Trading using RSI

Welcome to session 5 of the UTG Beginner Crypto Trader Series where we show you how to trade using the RSI indicator

• What is the RSI
• Using it to Trade
• Finding divergence
• Trading with other indicators

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• Training Videos and Tech Reviews

Understanding The RSI Indicator

Another trader favourite indicator is the Relative Strength Index (RSI).

The RSI was developed to help traders see (you guessed it) the relative strength of the market. It’s another momentum indicator (just like the MACD) that measures the strength of price changes to help us identify overbought or ovesold conditions

On the RSI we can see that the oscilator (the line) moves between two points, those points being 0-100.

But what do these numbers mean and how can we trade based off the data?

Trading Using the RSI Indicator

The 0 & 100 points represent two extreme points of the RSI and as the price of a coin increases, the RSI number will increase.. and as the price of a coin decreases the RSI number will decrease along with it.

The RSI will only ever near these extreme low or high points in a very strongly trending market.

So what are we looking for?

Because we rarely see these extreme points touched, we need to look for where the RSI number will commonly rise or fall, so we can plan our buys or sell accordingly.

Note: As with all indicators, we are using them as a GUIDE to help us confirm our trading bias. It is not to be used a sole source of information for basing trades off of.. kapeesh?

On the chart above we can see where price has reversed from its uptrend as the RSI approached the 70 region (the red arrows) and again reversed from its downtrend when hitting the 30 level (green arrows).

These levels are not to be taken as gospel, but again are areas of interest where traders will begin to position themselves for their next move.

Another number to watch for is the centerline point at (50). A crossover from above the 50 to below it indicates a falling trend. Conversely a rising centerline crossover above the 50 line indicates an increase in strength as it approaches the 70 line.

Divergence and RSI

We can also use RSI to spot divergence, which occurs when the our indicator and price tell us different things.

For example, a bullish divergence occurs when the RSI tell us we are oversold, followed by a higher low (bullish) that matches lower lows in the price.

Bearish divergence occurs when the RSI shows us an overbought reading, followed by a lower high that matches higher higs in the price.

Using RSI With Other Indicators

As we mentioned above, we can use RSI with other indicators such as the MACD to help us make stronger entries or exits as shown on the chart below.

When multiple indicators, along with our TA start to align and tell us the same thing, we can take that as a strong indication that we are making the right choice in making an entry, or exiting our positions.

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