Use of RSI (relative strength index) in the cryptocurrency trade: best practice
The world of cryptocurrency trade is a high risk game and high reward. With the increase in decentralized finances (Defi), blockchain technology and cryptocurrency markets, traders constantly look for new strategies to obtain an advantage. Among the various technical indicators used in the cryptocurrency trade, one that stands out particularly effective is the relative force index (RSI). In this article, we will explore how the RSI can be used in the cryptocurrency trade, including its best practices.
What is the relative force index (RSI)?
The relative force index (RSI) is a impulse indicator developed by J. Welles Wilder Jr. measures the extent of the recent variations in prices to determine the conditions or overall market. The RSI calculates two key values:
- RS (relative force): the relationship between the variation of the price to the price range.
- RSI
: a number between 0 and 100 which represents how many standard deviations of its average value are the current price.
The RSI is calculated using the following formula:
RSI = (100 – average RS) / RS
Where the average RS is the average of the last n periods.
How to use RSI in the cryptocurrency trade: Best Practice
The use of RSI in the cryptocurrency trade offers several advantages, including:
- Risk management : RSI can help traders identify the conditions of over salt, which allows them to season their strategies and avoid significant losses.
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Here are some best practices to consider when using RSI in the cryptocurrency trade:
RSI Configuration of the parameters **
When configuring the RSI parameters, consider the following:
- Window size : Determine how many periods use to calculate the media RS (for example 14 or 21).
- Length of the period : choose a length of the period that balances accuracy and computational power.
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Interpretation of RSI levels
RSI levels are essential to determine the strength of price movements:
* Overopching (70-100) : traders can take into consideration the possibility of taking positions that imply risks, since the market is likely to be higher.
* Overdold (30-69) : traders must wait for a setback before entering the positions, since the market is likely to be oversized.
Use of RSI in commercial strategies
RSI can be used in different commercial strategies, such as:
- Next : RSI can be used to confirm the trend address and input/output levels.
- Scaling : RSI can help operators identify possible reversal points in a short period (for example, 5 minutes sails).
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Best Practice to use RSI
To make the most of the use of RSI in the cryptocurrency trade:
- Use a coherent period of time : stay in a single period of time (for example, a 4 -hour candle) to analyze price movements.
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- Combine with other indicators: USA RSI together with other technical indicators (for example, Bollinger Bands, MacD) for a more complete analysis.
Conclusion
The relative force index is a powerful tool that can be used in the cryptocurrency trade to identify the general conditions or conditions and impulse variations.
