The RSI stock indicator, how to use it in trading on crypto exchanges.
The RSI indicator appeared thanks to Wells in 1978. Despite its impressive age, the RSI is still popular. In simple words, the RSI is one of the most well—known indicators that shows the ratio of changes in value. Thanks to the simplicity, this fin. everyone uses the tool: both beginners and trading sharks. It allows you to monitor the direction of movement of the value (trends) and catch the approaching reversals. The formula for calculating the RSI
The RSI formula is quite simple:
RSI = 100 — 100/ (1 + Upeman/Downeman). Upeman is a price increase over a certain period of time, and Downeman is an average indicator of cost reduction. The ratio of the average price increase to the average drop over the period. Then, to display the data on the graph, the data is converted so that the values fit into the range from 0 to 100. To average the price, you can use exponential smoothing, which takes into account the final value of the extreme change.
It is quite simple to evaluate the trend: you need to pay attention to the scale. For example, the indicator has gone down from 60 to 20 — this means that the trend is going down.RSI Chart
Of course, in the modern world, you do not need to calculate the indicator yourself.
The indicator can be connected in any exchange, as well as in our application. The photo shows an example of a graph:
With its help, you can see the value of each measurement.
You can also notice that the direction of the indicator depends on the price change. Thanks to this, you can evaluate trends and see “false" indicators. If the indicator is 65, then it means a trend that is heading up.RSI Trading Signals
You can evaluate the possibility of buying with the help of such signals:
Divergence. In simple words, this is the difference between the value of an asset and the RSI indicator. Divergence appears when the price reaches the maximum or minimum indicators, and the RSI does not reach past record values. As an example, the following situation can be cited: the value of the indicator has reached record highs, and the indicator of the oscillator has not reached its maximum values. Experts call this a “bearish” divergence, and price growth can change dramatically in any direction. There is another kind of divergence - “bullish". This is when the price has come to a minimum, and the RSI has reached a maximum. Divergence can be compared to walking on a hill, when reaching a high point, there will soon be walking down. You should take into account that divergence can give incorrect signals and forecasts;●
Intersections of the indicator 50. The logic in this is simple: if the indicator reaches 50, then it will continue to move up or down. Reaching the indicator 50 means the beginning of a trend. When the indicator moves from the bottom up and has already reached the number 50, this indicates a positive trend. Conversely, if the movement of the indicator is below 50, then this is a downtrend, but soon it may begin to rise;●
Overbought and oversold. If the indicator is above 70, it is overbought, and below 30 - oversold. Most experts say that when overbought, the cost of the instrument is overestimated and vice versa. In fact, overbought and oversold means the movement of the indicator for a given period;●
Trend lines — The RSI fluctuates in the same direction as prices, unlike other indicators. You can draw trend lines on the chart, with the help of which it is possible to build hypotheses. The lines show the supply and demand ratios.What is most often combined with RSI?
Initially, the combination of this indicator was not considered with other indicators of technical analysis.
You can use one of the popular options to determine trends on the daily chart of a financial instrument: we take two moving averages, look for signals on the RSI indicator at the smallest time intervals, but in the direction of the trend. Signals can be even the simplest.
When the moving averages on the daily chart indicate that the trend is increasing, then on the one-hour chart you can expect a test of the 30 level and think about buying. The fact that it is already higher than 70 is better to ignore. If the trend is downward, then you can wait for a test of the 70 level (in this scenario, you can start selling). When signals less than 30 are marked, ignore them. This is one of the most effective RSI strategies, which also combines time intervals.Thus, the RSI is actively used by both experienced specialists and novice traders.
The tool is quite simple and effective, which is why it has gained such popularity.