Not long ago, I had tea and chatted with a big shot in the cryptocurrency circle. He talked about his experience of losing 50 million due to a contract liquidation in just three days, which left a deep impression on him. Now, he has more than 1 billion in assets, all earned in the cryptocurrency circle, and he shared with me a secret with a win rate of 100%! Just relying on this method (RSI indicator), he successfully squeezed into the upper class!
In addition to his solid skills, he also summarized a few small tips for trading (which are also suitable for newcomers in the cryptocurrency circle)
1. Callback rebound operation strategy: After the market experiences a significant rise or fall, it is usually accompanied by a brief correction or rebound phase. Accurately capturing these moments is an effective way to achieve stable and easy profits. This strategy mainly relies on candlestick pattern analysis and requires the operator to have a keen market perception, able to accurately identify the highs and lows of the phases.
2. Time-based operation strategy: Generally speaking, the morning and afternoon periods have relatively smooth market fluctuations, and the market trend is easier to predict, suitable for investors with a steady personality and preference for stable operations. However, orders placed during this time period require a long wait to achieve profits, so investors need to have sufficient patience. In contrast, evening and early morning periods experience violent market fluctuations, providing investors with opportunities for quick profits and multiple trades, more suitable for aggressive investors pursuing high returns. However, this period's market changes unpredictably, and the risk of operational mistakes is higher, posing greater demands on investors' technical skills and judgment.
3. Oscillation market operation strategy: The market trend is oscillatory for most of the time. Utilizing the market oscillation within the range is a basic strategy for stable profits. This strategy mainly uses the BOLL indicator and box theory, with the key to successful implementation being accurately judging resistance and support levels based on various technical indicators and patterns. The oscillation market operation should follow the short-term trading principle, avoiding greed and locking in profits in a timely manner.
4. Resistance and support operation strategy: When the market touches key resistance or support levels, it is often obstructed or supported. Entering trades at these critical points is a widely used stable profit method. This strategy mainly employs trend lines, moving averages, Bollinger Bands, parabolic indicators, etc., requiring investors to have high accuracy in judging resistance and support levels.
5. Breakout operation strategy: The market trend ultimately chooses a breakout direction after a long period of consolidation. After the market clearly changes direction, following the trend to enter is an effective strategy for achieving quick and stable profits. This strategy requires investors to possess excellent turning point judgment skills while maintaining a stable mindset to avoid the influence of greed and fear.
6. Unilateral trend operation strategy: Once the market breaks through the consolidation pattern, a clear unilateral trend will form. Trading in accordance with the trend is an eternal profit rule. In a unilateral trend, every pullback or rebound is a good opportunity to enter, providing strong assurance for stable profits. This strategy mainly employs technical indicators such as candlesticks, RSI, moving averages, BOLL, trend lines, etc., requiring investors to be proficient in using these tools.
Without further ado, let's get straight to the point!
RSI (Relative Strength Index): It is a momentum-based oscillator used to measure the speed and magnitude of price changes. It is a dynamic line that fluctuates between 0 and 100, reflecting the strength of buying and selling orders based on the current and previous candlestick closing prices.
The greater the relative price increase, the stronger the uptrend, with the RSI oscillation line approaching 100.
The greater the relative price decline, the stronger the downtrend, with the RSI oscillation line approaching 0.
The RSI oscillator is usually displayed in a separate window below the trading chart, and most commonly used software can bring it up.
The two horizontal dashed lines are called signal lines and are usually set to default parameter values of 30 and 70.
You can adjust the values to 20 and 80, or 10 and 90, according to your trading style and time period. In the forex market, stock market, and cryptocurrency market, the volatility increases sequentially; the shorter the time period, the more responsive the indicator is.
The greater the distance between the signal level lines, the lower the frequency of signal occurrence, and signals that appear will be more accurate.
The horizontal scale is located on the right side of the chart. Some exchanges' RSI indicators may have three oscillation lines; it is recommended to change all values to the same time period, such as all three lines being 9 or all 8, turning it into a single line.
