RSI for crypto trading is an indicator that compares the number of days up to the number of days down for any cryptocurrency. This can help investors evaluate whether cryptocurrency prices are increasing or decreasing.
Do you want to know more about the concept of the Relative Strength Index (RSI)? If so, please follow AZcoin!
What is the Relative Strength Index (RSI)?
Relative Strength Index abbreviated as RSI. This is an indicator that compares the correlation ratio between the number of days of increase in price compared to the number of days of price decrease. This index was first introduced in 1978 and is commonly used to gauge price changes in cryptocurrencies or stock assets.
Accordingly, RSI will have a value ranging from 0 to 100, the average level will be 50, and is often displayed in the form of an oscillating graph. From here investors can monitor and evaluate whether the price of any cryptocurrency or stock is increasing or decreasing.
Although up to now there has been a lot in investment activities, the concept of RSI is still known as part of the technical analysis process in investing.
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How to calculate RSI for cryptocurrency?
RSI is used in the cryptocurrency market to evaluate the price change of cryptocurrency over the default 14-period timeframe. However, this timeframe can be increased or decreased to suit investors’ investment time.
Accordingly, you can calculate RSI according to the following specific formula:
RSI = 100 – 100/(1 + RS)
In there:
- RS = Average gain/Average loss
- Average gain = Total gain per period/Timeframe
- Average drop = Total drop per period/Timeframe
Looks quite complicated, right? Fortunately, the calculation of the above values is now provided automatically by trading platforms. In other words, you will not need to calculate but can directly monitor the RSI line chart provided after each transaction.
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How to track RSI for cryptocurrency?
As we know, RSI is a momentum indicator, a type of tool that measures the speed of price fluctuations. In other words, with this tool, we can see active buying in the market when the chart is on the rise. Conversely, when the chart is on a downward trend, it is a sign that investor interest in any cryptocurrency is slowing down.
Accordingly, an accurate RSI chart will include the following components:
- The RSI line moves up and down between 0 and 100.
- Upper border, usually default is 30.
- Lower border, usually default is 70.
So when looking at the RSI chart above, if the RSI is below 30, it means the market is in an oversold state, possibly about to bottom and increase in price again. On the other hand, if the RSI is above 70, it means the market is in an overbought state and may be about to peak and decrease in price.
Besides, although RSI will be calculated over a 14-period, you can adjust the period to a shorter period or increase it to a longer period. The purpose is to increase or decrease the sensitivity of RSI information.
Pros and Cons of using RSI
It is a relatively effective tool for investors. However, using the Relative Strength Index also has advantages and disadvantages that you should know:
Prospects
- Allows investors to gain potential short-term advantage, and valuable predictive information for immediate buying and selling decisions.
- Provides a basic mathematical look at the recent trend movement of any cryptocurrency through a relatively simple formula.
Consequences
- RSI is not designed and constructed to be used for long-term future investment plans as it is usually limited to 14 days.
- The formula for calculating RSI is relatively simple, but using it in buying and selling decisions is still relatively complicated.
Conclusion
Finally, we have gone through all the most general and easy-to-understand content about the RSI for cryptocurrency tools. Hope this information will be useful to you and see you again in more new content from AZcoin.
I am Tony Vu, living in California, USA. I am currently the co-founder of AZCoin company, with many years of experience in the cryptocurrency market, I hope to bring you useful information and knowledge about virtual currency investment.
Email: [email protected]
