Crypto Trading 101: What is the Relative Strength Index (RSI) and how to use it.
This article will look at the relative strength index, what it is, and how to use RSI.
In this edition of Crypto Trading 101, it’s time to talk about the Relative Strength Index — what it is, how to use it, and how to combine it with your crypto trading for better results.
What is the Relative Strength Index
Invented by J. Welles, the Relative Strength Index (RSI) measures the momentum of the price of your crypto asset. Most of the time, the RSI is used by traders to define if the asset is overbought or oversold.
Overbought zones are areas where the price has risen significantly in a short time. It suggests that the price is overbought and can have a trend reversal or correction, therefore signaling a selling point.
Oversold zones, on the other hand, are areas where the price decreased drastically in a relatively short period. They are usually interpreted as buy points, since the price will likely go back up.
Let’s look at a small example of the RSI on a TradingView chart.
The RSI typically uses a 14-period timeframe, measured on a scale from 0 to 100, with high and low levels marked at 70 and 30, respectively. Short or longer timeframes are used for alternately shorter or longer outlooks.
How does the Relative Strength Index work?
The RSI is a technical indicator that measures the strength of an asset’s recent price performance. It’s being used to identify overbought and oversold conditions. The RSI is calculated using a 14-day time frame, and is plotted on a scale from 0 to 100. A reading of 70 or above indicates that a security is overbought and may be due for a pullback. A reading below 30 indicates that a security is oversold, and may be scheduled for a bounce.
Here you can see that TradingView created a line at 30. Once the RSI crossed this line, you can see the asset become oversold. This also counts for the 70 lines. You can play around in TradingView to review it yourself.
Combining Relative Strength Index with Moving averages
The Relative Strength Index (RSI) is a momentum indicator that measures the speed and change of price movements. Moving averages are a trend-following indicator that smooths out price data by creating a single average price. When these two indicators are combined, they can provide a complete picture of the market. The RSI can help identify overbought or oversold conditions, while the moving averages can help confirm the trend.
Relative Strength Index on Cryptohopper
With Cryptohopper, you let the bot focus on the Relative Strength Index for you. The bot will make trades based on the way the RSI goes. You can also add multiple signals for your trading bot, so your bot can buy when the RSI is oversold, and when other signal conditions are met.
Originally published at https://www.cryptohopper.com.
