Hello everyone in this great community, it is a pleasure to write and share my thoughts once again here in this community. Today I will tackle the topic "Relative Strength Index (RSI)" and look at its uses and how to determine and predict future crypto price trends. Without much ado, let us dive into the topic.
The Relative Strength Index (RSI) indicator is a technical analysis tool (momentum indicator) that helps traders understand the magnitude and speed of a recent price change in a crypto asset. It was developed by J Welles Wilder Jr. whereby it was first introduced it in his book, New Concepts in Technical Trading Systems, 1978.
The RSI indicator is used to determine overbought and oversold in the market price of an asset. It can also be used to determine price reversals in the market. The RSI indicator line is on a scale of zero to hundred and the reading is taken from that scale. When an RSI signal reads above the 70 mark, then it is an indication of an overbought condition, likewise, when the RSI signal moves below the 30 mark, it is an indication of an oversold condition. Note that, the RSI indicator can also be used to determine when to enter into market and when to exit the market.
Bullish Trend: In using the MACD indicator to identify bullish trends, it occurs when the RSI line crosses above the 50 mark, then it is an indication of a bullish trend. From the chart below, I have indicated how the RSI indicator is used in determining a bullish trend in the price of a crypto asset.
Bearish Trend: In using the RSI indicator to identify bearish trends, it occurs when the RSI line crosses below the 50 mark, then it is an indication of a bearish trend. From the chart below, I have indicated how the RSI indicator is used in determining a bearish trend in the price of a crypto asset.
Divergence: It occurs when the market price of the asset moves in the opposite direction to that of the RSI indicator trend. It can either be a bullish divergence or a bearish divergence and I would be indicating with crypto charts as examples here in this post.
Bullish Divergence: It occurs when the RSI indicator indicates an oversold condition but it is followed by a higher low that is seen to be lower in the price of the asset. From the chart below, I would indicate to you all what I meant by that statement above.
Bearish Divergence: It occurs when the RSI indicator indicates an overbought condition but it is followed by a lower high that is seen to be a higher high in the price of the asset. From the chart below, I would indicate to you all what I meant by that statement above.
These are the basic ways the RSI indicator can be used to determine the price movements of crypto assets. Note that, the RSI indicator shouldn't be 100% trusted and the best way is to use it with other indicators such as MACD. I hope that you guys learned something from my post, you can leave your feedback about what you think.
Thank you all for your time and attention, I am looking forward to seeing you all in my subsequent posts.
All unsoured images were taken from tradingview.com
