is Stoch RSI or more fully Stochastic RSI. Simply put, Stoch RSI is the derivative of the RSI indicator. This type of indicator was first mentioned in 1994, in the book The New Technical Trader, written by Stanley Kroll and Tushar Chande.
Stoch RSI is calculated using the formula: Stoch RSI = (RSI0 – RSImin)/(RSImax – RSImin)
In there:
- RSI0: Current RSI index.
- RSImax: The highest RSI index.
- RSImin: Lowest RSI.
See more: What is so important about RSI that investors?
How to read signals from RSI indicator
Understanding the signals shown by the RSI indicator will help traders identify overbought or oversold conditions of the market. Below, RSI or Stoch RSI are used together with the term RSI.
RSI overbought
Typically, if the RSI is above 70, the market is entering an overbought phase. This occurs during an uptrend, signaling that a bearish reversal is about to form. If you want to confirm a strong overbought signal, you can target an RSI between 80 and 100.
RSI oversold
When the RSI is below 30, the market is oversold. This occurs in a downtrend, signaling that the market is about to reverse to the upside. Typically, the oversold RSI value will be between 0 and 30. The closer the RSI value is to 0, the stronger the oversold. You should observe the RSI in multiple time frames to reduce noise and unreliable signals.
RSI Divergence Indicator
In addition to the overbought (0-30) and oversold (70-100) RSI levels, the RSI also helps traders predict trend reversals. It also identifies resistance and support levels by considering divergence.
RSI divergence is a phenomenon where price and RSI move in opposite directions. Through peaks and bottoms established with 2 factors of price and RSI. Specifically, when the price increases, it creates a higher peak than the previous peak and RSI decreases, it creates a lower peak than the previous peak or vice versa.
How to use stochastic RSI crypto
After understanding the concept and how to read signals from the RSI indicator, let’s explore ways to use this indicator to trade more effectively.
Identify the trend
By observing the RSI line, you can predict the next trend as follows:
- Uptrend: Occurs when the RSI line exceeds the value of 50 with an upward direction. Or the RSI line is fluctuating between 40 and 60 and suddenly surpasses 60.
- Downtrend: Occurs when the RSI line crosses below the value of 50 in a downward direction. Or the RSI line is fluctuating between 40 and 60, suddenly moving below 40.
Once you have identified the above trends, you can apply them simultaneously with other indicators such as MA, MACD, or Trendline to determine potential entry/exit points.
See more: Opening an Bybit exchange account for traders
Trading with overbought or oversold RSI indicator
- When RSI is oversold, traders should use a buying strategy. Recommended buying conditions are when RSI(3) < 30 and RSI(20) < 30
- When RSI is overbought, traders should use a sell strategy. Recommended sell conditions are when RSI(3) > 80 and RSI(20) > 75
These strategies are relatively effective. However, they should be combined with other indicators to eliminate noise signals and optimize profits.
Consider divergence and convergence signals with RSI indicator
Looking at price divergence and convergence with the RSI is also a method of determining trends. Similar to the divergence/convergence indicator with the MACD line. The RSI line can work against price action, signaling an impending market reversal.
- The divergence between price and RSI occurs when the market makes higher peaks, while the RSI line decreases, indicating a bearish reversal. To determine the trend in divergence, we will connect 2 price peaks or 2 bottoms, 2 RSI peaks or 2 bottoms to see them move in opposite directions.
- Conversely, when price and Convergence RSI, the market makes lower lows while the RSI line rises. This is a sign that the market is about to reverse to the upside. When you connect 2 price peaks or 2 price bottoms, 2 RSI peaks or 2 RSI bottoms, you will see that they tend to move closer together.
Combining RSI with other indicators
- Top Divergence: Price makes a higher top, and RSI makes a lower top. When RSI touches the trendline, you can open a Sell order.
- Bottom divergence: Price makes a lower bottom than the previous bottom, and RSI has a higher bottom than the previous bottom. At this time, you find a Buy entry point.
- Hidden Divergence: When the price Trendline is in the opposite direction to the RSI line. Specifically, the RSI is sideways but the price is going up/down. The price is sideways but the RSI is going down/up.
Conclude
In general, stochastic RSI crypto gives extremely useful signals if you understand it well and know how to combine it with other indicators. Hopefully, the knowledge that Crypto Trading provides in the article is useful to readers.
FAQs
What is the RSI indicator in cryptocurrency trading?
RSI stands for Relative Strength Index. This indicator is considered a popular tool in technical analysis. Not only in cryptocurrency trading but also in other financial markets. The indicator belongs to the momentum group, providing entry/exit signals.
What is the RSI 70 – 30 strategy?
RSI 70-30 is essentially an overbought/oversold trading strategy. Specifically, you will look at the interaction of the trend line and the oversold/overbought levels. Although not very reliable, it contributes to the signal for traders from RSI.
What is RSI trading?
RSI trading is when traders use signals from the RSI indicator to create an overall strategy. This indicator is very easy to use, just by looking at the RSI chart you can see the overall status of an asset.
