The Relative Strength Index, or RSI, is a technical indicator that helps traders in identifying overbought or oversold conditions in cryptos. It is a momentum oscillator, represented as a line graph that oscillates between two extremes and ranges between 0 and 100.
The RSI is often plotted beneath an asset’s price graph. An asset is generally considered overbought when the RSI is above 70 and oversold when it’s below 30. Traders often view the RSI line crossing below the overbought line or above the oversold line as a signal to buy or sell.
The RSI is a powerful tool for trading decisions:
- Entry and Exit: Traders use RSI to time trades, buying when the RSI is below 30 and selling above 70.
- Swing Trading: RSI guides swing traders to buy on dips (RSI below 30) and sell on peaks (RSI above 70).
- Support and Resistance: RSI helps identify key support and resistance levels before they are evident on price charts.
- Divergence: Bullish divergence (higher lows in price, lower lows in RSI) signals buying opportunities, while bearish divergence (higher highs in price, lower highs in RSI) suggests selling.
