Crypto Academy Season 2: Week 4 – Cryptocurrency Trading with RSI – by @kouba01

Hi everyone, In this homework week 4 task post, I will be answering this week’s task on Trading with RSI, a task by @kouba01 - I will be giving my opinion and writing about what Relative Strength Index – RSI is all about. When it comes to trading cryptocurrencies, it is very important to have knowledge of the various instruments and tools so as to help gain more advantage when trading in order to make more profit.

Relative Strength Index (RSI)

The aim of every crypto trader and technical analysts is to use effective tools that helps traders make accurate predictions of the market in order to make profits. Relative Strength Index (RSI) is one of the many indicators and technical analysis tools that helps traders to measure the crypto asset momentum I.e, the speed and size of price movements. Simply put, RSI is an indicator tool to measure the degree of recent price movements of any cryptocurrency. RSI is calculated by;
RSI = 100 – 100 / (1 + RS)
From the above formular, RS basically means Relative Strength which equals to the Average gains divided by the Average losses in the last N price
N in this case represents = the period of Relative Strength Index

In my opinion, Relative Strength Index is a trusted indicator because of it benefits when it comes to trading cryptocurrencies. RSI can help traders determine whether a cryptocurrency will enter into a correction phase by showing overbought and oversold signals. This is also great because it can help traders know when to enter a trade and when to exit a trade.

How to Configure RSI indicator on the chart

One of the main benefits of tradingview is that is comes with a lot of features and advanced trading tools that help in technical analysis and help traders make use of indictors and technical analysis tools like RSI in order to take advantage of the market to make more profit.

• On the tradingview website tradingview
• Select the crypto pair you want to analyses. For this demonstration, I will be using the MATIC/USDT pair
• Go to the indicators section and click on it

• On the search box, input RSI

• The RSI indicator will be added to your chart

• For the RSI settings, locate the gear setting icon and click it
• You have two sections to configure – the Inputs and Style

When it comes to RSI, 14 days is the number of days that is taken into consideration and what is utilized by the RSI indicator to analyze its average value. This 14days is set by default because the RSI captures just 14 days. It is important to know that this value can be changed at any time by the trader. Why RSI uses 14days is because sees it as an optimal time to market movements and price volatility in the market.

Interpreting the overbought and oversold signals

This is easy to do using the RSI indicator. Overbought would show a mountain like shape which indicates that the price of the cryptocurrency asset is rising. This is as a result of fear of missing out in the market. Oversold would show the valley like shape which indicates that the price of the cryptocurrency asset is dumping. This is as a result of fear uncertainty and doubts in the market.

Filtering RSI signals

For me, it is important to filter the RSI signal to know true or false signals. We all know that these indicators can provide false signals, that is why it is important for technical analysts and traders to filter the RSI signals before making decisions.

Reviewing the chart of CAKE/USDT

From the chart below with RSI indicator, you can see the different regions which CAKE was overbought and oversold.

Conclusion

RSI indicator is a very good indicator that when used effectively and correctly can help cryptocurrency traders take advantage of the market movements and make more profits.