{"id":77003,"date":"2022-04-07T14:00:00","date_gmt":"2022-04-07T13:00:00","guid":{"rendered":"https:\/\/thecoinacademy.co\/?p=77003"},"modified":"2023-04-26T09:23:59","modified_gmt":"2023-04-26T08:23:59","slug":"rsi-indicator-how-to-use-it-in-crypto-trading","status":"publish","type":"page","link":"https:\/\/thecoinacademy.co\/rsi-indicator-how-to-use-it-in-crypto-trading\/","title":{"rendered":"RSI indicator: how to use it in crypto trading?"},"content":{"rendered":"\n
RSI (Relative Strength Index) is probably one of the most well-known indicators on the market! It is however often misused, and individual traders often only look at oversold and overbought areas. Let us learn together how to read this indicator that can indeed be very useful!<\/p>\n\n\n\n
The RSI (Relative Strenght Index) is an indicator that is part of the “oscillator” type. It was developed in the late ’70s by J. Wilder. After shining for several years on the market as a trader, he decided to summarize his research and knowledge. He therefore created a series of indicators with the goal of facilitating the way that actors approach a market. The RSI is one of these indicators.<\/p>\n\n\n\n
By default, the RSI measures a variation over 14 periods of a time unit.
For example: 14 days if you choose the Daily time unit, 14 hours if you use H1, etc…<\/p>\n\n\n\n
You can also change this number in order to have a more precise indicator, or on the contrary a longer one.<\/p>\n\n\n\n
The formula for this indicator is simple: average price increase during this period \/ average decrease over this same period.<\/p>\n\n\n\n
It then places this ratio on a scale from 1 to 100.<\/p>\n\n\n\n
The question we can now ask is the following: how can you use this indicator in your daily trading strategy?<\/strong> We will go through this step by step, from its most basic use to its more advanced!<\/p>\n\n\n\n The most basic reading of the RSI consists in determining whether an asset is overbought or oversold, and this interpretation is rather simple:<\/p>\n\n\n\n \u2192 If the RSI is above 65 to 70, we are in overbought conditions You might be tempted to think the following: Of course, it is not as simple as that. The RSI can reach overbought areas and go very high, before a correction period or a selling signal happens. It’s all in the dosage<\/strong>.<\/p>\n\n\n\n Like any other indicator, the RSI should be combined with many other pieces of data like Price Action (study of the action of the price), Open Interest (interest used to open leverage positions), Funding Rates (difference between spot price and futures price)…<\/p>\n\n\n\n We will study these notions in detail in an upcoming article. The magical indicator does not exist<\/strong>, each indicator is to be put in a context in order to maximize its chances of success and, as a consequence, maximize profits. Always wait for several signals to align before making a decision.<\/p>\n\n\n\nOverbought and oversold areas<\/h3>\n\n\n\n
\u2192 If the RSI is below 30 to 35, we are in oversold conditions<\/p>\n\n\n\n
If it’s high, I am selling!
If it’s low, I am buying!<\/p>\n\n\n\n