![image.png](https://images.hive.blog/DQmauZBJekhq1z438KCqZXhQuVreGys9zCs426mjUnh642W/image.png)

Although I have spent most of my working life dealing with data analysis and machine learning, I had not been deeply involved in technical analysis until recently. I've been obsessed with the subject for the last few months. I researched the subject in detail, trying to understand and internalize the different perspectives of experts. My efforts in this direction continue.

I wrote an article titled [Introduction to Technical Analysis](https://hive.blog/hive-150329/@muratkbesiroglu/introduction-to-technical-analysis) on the subject. Today, I want to write about one of my favorite technical indicators, RSI (Relative Strength Index).

When determining the relative importance of indicators, I take into account the opinions of experts and test the relevant indicator on Bitcoin, Ethereum, Steem, and Hive historical price charts. In testing using historical price data, I've found that strategies based on RSI generally work well.

RSI is basically an oscillator that measures momentum; It takes values ​​between zero and one hundred. It is calculated by dividing the average of the increases in the price of a financial asset by the average of the decreases for the specified period. For example, if the analysis is based on daily prices, the RSI calculation is performed using daily closing prices. RSI is usually calculated by taking into account the prices of the last 14 days.

The above image shows Bitcoin's price from September 26, 2020, to the present day. The development of the RSI value is also seen in the chart. The dark area shows the 30-70 band of the RSI, which is considered 'normal' values. I draw your attention to the fact that in the middle, the exact value of 50 is also shown with a dashed line. As the RSI approaches 100, we understand that the price momentum is up, and when it approaches zero, the momentum is down.

Strong momentum is preferable, but too high momentum brings the risk of price drop due to overbought prices. The very low prices, on the other hand, increases the hope for a rise with the thought that the prices have fallen too much.

After this general information, we can move on to RSI-based trading strategies.

# **Overbought and Oversold Zones**

When the RSI value is below 30, it is assumed that the relevant financial product is in the oversold region. The probability of price increase that is exposed to intense sales in a short time increases.

When the RSI value is above 70, it is assumed that the relevant financial product is in the overbought region. It is thought that profit realization may come as prices increased rapidly in a short time.

It is essential not to trade just by looking at the RSI values ​​reaching extreme points. RSI value needs to be confirmed by another sign. For example, the formation of a long red candlestick shows the strength of the sellers in a bullish market.

In my reviews, I have seen that the RSI value falling below 30 is an important indicator for cryptocurrencies. However, it is common for the RSI value to go above 70. Those who sell just because the RSI value is above 70 are missing the bull markets.

# **Determination of Market Price Structure**

All technical analysts emphasize the importance of market price structure. The price of the financial product we are interested in can be in an uptrend, downtrend, or range (horizontal). It is sometimes difficult to determine which of these three states the market is in because it is possible to interpret price pullbacks in an uptrend market as a downtrend. Or, a price rally in a range market can be interpreted as an uptrend. The fact that the RSI indicator is above 50 for some time indicates that the market is in an uptrend. Frequent rises and falls of the RSI indicator above and below 50 indicate a sideways market. If the RSI is below 50 for a long time, it indicates a downtrend.

# **Trade Signals**

An RSI value crossing 50 upwards is considered a buy signal, as it indicates that the price momentum has increased. Similarly, the RSI value falling below 50 is considered a sell signal. Of course, it is necessary to confirm these signals with other methods such as candlestick patterns or support resistance analysis. Otherwise, they are likely to be misleading.

# **Determining Trend Reversal**

Determining if an uptrend or downtrend will continue greatly affects the financial results. Trends often come to an end as the strength of the momentum, either up or down, gradually fades. It is possible to detect this situation on the RSI chart. In some cases, while prices continue to rise, a decreasing trend is seen on the charts of momentum indicators such as MACD and RSI. Or vice versa, an uptrend is seen on the momentum indicator's chart as the price continues to decline. Situations like these indicate an increased probability of a trend reversal. If supported by other data such as a candlestick pattern, support/resistance points, or other relevant indicators, this information can be used to sell a financial asset at the top or buy it at the bottom.

https://media.giphy.com/media/grlkPWm6vpdRqZqMQV/giphy.gif

# **Conclusion**

The RSI is an extremely important indicator that many market professionals follow closely. It is possible to use this indicator for different purposes as I explained above. Spring does not come with a single flower and it is not possible to invest by looking at just one indicator, so additional elements are needed to support our hypothesis in any case. We can add the RSI indicator to our price charts by using the "fx indicators" button in the "Full Feature Chart" mode of the https://tradingview.com/ site.

Thank you for reading.

Image Source: https://giphy.com/



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