RSI (Relative Strength Index) is an oscillator that measures the speed and change of price movements. It fluctuates between 0 and 100 and shows when an asset is overbought or oversold.
Formula: RSI = 100 - (100 / (1 + RS))
Where RS = average price increase over a given period / average price decrease over the same period.
🤓 How to use RSI:
▪️ RSI above 70 - the asset may be overbought, a correction or reversal is expected.
▪️ RSI below 30 - the asset may be oversold, growth or rebound is possible.
▪️ RSI around 50 is a signal of uncertainty, often used as a trend confirmation level.
🧐 Application strategies:
🔹 Entry from RSI zones 70. Simple strategy. You can additionally build support and resistance levels directly on the indicator. However, it is worth considering that with a strong trend, it can give false signals.
🔹 RSI Divergence:
- Bullish divergence: price renews minimum, RSI does not → signal of possible growth.
- Bearish divergence: the price renews the maximum, RSI does not → signal of a possible fall.
🛍 Probability of working out:
▪️ The indicator works best in sideways movements - the probability of working out reaches 60-70%.
▪️ With strong trends, efficiency drops sharply - it is necessary to connect additional analysis tools.
✔️ Recommendations:
🔸 It is better to use RSI on timeframes of 1 hour and higher, since on smaller ones there is often a lot of noise.
🔸 It is important to understand that RSI is not the Holy Grail and should be combined with volume analysis, candlestick patterns and other indicators.
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