Oversold area: within the range of 70 to 100.
Oversold area: within the range of 0 to 30.
Bull-bear dividing line: 50
RSI above 50 indicates bullish, below 50 indicates bearish.
Overbought and oversold areas are important, as the probability of a trend reversal in these two areas is high. They serve as the basis for confirming buy and sell signals.
RSI trading strategy.
Draw horizontal and diagonal lines, and enter trades at the breakout point. Draw horizontal lines based on the oscillator reference points, with the RSI indicator issuing early signals first, allowing you to see the breakout point in advance.
Enter the market in the overbought and oversold areas. When the market is overheated and there is an imbalance between buy and sell orders, the trend will reverse. If the RSI value is above 70, do not buy assets; if the RSI value is below 30, do not sell assets.
The best trading strategy is to first add trend indicators to confirm the trend, then wait for the RSI value to reverse in the overbought area before entering a short position. Similarly, enter a long position when the indicator reverses in the oversold area. (Several trend indicators have been introduced in previous articles.)
RSI divergence. When the direction of the indicator line is opposite to the candlestick trend, divergence occurs, meaning that a trend reversal may happen.
Oscillating sideways. This situation occurs when the oscillator forms M or W shapes. You can open a position after the pattern forms and breaks the signal level line, during trend corrections.
Important reminder: All indicators have a common drawback: signal lag. Therefore, the RSI indicator is mainly used as an additional confirmation tool to complement trend indicators, technical patterns, etc. Please do not trade based solely on oscillation indicator signals.
Potential buy and sell signals
The RSI indicator combines well with classic graphical analysis methods.
From the above chart, we can clearly see that the three price lows coincide with the corresponding RSI reference point at the 28 level line. Note that this RSI level line broke the support level earlier than the candlestick price reversed, which is an early signal of the breakdown. When the oscillation level line breaks below the RSI value of 28, it triggers a sell signal.
RSI Divergence
Divergence occurs when the indicator and price chart are moving in opposite directions due to lag. The Relative Strength Index is a leading indicator, so the candlestick chart is usually lagging. If the candlestick chart continues this trend while the RSI signal line has reversed, then this is divergence. Divergence is a signal for trend reversal.
Bullish divergence: price lows are declining; indicator lows are rising. Bearish divergence: price highs are rising; indicator highs are falling.
When the indicator line shows divergence in the overbought/oversold area, the signal is strongest, while one is weaker. The divergence of relevant movements must have at least one high/low point above the 70 level or below the 30 level.
The above chart shows bullish divergence. The horizontal line crosses two lows, with the indicator line touching a low below the 30 level. The trend reverses after the divergence.
You can discover divergence in any timeframe; the highs/lows on the price and indicator charts should visually align. You can enter a trade after the price turns towards the direction of the indicator line. The entry point in the above chart is at the candlestick marked by the arrow.
RSI horizontal oscillation: bullish and bearish
The RSI indicator perfectly combines with price action trading strategies, one form of price action is sideways movement. This is a false breakout of multiple extreme peaks or troughs. It is recommended to enter trades when the price naturally rebounds initially, during local corrections and pullbacks, and then it may be in ambiguous sideways market conditions.
When the index is in the overbought/oversold area, the oscillation line attempts to break through the previous high/low point. Then it returns to the median level. For the RSI overbought area, the shape looks like an M; for the oversold area, the shape looks like a W.
As shown in the M-shaped pattern in the above chart, the indicator line falls after reaching the first peak in the RSI overbought area and breaks the 70 level. Then it reaches a high again, but the second peak is lower, and there is a divergence, indicating that buying pressure cannot push past the first peak.
Its oscillation line movement and candlestick chart trend characteristics are consistent. When the price approaches the peak, the body of the candlestick becomes smaller, resembling a hammer line. All signals indicate that you can enter a short position at the moment of trend reversal.
