Our fundamentals series provides readers with the knowledge they need to better understand NouVive’s Crypto Watch and Recommended Trades, as well as to enable you to conduct more informed trades of your own.
This article focuses on Relative Strength Index (RSI); an indicator that is almost as useful as Volume (hyperlink to Volume article). The RSI is a momentum oscillator measuring the speed and change of price changes. It is used by traders to conceptualise whether an instrument is overbought or oversold so as to take advantage via short and long positions on the instrument.
While the RSI can be understood as a basic instrument initially, when used to its fullest potential, it conveys vital information which can generate powerful trading signals. It is for this reason that NouVive places so much stake in using RSI as an indicator for conducting informed trades. Significantly, RSI needn’t only be used to for overbought / oversold signals and can be used as an all-in-one oscillator.
The central characteristic of an RSI is divergences. An RSI can be used to identify market tops, bottoms and trend reversals by looking for divergences. A divergence herein occurs where the highs and lows made by the RSI are different from the highs and lows made by the instrument’s price. This can be seen through Crypto Cred’s chart below.
Additionally, an RSI can be used to refine entry and exit levels. After identifying you initial entry and exit levels, once the price reaches those levels, you can refine exact entry / exit based on when the RSI is oversold (for entry) and overbought (for exit). By way of repetition, you should remember that RSIs merely supplement predetermined entry and exit levels and do not themselves form the basis of selecting entry and exit levels.
RSIs are an important indicator which we here at NouVive often use to supplement our analysis when recommending trades to subscribers. We recommend developing an understanding of how RSIs work. This will help you understand our analysis better and will allow you to make more informed trades of your own as RSI understanding will supplement both NouVive’s analysis in both CryptoWatch and Recommended Trades.
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