The Relative Strength Index (RSI) is one of the most popular technical indicators in technical analysis. It is used to measure the strength or weakness of price movement and to identify overbought or oversold areas.
Here's how to use it simply:
Indicator settings
Default setting: 14 periods (means the average is calculated over the last 14 candles).
The indicator moves between 0 and 100.
How to read it
Above 70: means the asset is overbought, and there may be a chance of a drop soon (but does not mean selling immediately).
Below 30: It means that the asset is oversold, and there may be a chance of a rise soon (but it does not mean buying immediately).
Between 30 and 70: It is considered a neutral zone.
Practical ways to use it
1. Overbought and oversold
If the RSI is above 70 for a while and starts to decline: you might consider selling.
If it is below 30 and starts to rise: you might consider buying.
2. Divergence
If the price is making higher highs, but the RSI is making lower highs → this is a warning of a possible reversal down.
If the price is making lower lows, but the RSI is making higher lows → this is a warning of a possible reversal upwards.
3. Breaking RSI levels
Some traders draw support/resistance lines on the RSI itself, and a break of these lines is used as a signal.
Important tips
Do not rely on it alone, it is better to combine it with other indicators (such as MACD or moving averages).
Best used with the general market trend:
In an uptrend, focus on buy signals from the RSI.
In a downtrend, focus on sell signals.
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