Sirwin
Sirwin

The RSI and when to buy. One simple technique

By rees18 | Simon Rees | 29 Mar 2021


If you are a beginner trader please read the following;

"An asset is usually considered overbought when the RSI is above 70% and oversold when it is below 30%" - Investopedia.com

There is a problem here. The terms overbought and oversold are in general very misleading. Just simply wipe them from your vocabulary and move forward.

More important is the relationship of the RSI to its MA, the moving average. A classic thing to watch out for is the RSI bouncing off of the MA. We're not here to look at that though, specifically. Read on.

 

Now For The Easiest RSI Signal Of All...

Time frames: 2 day and above for best results. Higher the better.

When the RSI has been living underneath the moving average for a long time but then begins to poke its head above water, above the MA, it may be time to pay attention!

Here we have a recent example with CVTBTC, CyberVein vs Bitcoin, on a weekly chart.

b73e83b09491c03c1d0f935feed9e17cccec9c1b339f2d34a9566a254a2faa06.png

Ever since it broke down August 2020 the RSI had been living under the MA.

End of February 2021 the RSI clearly gets back above the MA. In conjunction, we now have our first candle close above the yellow 21 MA.

But maybe you feel we left it too late for an entry. Let's zoom in to a 3 day chart below.

CVTBTC 3day

Now you can see more precisely when the buy signal originates. By the end of February we have candles closing above the red 10 SMA. A few days later the RSI is maintaining above the MA as well as bouncing off of it. This is when I considered a small position.

Let's now take a look at CVTUSD, CyberVein vs USD. Monthly chart.

CVTUSD Monthly Chart

A quick glance at CVTUSD and it becomes obvious it had been going though a 6 month long consolidation at a high level along the monthly 21 MA, primed for a breakout.  I expect yet more to come from CVT over the next few weeks. Sometimes all you have to do is zoom out.

...

Not sold on this technique?

Let's have another example. Here we have my favourite coin, FETBTC, Fetch AI vs BTC on the weekly chart.

ba3ecf596d82b1083fc658d8245e871f9cbf7a2b30d284dd3c964bb8632ba282.png

In early 2021 we see the RSI breaking above the MA while opening and closing candles above the red 10 SMA, closely followed by a candle close above the yellow 21 MA. Good confluence.

Again let's zoom in to a 3 day chart to see if there was a good entry point.

45bacb032cf1b576ba1d920ca8b78c518a06e3bb686cc88b286ff748fa27bd46.png

By January 19th we have candles opening and closing above both the 10 SMA and 21 MA.  ALSO the RSI is happily above the exponential.

Again this is when I switched over to view the coin vs USD for further investigation. I did a deep dive in to the fundamentals of the project and actually liked what I saw so much that this project has become my main bag for the very long term.

 

Keep an eye out for these signals. Of course it works to the downside too, however speaking of bullish things is far more fun.

Happy trading.

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Simon Rees
Simon Rees

A mix of fundamentals and technical analysis

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