Crypto is about insanely high odds, volatility, and staggering risks. How to lose all that? RSI indicator is explained below.
In our previous article, we decided the best solution in these difficult times is to get as much money together as you can trading so you can but masks that actually work and go somewhere really remote to reduce your chances of getting infected.
If you haven’t already, you owe it to yourself to check out this great interview with a reputable scientist who knows a thing or two about pathogens and get your facts about the coronavirus right. Surgical masks don’t work. Respirators do. And so on. We bet you’re dying to find out more.
But what’s the best way to start earning quick?
Trading (and life) is unpredictable, which is why you want to use as many strategies as you can in parallel. Same as with the virus.
- Take reasonable precautions.
- Don’t go out if you can help it.
The more strategies you combine, the better.
- Bollinger bands.
- Elliott Waves.
- Relative Strength Index.
Taking advantage of them all increases your chances of earning. Today we’ll take a look at one of the more accessible and interesting strategies around called a Relative Strength Index.
Before we get into it, we ought to warn you that these texts should not be used as trading instructions. Predicting market data on the basis of what happened in the past is not always reliable. If a bird flies over your house every day for a month it doesn’t mean the next day it will. Trade responsibly and don’t use more than 6% of your income in 1 day.
RSI, which stands for Relative strength Indicator (or index, if you like), is a simple and effective way of analyzing averages (more on moving averages here). RSI indicators in cryptocurrency work especially well
There are different ways of calculating it. You basically take the last 14 candles and analyze their positions at a close, and then make conclusions about where the average is. The important thing is, this indicator knows how the market moves because it follows certain rules.
If you read the indicator right, there’s a strong chance you’ll know where the market is going. Here’s what a regular graph looks like.
Now, underneath it we’re adding the RSI chart, so two charts together look like this. The RSI chart below helps us make conclusions about where the top chart is going.
What is an RSI indicator?
RSI mimics the regular chart above. It always has a value of 0 to 100 and two positions (lines across it). One is 70 and the other is 30. The assets are normally somewhere in between.
If the graph is going over 70, it’ s a good sign that the price is going down. In that case, the market is said to have been overbought. That means soon (according to the law of averages) the price is going to start going down because people will stop buying. If the price reaches or breaches 30, the market is said to be oversold — and it’s likely going back up. These are the basic rules.
RSI indicator buy and sell signals
The basic strategy is pretty simple. When you get as low as 30, good news: it’s likely time to sell. When you get as high as 70, you sell (unless there are divergences, which we will talk about in-depth later — or a strong upward momentum).
Food for thought: if you’re seeing sharp drops etc, this may mean the market will recalibrate soon. In terms of real-life examples, a company publishes its reports, people are disappointed, and price drops.
Soon after the company is doing something to save face, and the price is going back up. If you’re good enough to catch that trend early, money is to be made.
Use caution. In today’s dog-eat-dog world many companies just tank and never come back up.
RSI indicator strategy
You know when it comes to technical analysis there is no magic recipe (even in Forex and definitely not in BTC markets), so you don’t actually count on price changes, and you’re not betting more than 6% of your capital, but the price is nearing RSI 70, so you’re thinking — hmmm, it looks like the price will go down at some point. And you make your move.
You also use Bollinger bands — and maybe take into account Elliott Waves. Whew! A lot of work. But this money may very well save your life — and it’s not like you have anything better to do. You’re still alive because the only place you travel is the kitchen, the capital of your land. Trading and the coronavirus is a match made in heaven.
Enabling the RSI Indicator
In the top left
coroner (sorry) corner, in the Indicator tab, RSI will be among the most popular analysis methods. The traditional value is 14 and you want to choose “close” — because you want to analyze 14 candles at closing time. Check out this brief video if you have any questions left.
How to read RSI indicator
Now you know everything there is to know about RSI and price movements in crypto trading. Oh, almost forgot. Here’s what you never do under any circumstances.
- When the price is climbing steeply, RSI will stay in the extreme above 70 for a while. That, however, does not mean the price is going down. It may very well stay there a while with strong bullish momentum.
- Divergences are a specific part of the graph where RSI indicates that there will be a change in the trend soon. Here’s how they work.
The actual graph shows a high and another high after that. This means that the direction of where the trend is going is upwards. But now you look at the same place on the RSI chart.
There is a high in that place but then a low. And if you draw a line between two peaks like before, you’ll see that the market is actually going down. These “divergences” are often (but not always) are a terrific way of spotting a period of ups or downs. Here RSI is right and the actual graph is not, meaning soon it will start going in the opposite direction.
Bear these two things in mind when you analyze charts — and also the fact that 3) in markets there are no guaranteed results, especially in ones as speculative and volatile as crypto.
How to use RSI indicators in crypto
In crypto markets, there is even more of a need for stability (and volume), and RSI indicators can prove to be really useful here. Because volatility is high (unlike with assets that just stay where they are), you can make some money quickly. Buy when RSI is 30, sell when it’s 70. Cakewalk, right? Don’t forget the divergences and false positives at the top.
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Do you see the RSI? Is now a good time to buy or sell?
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