- The Relative Strength Index is a technical analysis indicator with a scale of 0 – 100, and it signals overbought and oversold regions in the chart.
- From 30 down, the RSI signifies an oversold region, while from 70 above it signals an overbought region.
- According to the RSI indicator, an oversold region indicates a bullish market, while an overbought region indicates a bearish market.
Crypto trading is a game of strategy, several indicators help make these strategies. The Relative Strength Index is one of them.
Are you are a crypto trader, and you want to stay profitable in the trading game, Relative Strength Index is one indicator out of many that you ought to know how to use to enable you to identify overbought and oversold regions in the chart and help you make informed entry and exit on your trades.
Without further ado, let’s know what the RSI indicator is, and how to practically use its strategies to win trades.
What is the Relative Strength Index Indicator (RSI)
The Relative Strength Index is a momentum indicator technical analysis tool that measures the speed and change of price movement that was introduced by J. Welles Wilder in 1978. The RSI indicator is graded on a scale of 0 – 100, and it is used to identify overbought and oversold regions.
How to Use RSI Indicator for Crypto Trading
There are two main ways to use the RSI indicator in crypto trading, and they include:
- Identify overbought region: The RSI indicator can tell when a coin or token is overbought. It occurs when the scale is >70 which signals that they will likely be a retracement in price. Hence you need to sell or short the market.
- Identify oversold region: The RSI indicator can tell when a coin or token is oversold. It occurs when the scale is <30 which signals that the coin or token is in its accumulation phase and the market will be bullish in no time. Hence you can buy or long the market.
How to trade Cryptos using the RSI indicator: Step by Step Guide
Out of the many crypto tokens available, let us choose LINK to trade with using the RSI indicator. The reason is because LINK is the lead token in the Oracle coin category, as we have Bitcoin leading the entire crypto market, and Ethereum as the king of Defi.
Oracle crypto coins are projects that make it easy for off chain data to be interpreted and available on chain for smart contract use. Chainlink is the project that leads this innovation category worth over $3.4 billion dollars as reported by Coingecko.
According to Coinmarketcap $LINK reached an all time high of $52.88 2 years ago before the coming of the crypto winter, and it’s currently hovering around $5.12.
We will use the RSI indicator to trade on the LINK/USDT pair, and the platform we will leverage on is Tradingview.com.
Step 1. Go to tradingview.com and select the LINK/USDT pair.
Step 2. Click on the “Indicator” option at the top, and select Relative Strength Index (RSI).
It’s going to activate a momentum chart at the bottom of your candlestick chart, and you will see the scale of 0 – 100 at the right end as shown below.
Step 3. Take cognisance of the yellow line, and determine the reading. If the yellow line reads above 70 then it signals an overbought region, and what we have to do is to sell for possible price retracement.
Whereas, if the RSI reads below 30 as seen below, then it signals an oversold, which is a bullish sign to buy or long the market.
The RSI indicator is a popular tool, and every crypto trader should learn to use it as it helps in predicting when to buy or sell in the crypto market.
Its data may not be 100% accurate, but when combined with other technical analysis tools like Bollinger band, Triple MA and others. It will yield more accurate data that will inform your trading decision.