Relative Strength Index RSI Indicator Explained With Formula


Some of us may already be familiar with things DOGE like RSI calculations and momentum. We’re also going to talk about divergence and how it affects buying and selling decisions. It might be even easier to understand it when explained in another way. Imagine on a physical market someone is selling apples, and the salesman is raising the price. But the higher the price goes, the fewer people are willing to buy.

As you can see above, BTC prices went on to print higher highs after breaking into the overbought region despite the RSI making a lower high. Divergences between the RSI and the price usually indicate a reversing trend, which occurred both times in the above example – so be careful. Like any other tool that allows a complete analysis of the price movement of a financial asset in the course of trading, the RSI indicator has its disadvantages.

Live Bitcoin Price: BTC USD Chart

It is after all one of the most common trading indicators available. In the default settings on Phemex under your chart, the number “14” automatically shows up next to the RSI indicator. If you want to increase the length you can easily do so by clicking the gear icon in the top left corner and adjusting accordingly. This means that you’re looking at RSI analytics for the last 14 days or 14 weeks. The formula returns a value between which is represented on the chart in a wave-type pattern known as an oscillator. The book “New Concepts in Technical Trading Systems” initially offers several options for using this market tool.

  • If you wonder what is a good RSI to buy, values in the low 30s and 40s are an ideal place to buy Bitcoin — no matter the price.
  • There is no certainty that the market has reached its peak or bottom by simply looking at the RSI indicator while trading crypto.
  • Overbought refers to a security that trades at a price level above its true value.
  • One strategy is buying / selling on divergences at extreme RSI values which indicates overbought / oversold levels.

Like any technical indicator, RSI can be adjusted for a specific instrument. According to the formula, the only parameter for adjusting the indicator can be the duration of the averaging period. Most often, RSI is used with an adjustment for 14 trading days. Increasing the averaging period reduces the number of false signals. However, due to some signal lag, the efficiency of profitable transactions can decrease.


Signals given on a higher timeframe will be stronger than signals given on the lower timeframes. This shows you that the price change is the foundation of the RSI indicator. RSI in effect measures how strong were the up movements vs the down movements in the period in question. The standard RSI period is 14 and we recommend you to keep the standard RSI settings. RSI settings for crypto are the same as for any other type of market. Welles Wilder in 1978, it has gained a lot of popularity for its effectiveness in showing if a market is overbought or oversold.

RSI Convergence is when the price makes a lower high or a lower low, and the oscillator makes a higher high or a higher low in the meantime. RSI Divergence is when the price makes a higher high or a higher low, and the oscillator makes a lower high or a lower low in the meantime. The calculation is based on the most recent 14 periods, one candle represents one period. In this article, we will learn why the Relative Strength Index, or RSI, is one of the most used momentum oscillators that exists.

Convergence and divergence of price and RSI

If the security is caught in a significant downtrend, then it might continue trading at an oversold level for quite some time. Traders in that situation might delay buying until they see other technical indicators confirm their buy signal. Since the indicator displays momentum, it can stay overbought or oversold for a long time when an asset has significant momentum in either direction.

OBV is another technical trading momentum indicator that uses volume flow to predict changes in the stock price. A rising price should be accompanied by a rising OBV and a falling price should be accompanied by a falling OBV. Bitcoin has been hitting resistance at 200-week price average($25k) for the past few weeks as the lower indicators test thin lines between remaining bearish or breaking bullish. PPO has both lines below the 0 level which indicate overall bearish price momentum, while the TDI shows the RSI line creating a potential double-top at the 60 level. On lower timeframes such as the 1D/2D a bearish divergence is printing. The Relative Strength Index is one of the most popular overbought/oversold (OB/OS) indicators.

Relative Strength Index (RSI) Indicator Explained With Formula

Similarly, they could wait until the RSI is below 30 before entering a trade. Some traders see this as a way to get more crypto for their dollars. He started trading forex five years ago, and not long after that, he picked up interest in the crypto and blockchain systems. He has been a writer since 2019, and his experience in the Fintech industry has inspired most of his articles.

The Index or RSI is one of the most common indicators in Technical Analysis, or TA for short. In traditional stocks and cryptocurrencies like Bitcoin and Ethereum, TA utilizes existing data to make more informed decisions on when to buy and sell for traders. From traditional to cryptocurrency markets, most traders rely on specialized tools to perform these analyses, and the RSI is one of them. The relative strength index is a technical indicator used in the analysis of financial markets.

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Mostly, signals will be more valuable when you see the price ranging. Ranging means that the price is going up and down in a certain zone, creating resistance above and support below. When price action is in a range, it is also said that the market is going sideways.

