Investing in Crypto is easy if you are following the HODL strategy. But if you are a seasoned trader, you must know various methods of technical analysis.
Using technical analysis methods helps you predict how the market will move. The traders can get an insight into the prices and predict the future pricing of a particular cryptocurrency.
The relative strength index (RSI) is a technical analysis indicator that stock traders have widely used, and now crypto traders have also started incorporating this indicator. RSI can be a beneficial method to predict crypto pricing, as its effectiveness is well-known.
Here is a short guide to Crypto RSI.
What Is The Relative Strength Index?
The RSI indicator was first introduced in 1978 as a method of technical analysis for traders. It is a hundred-point system wherein the points, or the score, indicate whether a stock is oversold or overbought.
Anything below 30 means that a stock is oversold, and if the score is above 70, it means the stock is overbought.
Herein, the aim is to figure out the average trend of the asset based on the percentage of loss and gain. The RSI helps the traders to figure out the point of entry. It exit based on the momentum of the stocks.
Why Is It Important?
The RSI helps monitor by presenting a metric of momentum changes to depict the strengths and weakness of an asset, which depends upon the closing prices. The metrics are marked on a scale of 0 to 100.
If you are using a crypto platform that displays technical analysis charts, you would often notice an RSI chart at the bottom of most trading view charts.
The chart observes momentum in short and medium-term pricing movements. The primary purpose of Crypto RSI is for the traders to determine opening positions and exit points.
Sometimes RSI also refers to an oscillator. An oscillator is an effective indicator for volatile markets, making it beneficial for crypto traders.
The indicator follows a point or a score scale between 0 to 100, consisting of the average percentage change over 14 days.
A signal below 30 means the asset is oversold, and a score above 70 indicates that the asset is overbought.
What Is RSI Divergence?
It is a phenomenon wherein the RSI moves in a separate direction from the price chart.RSI divergence signals a weak trend and often denotes price change.
If the RSI chart does not follow a similar trend as per the price chart, it can be a sign of divergence.
A bullish divergence is when the price chart reaches new lows, but the RSI increases. It gives the traders a signal to hold the asset for a long time in anticipation of recovery or a new bullish phase of the asset.
A bearish divergence is the opposite of a bullish divergence, and many interpret it as a sign of an upcoming bearish phase of the asset.
Commonly, crypto trading platforms provide ample resources for their users to learn and develop their trading skills. Understanding RSI and other methods of technical analysis can help you make better investments and trading decisions.
If you want to read about such methods and learn more about cryptocurrencies, you must read from a reputable source.
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