How to trade Bitcoin with the Relative Strength Index?

Thursday, 13 Apr 2017 19:56

The Relative Strength Index is a technical trading indicator and is classified as a momentum indicator. Also called the RSI, it is one of the most well known and popular technical analysis tools due to its simple and clear outputs. In this guide we will show you how to use it to analyse price movements in the Crypto Currency markets.

What is the RSI?

The RSI is based on a 14 day time limit usually although this can be altered. The RSI is measured on a scale of 0-100 with overbought assets between 70-100 and oversold assets between 0-30. As the RSI index moves between oversold to overbought, or vice versa it can be seen as indicating a trend but in general at 50 it is considered to have no trend.

How does the RSI Work?

The RSI is calculated by calculating the momentum of the ratio of higher closes to lower closes - so the more the stock moves up - the more positive the RSI. 

bitcoin relative strength indicator example

Example Chart and Analysis

If you look at the Bitcoin price chart above you can see the 14 day RSI and two periods over the full 3 month time period that the chart shows. The first period is where the RSI indicator is showing the bitcoin price to be overbought as it is generally above the 70 mark.  The second period is showing the Bitcoin price to be oversold as the indicator is breaching oversold territory and is therefore indicating a buy signal. 

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