What's an RSI ?

What's the Relative Strength Index (RSI)?

The Relative Strength Index (RSI) is a technical analysis momentum indicator used in cryptocurrency and stock market trading.
It helps traders gauge whether a cryptocurrency or security is overbought or oversold by comparing the magnitude of recent gains to recent losses.
The RSI oscillates between 0 and 100, with values above 70 typically indicating that an asset is overbought, while values below 30 suggest it is oversold.

Key Features of RSI

1. Ease of Use: The RSI is relatively straightforward to use, making it accessible for both novice and experienced traders.

2. Momentum Indicator: It effectively measures momentum, providing valuable insights into potential trend reversals.

3. Overbought/Oversold Levels: Fixed levels (70 and 30) offer a standardized framework for interpreting RSI readings.

4. Trend Identification: The RSI helps identify when an asset is moving up or down, aiding in the formulation of trading strategies.

5. Volatility Measurement: By analyzing the speed and change in price movements, the RSI can indicate periods of high or low volatility.

Interpretation of RSI

Interpreting the RSI involves looking at where it falls within its range:

- Overbought: An RSI value above 70 indicates that an asset may be overvalued and is losing momentum, traders might then consider selling or shorting the asset.

- Oversold: An RSI below 30 suggests that an asset may be undervalued and is gaining momentum, traders might then buy or go long on the asset.

- Neutral: Values between 30 and 70 are considered neutral, indicating that the asset's price is in a range where it's neither overbought nor oversold.

Practical Application

Traders use the RSI along with other technical indicators and analysis methods to make informed decisions about buying or selling assets.
It is particularly useful in identifying potential trend reversals and validating other technical signals.