Trading Basics – RSI (Relative Strength index)
The relative strength index is a so-called technical indicator primarily used in the financial markets. A technical indicator is a mathematical calculation based on historic price and volume data and is used to predict future market trends and momentum. Therefore, the RSI is an indicator to help predict price movements of an asset.
HOWEVER, THE RSI SHOULD NEVER BE USED AS A SOLE INDICATOR TO BASE YOUR TRADES ON!!
This will be explained later, but firstly what exactly is the RSI?
The RSI is an oscillator and it measures the momentum of price. That Is the rise or fall in price. It is the ratio of higher closes against lower closes in a certain time-frame usually 14-days. In effect is shows weather a certain asset is overbought or oversold with the level at 70 showing overbought and at 30 showing oversold. An RSI chart of BTCUSD is shown below.
Majority of traders believe that when it hits these two levels it is a signal to short or long the asset, and therefore most people fail and lose money to the big banks and exchanges. 99% of people trading lose money on trades and the main reason is because they base trades solely on indicators like this. D Man taught me the phycology of the big institutions and normal people. Just think about it, the RSI was made in 1978 for the stock market and it’s so inaccurate that stock traders do not even use it as part of their strategy. So how can you expect to use it in cryptocurrency and be successful?
The RSI only works in hindsight, so what can it be used for? It can provide general market sentiment on a particular asset. Use it to give you a general idea, on how Bitcoin for example is behaving in price terms relative to its previous highs or lows.
I REPEAT AGAIN, DO NOT EVER USE RSI AS A SOLE INDICATOR TO BUY/SELL LONG/SHORT. ITS FREE MONEY FOR THE BANKS IF YOU DO.
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