Indicators are essential tools for technical analysis. They analyze the market by collecting data such as price, time periods and trading volume. Traders and investors usually use several indicators to predict the cryptocurrency market. In this article we are going to talk about relative strength index (RSI) indicators.
What Is Relative Strength Index – RSI?
The RSI oscillator was developed in 1978 by J.Welles Wilsder Jr. The indicator measures the magnitude of recent price changes to evaluate overbought or oversold conditions. In fact, it compares bullish and bearish price momentum and it is often plotted beneath the graph of an asset’s price.
The RSI displays as a line graph that moves between two extremums, which are zero and 100. The RSI is presented as a graph on the price chart (usually under the chart but it could be above too). The indicator has an upper line, typically at 70, a lower line at 30, and a dashed mid-line at 50. The signals are considered overbought when the indicator is above 70 and oversold when is below 30.
The RSI indicator provides buy or sell signals as below:
When the price is rising and RSI makes a higher low and crosses above the 50 Line, it shows the market is bullish. It means most traders are buying. when RSI reaches above 70, Some traders interpret that an overbought is happening and the rising trend is likely to reverse, which means it’s an opportunity to sell.
When the price is falling and RSI makes a lower high and crosses below the 50 Line, it shows the market is bearish. It means most traders are selling. when RSI reaches under 30, Some traders interpret that an oversold is happening and the falling trend is likely to reverse, which means it’s an opportunity to buy.
As a result, the RSI provides signals that tell investors to buy when the market is oversold and to sell when it is overbought.