Relative Strength Index (RSI) is a technical indicator that measures the speed and change of price movements to find reversals. Is RSI good for use in trading Bitcoin and cryptocurrency? Watch the video to find out and read more detail in the article below. What is Relative Strength Index (RSI)? Feb 17, · The RSI is calculated by calculating the momentum of the ratio of higher closes to lower closes - so the more the stock moves up - the more positive the RSI. Example Chart and Analysis If you look at the Bitcoin price chart above you can see the 14 day RSI and two periods over the full 3 month time period that the chart shows. The RSI is an indicator that measures the momentum and rate of speed at which the price of an asset is moving at. The core of this indicator is based on the average upward price change vs the average downward price change for a given period of time.
Bitcoin trading rsiBitcoin RSI for COINBASE:BTCUSD by Crypto38 — TradingView
The second period is showing the Bitcoin price to be oversold as the indicator is breaching oversold territory and is therefore indicating a buy signal. This website is only provided for your general information and is not intended to be relied upon by you in making any investment decisions. You should always combine multiple sources of information and analysis before making an investment and seek independent expert financial advice.
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Related guides. Trading Crypto Currencies with a Stochastic Oscillator? Check out Trading Volume in Ranges and Trends. If the RSI is trading over the 50 line, this is when we should look for confirmation in price action that the trend is strong and possibly look for longs.
If price is trading below, we will look for confirmation that the trend is weak and look for short opportunities. Often, we see that in a downward or an upward trend the line will act as a loose support or resistance zone and that once reclaimed will be an indication that context has changed regarding momentum. Either it can pick up again for the first time, or suddenly it is now unable to regain steam. As we stated above, we need to be careful with this form of application.
Often, in hindsight, it seems like a sure thing, but it is usually something that is cherry-picked to look better than it is. In the case of a bearish trend , a bullish divergence is when price makes a lower low but the RSI makes a higher low, or in the case of a bullish trend , a bearish divergence is when price makes a higher high but the RSI makes a lower high.
The problem with using it for divergences is acting on it prematurely. For example, let us say the price impulses upward after being sideways for a period of time.
Right after the impulse upwards it begins to form a flag the grinds higher. After the initial impulse, the RSI is going to be very overbought. Even though consolidation that forms immediately after is normal, the RSI is going to calculate this price action as having less momentum if it did not continue upward at the same rate of speed as the initial impulse candle.
This is always going to print a divergence in a trending market, whether this is a strong uptrend or a strong downtrend. What we can do with this type of momentum feedback is to use price action as an anchor point. If anything, this really is just a measure of confirmation. Like any other indicator, a system can be built around the RSI. It is after all one of the most common trading indicators available.
As a reminder though, as with almost all price action derived indicators, these tools show you what is already right in front of you. All you are seeing is a smoothed representation of the price behavior. Indicators make the finer details a bit more digestible and obvious. More important than anything else in my opinion, is that you understand how the indicator is calculated, this way you are familiar with not only its strengths but its weaknesses as well.
In the case of the RSI, it is an excellent tool, but like all other indicators, it can give a ton of false feedback. Like anything else, make sure that before you use it, you heavily backtest it and always record data around your trading performance. By Ryan Scott CanteringClark. Learn Crypto and Blockchain Welcome to the Phemex Academy: a free, comprehensive and unbiased resource for blockchain-related knowledge. Phemex Blog.