I continue to learn as I move ahead in my journey to become better at Technical Analysis and am making a bite-sized summary of each time. It is best to have read previous posts as this one builds on those...
Previous Technical Analysis Lessons
Technical Analysis #1 | Basics
Technical Analysis #2 | Trends
Technical Analysis #3 | Bearish Patterns
Technical Analysis #4 | Bullish Patterns
Technical Analysis #5 | Symmetrical triangles
Technical Analysis #6 | Volume Indicator
Technical Analysis #7 | Moving Averages
Technical Analysis #8 | MACD
#9 RSI
RSI stands for "Relative Strength Index" and is another Technical Indicator next to Volume, EMA's, & MACD which measures the momentum of the speed and change in price movements. It ranges between 0 and 100 and it is used to identify 'oversold' and 'overbought' zones. This is how most traders use this technical indicator.
- When it goes above 70, prices can be considered overbought.
- When it goes below 30, prices can be considered oversold.
Prices can remain in overbought or oversold conditions for an extended period of time.
Adding RSI on Tradingview
Similar to the other indicators, go to Strategies & Indicators and look for RSI to add it in your chart on Tradingview, You are only allowed to have so many indicators on the free version that you will have to make a choice which ones you want on there at the same time.
Bullish & Bearish Divergence
The RSI can be used to predict and confirm trend changes. Similar to the MACD is there is an opposite movement of the RSI and the price it typically indicates a change in a trend.
- Price Goes Up & RSI Goes down = Bearish
Example:![xxx109.jpg]()
On Chainlink, the Price set a higher high while the RSI set a lower high which indicates a top and bearish divergence. This was followed by a 27% correction to the downside going from overbought to oversold conditions. - Price Goes Down & RSI Goes Up = Bullish
Example:![xxx110.jpg]()
The exact opposite happened on Ethereum causing Bullish Divergence followed by a price increase of almost 20%.
RSI Zones
The RSI tends to form resistance and support zones around the 40 & 60.
- When we are in a Bull Market, the RSI will rarely fall below 40 and often will finds support around that range. If this happens it indicates that the bull trend is still intact.
- When we are in a Bear Market, the RSI will rarely go above 60 and often will find resistance around that range. If this happens it indicates the bear trend is still active.
Example Bitcoin Chart:
The Price often bounced exactly at the 60 RSI in the Bull Market and will likely be the price of resistance during the Bull market so it's certainly a zone to keep a close eye on.
Future posts in this series can be found here
https://www.publish0x.com/costanza-technical-analysis
Free Software I use for Charts
Tradingview
Platform I use for Trading
Binance
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