Learn a bit of candlestick analysis every day to avoid confusion in trading.
RSI is known as the Relative Strength Index, which measures the strength of buyers and sellers using the ratio of the average closing price increase over a period of time.
The parameter for the RSI indicator is the number of days, usually 6 days, 12 days, or 24 days; the shorter the period, the more sensitive the response to the coin price.
RSI6: Reflects short-term price fluctuations over 6 days, often used for short-term trading.
RSI12: Reflects the medium-term trend of prices over 12 days, relatively stable.
RSI24: Reflects the market trend and price fluctuations over 24 days, often used to determine whether the price deviates from the long-term average.
RSI Overbought/Oversold?
Generally, the RSI value fluctuates between 30 and 70; reaching above 70 is considered overbought, and below 30 is considered oversold.
RSI > 70 indicates an overbought state, suggesting that the buying power in the market is overheated, and a pullback or trend reversal may occur. It is recommended to sell in batches; if an M top or head and shoulders top pattern appears at this time, it is regarded as a reversal signal.
RSI uses 50 as a midpoint; above 50 indicates a bullish market, while below 50 indicates a bearish market.
RSI <30 indicates an oversold state, with a higher probability of a short-term rebound; it is recommended to build positions in batches. If a W bottom or head and shoulders bottom pattern forms at this time, it can be regarded as a reversal signal.
What are the precautions for using the RSI indicator?
Due to the nature of the RSI formula, in a one-sided market, the RSI can remain in the overbought or oversold zone for a long time. Even with significant market fluctuations, the rate of change of the RSI tends to be slow, and the amplitude becomes smaller, indicating a state of dullness.
Therefore, remember not to rush into action just because the RSI reaches an extreme value.
Additionally, the standards for defining strength and weakness vary for different coins. For example, some coins are considered overbought when the RSI reaches around 80, while others are considered overbought around 75. Therefore, it is necessary to refer to the historical RSI of this coin for a comprehensive assessment. The RSI length can also be adjusted based on different situations to fully understand market trends.
The RSI indicator reacts quickly to the fluctuations of individual coins, making it suitable for short-term operations. Compared to the lagging nature of other indicators, the RSI indicator often can
It reflects short-term trends on the K-line chart, but the RSI indicator has certain limitations in judging medium-term trends and has low reference value.