Relative Strength Index (RSI): One of the momentum price chart indicators that serves to predict the future Bitcoin price movements and determine the bullish and bearish trends.

RSI Indicator

The indicator was developed by a technical analyst Welles Wilder to determine if the asset is overbought or oversold. RSI is one of the most widely used technical trading tools. And this is why. 

The Tradingview defines RSI as a momentum-based oscillator which is used to measure the speed as well as the change of directional price movements. It indicates the current overbought or oversold condition of a financial instrument on a scale from 0 to 100. 

RSI Formula

RSI = 100 – 100 / (1 + RS)

RS = Average of X periods closes up / Average of X periods closes down

X = Recommended to use 14, but can be a number of the trader’s choosing

An asset is considered undervalued or oversold when the RSI drops below 30. On the other hand, the RSI above 70 shows overbought conditions. 

To put it simply, as the market tends to stay in bullish/bearish balance, once the index drops below 30 – the price is more likely to go up, while the above 70 RSI indicates the possible drop. The examples of both RSI and BTC/USD price correlations on BTCMEX are shown below.

RSI Example

Detecting the bullish and bearish market trends using RSI is reliable and easy. 

According to Wilder, the bullish RSI Divergence happens when price makes a new low but RSI makes a higher low. On the other hand, the bearish RSI Divergence is indicated by the price making a new high but RSI making a lower high.

Please note, that the article is a part of BTCMEX Blog, the views and opinions expressed here are the contributing authors’ only and do not necessarily represent the views of the company.

Any comments, news, research, analysis, price, other information or links to third-party websites published on this website can only be regarded as general market information and do not constitute investment proposals. Market opinions are not prepared in accordance with legal requirements to promote the independence of investment research. BTCMEX will not be liable for any loss (including but not limited to any loss of profit) that may arise from the direct or indirect use or reliance on such information.

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