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By far, the single greatest task in the world of finance is accurately forecasting future price movements. A doji is a trading session where a security’s open and close prices are virtually equal. During trends, the RSI readings may fall into a band or range. During an uptrend, the RSI tends to stay above 30 and should frequently hit 70. Prior to using the RSI indicator, make sure to heavily backtest it and always record data around your trading performance. The Relative Strength Index indicator, like all price action–derived indicators, shows you what is already right in front of you.

What is the best RSI settings for 5 minute chart crypto?

As a thumb rule, you can start using RSI after the day has generated sufficient candles to ensure a reliable signal. For example, if you are using 5 Minute charts, start using 14 RSI 1 hour into the day. That way, 60 minutes would have passed and you will get a more or less reliable signal.

To calculate the , the average gain of an asset within the period and its average loss is divided and plotted on the zero to 100 scale. It’s important to remember that the RSI isn’t designed to predict exact prices ― it’s designed to project a change in the market’s direction. So, thinking of a cryptocurrency as being overbought or oversold with respect to the RSI is useful. Simply put, if the RSI is over 70, prices are likely to fall from current levels; if below 30, price is positioned to rise. Moving average convergence/divergence is a momentum indicator that shows the relationship between two moving averages of a security’s price. Overbought refers to a security that trades at a price level above its true value.

overbought or oversold

A nine-day EMA of the MACD called the “signal line”, is then plotted in addition to the MACD line. This together functions as a trigger for Bitcoin buy and sell. Technicals are calculated and updated every 20 minutes during the trading day using delayed market data. It indicates overbought/oversold market conditions, and is expressed as a percentage, ranging from zero to 100%. For Commodities, the Average Volume figure is the average for the individual contract over the specified period of time. ETH/BTC is a popular cryptocurrency trading pair that denominates the price of Ethereum in Bitcoin.

Scroll below for demonstcrypto rsi chartns on how to use it to place successful trades. Nevertheless, the return from the overbought or oversold zone can serve as a trading signal. If the indicator value exceeds the upper oscillation range but returns to the range, it can serve as a sell signal. For example, the statistically averaged RSI fluctuation range was between 30 and 50. After that, the RSI fell below 30 — it entered the oversold zone.

When a market is trending, the sentiment goes beyond indicators. In theory, a market can be overbought for a long time, and also it can be oversold for a long time. There is no certainty that the market has reached its peak or bottom by simply looking at the RSI indicator while trading crypto. Relative Strength Index refers to an indicator derived from the price momentum of any particular asset. The main factors for the computation of the RSI are the asset’s change in price and the speed with which it happens. Those movements, especially since they can strongly shift from two extremes, are considered oscillations.

A bearish divergence occurs when the RSI sets a lower high while the price sets a higher high and suggests the buying momentum is nearing its climax. Thus, if RSI equals 50, the average value of price growth has equaled the average value of price decrease. If RSI fluctuations range from to 15-65, it indicates a downtrend. There are special mathematical indicators for technical analysis, which help a trader predict the price dynamics.

We take the average gains of a crypto’s price and divide that by its average loss. Reading the RSI requires some practice, and we hope that this article will guide you. Like most indicators, the RSI can give many false alarms, and it’s very important to identify the really important bullish or bearish indications. For RSI trading to be successful, you want to combine its signals with other indicators to eventually get the highest probability of being correct. Once you have learned the RSI in crypto, you can apply it to any other market.

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Content may not always be entirely accurate, complete or current. The RSI is given as a percentage that moves between zero and one hundred. Most traders look at the RSI plotted on a graph under the price. There are usually two parallel lines on a chart showing a channel with a line that moves through it, indicating when the market is oversold or undersold.

Is high RSI bullish or bearish?

Overbought or Oversold

Generally, when the RSI indicator crosses 30 on the RSI chart, it is a bullish sign and when it crosses 70, it is a bearish sign. Put another way, one can interpret that RSI values of 70 or above indicate that a security is becoming overbought or overvalued.

The applications of the relative strength index are diverse in the cryptocurrency markets. First, the RSI may be applied to any coin offering on any timeframe. Second, the indicator is flexible, thus can be integrated into a variety of trading strategies. One can use the RSI to trade reversals, range-bound markets, or enter trending markets on price retracements. The moving average convergence divergence is another trend-following momentum indicator that shows the relationship between two moving averages of a security’s price.

Each platform has its own features; however, as a rule, it offers the same indicators available for analysis. RSI indicator is one of the most popular and widely used not only in crypto trading but also in trading with other financial instruments and assets. Because of this, no matter what platform a trader is trading on, he can be sure that he will be able to find this indicator among many others. However, according to the RSI formula, the too-high or too-low value of the indicator indicates that the up or down movement prevailed over a NEAR certain period. It can only indicate the strength of a trend but does not necessarily indicate that a price change is imminent. The real stable variation of the indicator values is better to determine statistically.