How to Use RSI Indicator

Welles Wilder Jr., who is considered the father of technical indicators for trading. That’s why trend indicators will be the right addition to that. Combine signals of Moving Averages or Ichimoku Kinko Hyo with RSI.

  • There are two straight-dotted lines, one at the top and another one at the bottom.
  • The RSI is displayed as an oscillator on a scale of zero to 100.
  • The RSI is often used in combination with another oscillator, the MACD.
  • In this way, traders can identify the best value areas to enter the market in the direction of the dominant trend.
  • Periods with price losses are counted as zero in the calculations of average gain.
  • Similarly, bullish divergences are considered bear market phenomena indicative of a downtrend.

You can also add new levels should your trading strategy require so. Some traders consider it a buy signal if a security’s RSI How to Use RSI Indicator reading moves below 30. This is based on the idea that the security has been oversold and is therefore poised for a rebound.

How to better time your exits

It is basically a move to oversold levels and then a higher low above oversold levels. Chart 7 shows Research in Motion with 10-day RSI forming a bullish failure swing. When looking at how to use the RSI indicator for day trading, it is important to remember that day trading involves buying or selling underlying assets within the same trading day. Effective day trading is not merely about quantity but rather about quality (taking the best high probability short-term trades). RSI trading strategies can help traders to identify and take advantage of the best intraday opportunities in both ranging and trending markets. In order to boost trading efficiency, it’s best to use the Stochastic Oscillator.

How to Use RSI Indicator

For example, when trading with the RSI indicator it’s most ideal to find divergence exactly when the RSI is below 30. By combining these indications, you can get more confirmation that there is a possible reversal in price. When the price is trending, which means it is creating new highs or new lows, the RSI is less reliable. Because, when the market is making new highs, we cannot predict with the RSI where it will stop. And likewise, when the market is making new lows, we cannot predict how low the market will eventually go. When looking at the RSI indicator, you can see a bar or a band, indicating the zone between values 30 and 70. Overbought signals are given when the indicator rises above 70, and oversold signals are given when the indicator drops below 30.

Should I Buy When RSI Is Low?

Take your time to learn how the indicator works; choose the best period setting for your strategy. We would recommend applying several RSI indicators on the chart with different settings and then seeing which signals work better. On the daily BTC/USD chart, you can see that the RSI indicator was in the overbought area several times. However, the direction of the pair didn’t change due to the strong uptrend.

Bearish and bullish divergences place the indicator first and price action second. By putting more emphasis on price action, the concept of positive and negative reversals challenges our thinking towards momentum oscillators. Both the RSI and the RVI are oscillators, but their different qualities can help traders to pick out high-quality RSI trading opportunities in the market. Whereas the RSI focuses on price extremes , the computation of RVI seeks to relate closing prices to open prices.

How To Use RSI Indicator in Crypto Trading

The RSI indicator is a momentum indicator used in technical analysis that measures the speed of an asset’s price changes. It provides traders with signals about bullish and bearish price momentum and is typically plotted under the security’s price graph. To sum up, the RSI measures the speed of an asset’s price changes and is used in technical analysis as a momentum indicator. As a result, it can be a powerful tool for determining trend reversals.