The Relative Strength Index (RSI) is an essential technical analysis tool for spotting momentum and potential trend reversals in the market. Hereโs everything you need to know about RSI:
๐น What is RSI?
RSI stands for Relative Strength Index, created by J. Welles Wilder in the late 1970s. Itโs a momentum oscillator that measures the speed and strength of price movements.
๐ RSI Origins:
Introduced in Wilderโs book New Concepts in Technical Trading Systems, RSI sits alongside other powerful tools like ATR (Average True Range), ADX (Average Directional Index), and Parabolic SAR.
๐ How RSI Works:
RSI calculates the price over a 14-period window. This means it measures the price shifts based on the last 14 candles (e.g., 14 hours on hourly charts, 14 days on daily charts, etc.).
Plotted on a 0-100 scale, it divides the average gains by the average losses to produce a clear picture of market strength.
๐ Spotting Overbought and Oversold Conditions:
When RSI > 70, the asset is likely overbought (selling pressure might be coming soon).
When RSI < 30, the asset may be oversold (buying pressure might be increasing).
๐ Reversal Signals:
Bullish Divergence: Market price makes a lower low, while RSI makes a higher low, signaling potential upward momentum.
Bearish Divergence: Market price makes a higher high, while RSI makes a lower high, signaling potential downward momentum.
โ ๏ธ Combining RSI with Other Indicators:
RSI alone isnโt always accurate. Traders often pair RSI with other indicators to get a clearer picture and reduce risks.
Use RSI to keep a pulse on the marketโs buying and selling momentum! ๐ #tradingbtc #RSI #TechnicalAnalysis