RSI (Relative Strength Index) is an oscillator that measures the speed and change of price movements. Its extreme values range from 0 to 100 and indicate when an asset is overbought or oversold.
Formula: RSI = 100 - (100 / (1 + RS))
Where RS = average price gain over a certain period / average price loss over the same period.
🤓 How to apply RSI:
▪️ RSI above 70 — the asset may be overbought, a correction or reversal is expected.
▪️ RSI below 30 — the asset may be oversold, a rise or rebound is possible.
▪️ RSI around 50 — signal of uncertainty, often used as a confirmation level for the trend.
🧐 Application strategies:
🔹 Entry from RSI zones < 30 or ≥ 70. Simple strategy. You can additionally build support and resistance levels directly on the indicator. However, it should be noted that in a strong trend, it can give false signals.
🔹 RSI Divergence:
- Bullish divergence: price makes a new low, RSI does not → signal of possible rise.
- Bearish divergence: price makes a new high, RSI does not → signal of possible decline.
🛍 Probability of effectiveness:
▪️ The indicator works best in sideways markets — the probability of effectiveness reaches 60–70%.
▪️ In strong trends, effectiveness drops significantly — it is necessary to use additional analysis tools.
✔️ Recommendations:
🔸 It's better to use RSI on timeframes of 1 hour and above, as there is often a lot of noise on smaller ones.
🔸 It's important to understand that RSI is not a holy grail, and it should be combined with volume analysis, candlestick formations, and other indicators.
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