We evaluate the power of bulls and bears: What is the RSI indicator – Bits Media

Everyone wants to buy conditional bitcoin cheaper, And sell more expensive. But how to determine, When the fall or growth is over? One option is to use the RSI indicator, He can give a hint.

What is RSI

Relative strength index (abbreviated RSI) or "index relative power" - one of the indicators, which are used in the trade in cryptocurrency. It belongs to the group of oscillators. It means, that its main purpose: Measurement of price fluctuations.

RSI was first described by John Wales Wilder Junior (John Welles Wilder Junior) In the late 70s of the XX century. This is the same author, What described by the ATR indicator.

RSI standardly calculated for 14 days. But is not a direct indication of the action in trade. You can easily change it for that value, which you consider necessary. Someone prefers a shorter five-day RSI, and someone will appeal to a longer 25-day. It all depends on your trade style.

Since calculate RSI?

RSI calculation

Before calculating RSI, RS is calculated (relative strength) - relative power. For calculation, you need to know: how many days for the time under consideration, growth lasted, And how much fall. Next, the average growth price and average price of falling are calculated. In this case, the calculation may be different. Wilder himself preferred to use a smoothed sliding average. However, the use of exponential. In a number of sources, you can find the calculation of RS through a simple average.

RSI itself is calculated by the following formula:

RSI = 100 – (100/(1+RS)

It is worth noting, that the RSI calculation manually interest only fans of mathematics. In the real trade of crypto actures, no one will do this. Almost any application or platform automatically calculates RSI.

So, We calculated the relative force index. How to use it for trading?

Respirement and overwhelming

RSI changes in the range from 0% to 100%. Counts, If the indicator climbs into the zone above 70%, this or that asset will rise into the overlap zone. It means, that the price of goods is overstated, And soon the correction should begin. Respectively, if RSI drops below 30%, then we fall into the resale zone. This indicates an unreasonably low price of cryptocurrency and is a harbinger.

We turn to a real example. FROM 10 Marta by 16 April Air demonstrated good growth, adding more in the price 50%. At the same time, RSI warned crypto enthusiasts yet 14 April about that, that soon you can wait for the trend change. It was on that day that the index entered the overlap zone. And already starting with 17 April the picture has completely changed and the ether began to decline.

Source: tradingview.com

An example of reserves we will analyze on the Avalanche graphics. For 53 the day, from 18 April by 10 june 2023 of the year, Avax token fell in price more than 53%. In June, RSI announced that, that the mood in the market has changed, Having come to the overlap zone. A month later, Avax added more 50%, Rising with $10,5 to $15,9.

Source: tradingview.com

It is worth noting, that the levels c 30% and 70% - This is a classic, Wilder offered in the late 70s. In practice, things can be much more difficult. This is especially true for cryptocurrency markets. For each specific tool, you need to select your levels, and see what results in trade you will show.

Do not think, that the levels should be equidistant, Like Wilder, when the levels are defended from the maximum and minimum on 30%. You can use for resale, For example 85%, And for overwhelming 20%. It all depends on your preferences and price behavior.

But not only the overbiddenness and resale are sought by traders using RSI. There is another important graphic signal - divergence.

RSI divergence

If in a simple way, then this is the situation, When the price and indicator are multidirect. Distinguish between bull divergence, When the price shows a new minimum, but RSI stops falling, And bear, when the cost of cryptocurrency shows a new maximum, but there is no relative force index. By name you can understand, that the first variation is purchases, And the second to sales.

for instance, not so long ago pure bear divergence was observed in bitcoin. 13 July BTC updated the new maximum, However, RSI that day was lower than the marks 23 june. In this way, Divergence occurred. Interesting, what 23 June RSI also went into the field of overwhelming, What added power divergence.

Source: tradingview.com

We find bull discrepancy with the same bitcoin, only on a weekly graphics. In June 2023 year RSI has reached its minimum. Bitcoin price fell until November, However, the indicator began to grow up. That is, bull divergence was formed. As already known, After that, bitcoin increased more than doubled.

Source: tradingview.com

It would seem, RSI is a wonderful indicator: Look for divergence, Overpressure and resale. And you will earn. But not everything is so simple. The indicator has a number of disadvantages.

RSI disadvantages

RSI can be quite useless with a strong trend in cryptocurrency. for instance, If long rapid growth begins, The indicator is able to rise above quickly 70% (or other set level you set), Indicating the resale. As a result, you will sell, and cryptocurrency will grow further.

The second drawback of RSI - it does not give clear points of entry and output. By and large, this is such an estimate indicator. You can verify this from the example above. Divergence formed for almost five months. Not every trader has enough nerves to survive so much. Especially if someone went with a credit shoulder.

Besides, RSI should not be used to analyze prices alone. It is more effective in combination with other tools of technical and fundamental analysis. It is worth saying, that this cannot be fully attributed to the shortcomings, since there are no indicators, which would give 100% results.

We summarize: RSI - indicator of technical analysis from the group of oscillators. Often it can give signals about changes in the situation in a particular cryptocurrency. However, it does not show the exact entry points. The strongest RSI signals are: divergence, oversold and overbought.

This material and information in it is not an individual or other other investment recommendation. The view of the editorial office may not coincide with the opinions of the author, analytical portals and experts.