Tag: xbt, crypto tech analysis, cryptocurrency price, relative strength index, bitcoin price, bullish and bearish signal
There are many different tools for traders to access the changeable crypto market. One of them is an approach known as Technical Analysis. Traders can get a better understanding of the market sentiment and make more accurate predictions and rational decisions by using this method.
Technical analysis focuses on the study of a crypto coin with its historical price charts and trading volumes, no matter what the crypto coin does. Some indicators are concentrated on identifying the current market trend, including support and resistance areas, while others are concentrated on determining the strength of a trend and the likelihood of its continuation.
Popular and commonly used technical indicators include relative strength index(RSI), moving average convergence divergence(MACD), Bollinger Bands, moving average(MA), and so on. We will briefly introduce the basic information and knowledge of those frequently used tech analyses through several articles.
- Relative Strength Index (RSI)
What Is RSI?
The relative strength index (RSI) is a popular momentum oscillator developed in 1978, which was originally developed by J. Welles Wilder Jr. RSI is a technical analysis tool that expresses price strength by comparing price movements, which is used to measure the rate (speed) and change (range) of price movements(a line graph that moves between two extremes and can have a reading from 0 to 100).
The RSI provides technical traders signals about bullish and bearish price momentum, and it is often plotted beneath the graph of an asset’s price. As Bitcoin prices often trade in an overbought or oversold condition due to its high volatility, RSI indicator signals traders to enter or exit a certain position.
What RSI tells you?
According to Wilder’s measurement results, when the RSI of a crypto coin rises to 70, it means that it has been overbought and investors should consider selling the crypto coin. On the contrary, when the RSI of a crypto coin drops to 30, it means that it is oversold and investors should buy the crypto coin. The default time period is 14 periods with values bounded from 0 to 100. As you can see in the above chart, the RSI indicator can stay in the overbought region for a long period while the cryptocurrency is in an uptrend. The indicator may also remain in an oversold region for a long time when the cryptocurrency is in a downtrend.
Furthermore, when the tendency of price changes (rising or falling) of a cryptocurrency becomes more extreme, the possibility of reversal of price changes will be greater. When the RSI reaches 80 or 20, the cryptocurrency has been severely overbought or oversold, and investors should pay more attention to such cryptocurrencies at this time. However, when the derivatives market is in a bull market, the value of severely overbought or oversold should be adjusted upwards appropriately, and vice versa.
About Buy or Sell Signals
In the crypto market, large fluctuations have a considerable impact on RSI, but this may be a false buying signal. By using bullish signals when the price is in a bullish trend and bearish signals when a stock is in a bearish trend will help to avoid the many false alarms the RSI can generate. Meanwhile, investors should cooperate with other technical analysis indicators to play the role of the relative strength index.
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