What Is RSI and How Do You Apply It to Crypto Trading? Start to Use the Tool

What Is RSI and How Do You Apply It to Crypto Trading?


It is crucial for a trader to select proper entry and exit points on the market. The volatility is probably the one thing that is constant here and we know that everything is changing constantly. To cope with this challenging situation, different technical indicators were developed. One of them is the relative strength index (RSI). It belongs to the momentum indicators and reveals overbought or oversold moments for a cryptocurrency you are interested in. Like an oscillator, this tool calculates different values and predicts probable price fluctuations as well as their speed. Let us discuss what is RSI in trading in detail and how one can benefit from its utilization.

What is RSI indicator?

This tool was described in 1978 and since that time has gained quite big popularity. Traditionally, it evaluates price changes in two weeks period. Still, one can easily extend or reduce the latter according to the existing needs and aims. The calculation is possible for both minutes and weeks. So, what is RSI and how is it calculated? There is a simple formula: RSI = 100 − [100/(1 + RS)] Here RS is equal to Average Gain/Average Loss. Both average values are calculated according to the time frame you set. Almost any modern platform or exchange like Exolix offers an automatic RSI calculation. You just need to select it and apply it to your other instruments. The RSI line graph will immediately appear on the screen. What is an RSI indicator used for? It is a great tool to reveal general trends in the market. The most straightforward way of utilizing it is purchasing when an item is oversold and selling if it is overbought. The first situation is shown by an index of 30% or less. The second situation happens with a value of 70% and more. An overbought situation corresponds to the following downtrend and vice versa. Thus, one can understand what will be the future movements in price and their general direction, and plan his own transactions in advance. Actually, RSI serves as a basis for versatile strategies in trading. Many users begin to purchase or sell an asset when RSI is in the middle or crosses this line. This means a beginning of a novel trend that one can successfully catch in time. When its value is more than 50, it is about a bullish trend. When it falls under this value, a bearish trend begins. Furthermore, with its help, one can predict the reversals of the trend. This is a basic introduction to what is RSI in crypto and what data it provides to the trader. It is a reliable navigator in this highly unpredictable and volatile world and one of the first recommended indicators for those who decided to learn more about technical analysis and its instruments.

What is RSI and how to use it?

After you have learned the basics of what is RSI and how it works, you can introduce it into your practice before you swap or convert something. If you wish to read these signals correctly and get more assurance on your activities, try to utilize RSI divergence. This indicator shows the moments when the oscillator disagrees with the observed movements in price. It reveals the bearish and bullish trends. A bullish divergence means that a low price is observed while the standard RSI is higher low. This means this asset is going to move upward in the nearest future. However, it is not obvious from the current volatility observed. An opposite bearish divergence when the RSI is on a higher high but it does not correspond to the prices. In this case, one can wait for a drop in the price and act correspondingly. There is also a swing rejection technique based on this indicator. It is similar to a divergence described above, just here we observe more abrupt trend changes. In addition, when we discuss what is RSI, it is crucial to keep in mind the default time frame. It is equal to two weeks and is suitable for most of the players on the market, especially for swing traders. However, one can easily adjust the sensitivity to his own needs, for example:

  • for short-term strategies 9–11 days are common;
  • a long-term strategy requires from 20 to 30 days to get a reliable average.

Therefore, do not hesitate to apply your own settings and learn how to benefit from this indicator. In its basic utilization, it is quite straightforward and at the same time helpful, especially for beginners. One has to gain some experience to start feeling trends as they are. Anyway, a proper set of indicators should be always at hand and you can begin with RSI.

Frequently Asked Questions

How do you use RSI in crypto trading?dropwdown arrow icon

One has to select an asset and set a time frame for this tool and then follow the line graph that appears according to the automatic calculations. Its movements indicate price changes and reveal current trends for a chosen asset.

What is the best RSI setting for crypto trading?dropwdown arrow icon

The most common one is a two-week frame based on which the average is calculated. However, one can easily change it according to the needs and the selected strategy. There are no best options for everyone, as it depends on your goals and aims.

Share this article