The local high points of the downtrend (as shown in the above chart) are one of the corrections of the price downtrend. The RSI oscillation line helps capture the moment when the trend direction reverses during price corrections. Additional indicators are needed to confirm signals.
If the second high (or low) of the RSI value is higher (or lower) than the first, enter the trade when breaking the signal level. Change the chart scale to view the local trend relative to the overall direction.
Summary of the Relative Strength Index (RSI) indicator:
The Relative Strength Index is a leading indicator that measures the strength of trends, primarily used to confirm entry signals.
The range of index values is from 0 to 100. The default signal levels are 30 and 70. The price range between 30 and 0 is the oversold area, while the range between 70 and 100 is the RSI overbought area. The default period for this indicator is 14, and it can be customized to 5, 7, or 9.
An RSI index reversal in the overbought area, falling below the 70 level from above, is a signal to enter a short position; a reversal in the RSI oversold area crossing above the 30 level from below is a signal to enter a long position.
Divergence, the trend of the indicator line is opposite to that of the price chart. This indicates that a trend reversal is likely to occur soon. 40 and 80 are the level values for an uptrend. 20 and 60 are the level values for a downtrend.
The 5% rule states that in the past 3 months, the indicator line has been above/below this level for no more than 5% of the value.
RSI staying at more than three periods is considered sluggish. High RSI sluggishness, and the candlestick above the 5-day moving average, indicates that the uptrend is continuing; low RSI sluggishness, and the candlestick below the 5-day moving average, indicates that the downtrend is continuing.
Close the position in the following situations:
1. When the indicator line suddenly reverses within the range of 30 to 70;
2. When the indicator reaches the midpoint level of 50 (conservative strategy);
3. When the level reaches 50, you close half of the position. The remaining position is protected by the breakeven stop-loss point, and then close when the oscillation indicator reaches the opposite signal level (aggressive trading);
4. A reversal pattern has appeared;
5. The price reaches the take-profit level.
In conclusion, he summarized the 7 key points of how to cultivate oneself from being a retail trader to a seasoned trader! Realizing this can save you at least 10 years of detours, worth keeping!
1. First, adjust your mindset. Treat trading cryptocurrencies as a game; it doesn't matter if you win or lose. Only in this way can you trade cryptocurrencies easily in the market.
2. Trade with spare money. The funds for trading cryptocurrencies should be spare money that will not affect your life. Only by trading with spare money can you afford to take risks and let go.
3. Seize the time to learn. If you want to trade well, clarify the practical technical indicators and strategies as soon as possible, engage in more practice, and summarize more. 4. Be cautious in your first battle. Retail traders usually have limited funds, so effectiveness is crucial. Especially for the first trade, meticulous preparation is necessary to strive for a successful debut. Before trading, utilize simulation systems to practice, and only take action after gaining certain experience. Otherwise, once you enter the market, your funds may get trapped or you may have to cut losses, which can significantly impact your confidence.
5. Preserve your capital and use the profits to trade cryptocurrencies. This will make you feel more relaxed and allow for smoother operations.
6. Summarize your own set of methods. To transform from a retail trader to a seasoned trader, you must eliminate the mindset of chasing highs and going all-in, always remember that as long as you do not chase highs, retail traders can become seasoned traders. Be good at learning and summarize a set of trading skills suitable for yourself through practical operations; this is the fundamental way to become a seasoned trader.
7. Only trade strong leading coins and concentrate your funds. When trading cryptocurrencies, focus on the leaders. Diversifying funds not only increases trading costs but also makes it difficult to accurately analyze and grasp the characteristics of each coin's market.
The above is a summary of my more than 10 years of practical experience and technology in trading cryptocurrencies. It may not be suitable for everyone and should be used as a reference combined with one's own practice. As a trader, the most terrifying thing is not technical issues, but insufficient cognition, falling into these trading traps without realizing it! There is no invincible trading system, only invincible users of trading systems! This is the truth; the trading system ultimately returns to the individual!
I am A Xin, only doing real trades, and there's still room in the team, hurry up and get on board.
