What is RSI?
RSI (Relative Strength Index) is a relative strength index. It is an indicator used in technical analysis.
This is a useful tool in and is applied in trading: stocks, forex or even cryptocurrencies. With this indicator you will know a bullish or bearish signal.
The indicator was developed by a mechanical engineer J. Welles Wilder in 1978.
What does the RSI tell us?
First, let's take a look at the RSI formula!
RSI = 100 – [100 / ( 1 + (Average Change in Price Up / Average Change in Price Down) ) ]
From this formula we can see that the indicator shows the correlation between buyers and sellers. The RSI is shown from 0-100 and the balance will be 50.
In addition, you also know the overbought zone if the index goes above 70 (buyers dominate) and oversold if the index is below 30 (sells dominate).
This means that when the RSI crosses 70, the price is likely to turn around and fall. When the RSI is below 30, it shows that the selling force has decreased and the price is likely to rise again.
How to use the RSI
The most traditional and basic way to use the RSI is to consider selling when the index is above 70 and buying when the index is below 30.
But this is usually not very efficient. Because if it's that easy, how can anyone swing to the top, right?
Another simple way is to use the 50 level. In an uptrend market (bull market) the RSI will fluctuate between 40-90 with the 40-50 area being support. In a bear market, the RSI will range from 10-60 with the 50-60 area being resist.
There are also many ways to use this indicator in addition to the ways I mentioned above. To know, let's learn more with Blogtienao!
RSI pregular jubilee
For divergences, there are also 2 divided into 2 types: positive divergence (Bullish Divergences) and negative divergence (Bearish Divergences).
A bullish divergence is created when the RSI bottom makes a higher low and the price makes a lower low.
It shows bullish momentum and is a signal for you to buy or open a long position.
A bearish divergence is created when the RSI bottom makes a lower high and the price makes a higher high.
It could show a bearish momentum coming in so you might consider selling or opening a short position.
RSI psecret pleasure
At this point I have talked about normal divergence as you have seen the result is usually a reversal from bearish to bullish or from bullish to bearish.
But here I will tell everyone about hidden divergence. The price will continue the uptrend or downtrend.
To identify this type, it will also have 2 types of bullish hidden divergences and Bearish hidden divergences.
Bullish closed divergence
A bullish closed divergence is created when the RSI makes a lower low and the price makes a higher low.
When you recognize this signal you will know the price will continue the uptrend.
Closed bearish divergence
A closed bearish divergence is formed when the RSI makes a higher high and the price makes a lower high.
This is the signal that the indicator provides that the price will continue its downtrend.
Draw a trend line for the RSI
We often draw trend lines trendline for the right price! But now we know about the indicator Relative Strength Index you can also draw trendlin
Put the patterns on the RSI
The models are often applied to price such as: 2 tops (bottom), wedge, cup and handle, etc. You can also apply the RSI indicator.
Instructions for setting up the RSI indicator on Tradingview
Tradingview is a useful tool to help you do technical analysis easily. The pictures I drew are all on Tradingview now.
Step 1: Create a Tradingview account and choose a trading pair
If you do not know how to create it, you can refer to the article about Tradingview this one.
Step 2: Choose the type of asset you want to trade
You choose the type of asset you buy to trade by entering its name or code in the Search Ticker box at the top. Here I choose Bitcoin to trade.
Once selected, you can click on the Full featured chart button to be able to use its functions.
You choose Indicators or press the button “/“. Next, you search for RSI and then find Relative Strength Index. Just click on it and you're done.
To draw like the pictures I have shown above, you use the toolbar on the left to draw.
Things need to notice
The indicator is also just an aid in trading because we should not trust it 100%. Especially since we only use a single indicator.
When the market is trending up or down sharply.
Hope the article helps you better understand the RSI indicator and how to use them! If you have any questions, please comment below.
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Wished everyone success!