CRYPTO ACADEMY WEEK12- HOMEWORK POST FOR @kouba01
WHAT IS RSI
As investors if youve ever traded with stocks, crypto or currency pairs, we face one major concern regarding choosing the right securities for investments . This concern is due to the awareness that when wrong securities or investments are selected the investor faces an inevitable loss. In other to avoid such risks/losses and increase returns, there are certain aids that can guide you while placing trades and as such the RSI is one of then
The RSI stands for the relative strength index and functions as a powerful analytical tool which serves as an indicator to help investors choose the right securities to buy or sell, through this, chances of losses are reduced to the barest minimum.
HOW ITS CALCULATED
RSI = 100-100/(1+RS)
RS= Average Gain/ Average Loss
Average Gain= Sum of gains over the past 14 periods/14
Average loss= sum of losses over the past 14 periods/ 14
CAN WE TRUST RSI IN CRYPTO TRADING?
Well the answer is simple .. YES
Firstly the proof of the RSI success is shown on the charts if you can understand it. RSI is displayed in form of a line graph that moves between two extremes with a reading from 0 to 100.
The indicator was originally developed by J. Welles wilder JR and it had since then been known to assist traders. It doesn’t matter how great you are at trading or reading candle sticks or predicting markets i mean adding one more arsenal to your game wont hurt would it?
How it works:
RSIs are considered overbought when the chart readings go above 70 and oversold when it goes below 30. Signals are also generated by looking at divergences, failures, swings , centerlines and cross overs. I mean with this you can trade more confidently. When its overbought , you sell, when its oversold.. you buy.
HOW DO YOU CONFIGURE THE RSI INDICATOR ON THE CHART AND WHAT DOES THE LENGTH PARAMETER MEAN? WHY IS IT EQUAL TO 14 BY DEFAULT AND CAN IT BE CHANGED
A friend of mine introduced me to trading view which is what ill be using today to illustrate how to go about the above questions
If you’re looking for an RSI and want to configure
it? Use the link below
Step1- open trading view and on the front page you can see that no RSI is currently shown
Step2- click on the left menu and go to charts
Step3- select a a crypto pair by tapping the first bar at the top of the screen. Ill be using BTC/USD today
Step4- tap on fx indicators then click the search button and type RELATIVE STRENGTH INDEX ( it will pop up even before youre done)
HOW TO CONFIGURE
The indicator is currently on your front page and now you can configure it however you wish. You click on it and some icons pop up, kindly select the setting icon inbetween
You can see some of the settings like the
Indicator time frame,
The length which its default setting is 14,
The source
The time frame is used to match the charts and its length . With the length on 14 it would mean its time frame is up to its 14th value.
The source serves to indicate the price each readings are based on.
With the style tab you can just be creative and explore what ever design suite your taste
WHY IS THE LENGTH EQUAL TO 14 BY DEFAULT
The RSI is calculated using average price profit and losses over a given period of time which is 14days and this value is bounded from 0-100. What this means is that the indicator goes back 14 time frames based on the charts being used and makes its calculations based on that.
The length of RSI is set on 14 to make it easier to read. A longer length the sensitivity of the indicator would and a shorter length the sensitivity is greatly increased which will likely lead to more blips
However you can change the length to what ever suites you most by using the earlier steps above.
HOW DO YOU INTERPRET OVERBOUGHT AND OVERSOLD SIGNALS WHEN TRADING CRYPTOCURRENCIES
Like I mentioned earlier one of the major readons for the RSI is to indicate when securities have been overbought or oversold
When a crypto currency is overbought the market as such becomes unstable and correct it self and when sold and demand increases it goes back to normal.
The RSI notes this loops and lets investors know when to buy or not.
Using a scale from 100 to 0
When the charts go past 70 then its being over bought meaning the investor would have to sell and when it goes below 30 then the market is being over sold so this way the investor would have to buy. Its that simple
Ill give some illustrative examples below
/overbought/
/oversold/
HOW DO WE FILTER RSI SIGNALS TO DISTINGUISH TRUE SIGNALS FROM FALSE
To filter fake signals it requires precision and deligence. Sometimes indicators have to be read on three to four candle sticks before deciding to buy or sell.
Sometimes when the charts peak above 70 a little , it can be that it had been over bought to early. Some people maybe go sell of and still watch it continue to rise and make loss. I have been a victim of this myself.
Asides that you can as well confirm with other indicators if you are unsure about the price movement , that way with clarity you can confidently make trades and avoid false signals
There is the MACD, STC etc
REVIEW THE CHARTS OF ANY PAIR AND PRESENT VARIOUS SIGNALS FROM THE RSI
Lets use the BTC/USD
This was oversold
This is over bought
This is a bullish divergence
Bearish divergence
Cc
@steemcurator02
@kouba01
@steemcurator04
@yohan2on
@steemcurator01
Hello @spyrex,
Thank you for participating in the 4th Week Crypto Course in its second season and for your efforts to complete the suggested tasks, you deserve a 4/10 rating, according to the following scale:
My review :
The article lacks many aspects, as your role is limited to summarizing and paraphrasing the information. The RSI technique must be applied to some examples in order to understand the importance of using it and to be able to analyze price changes.
Thanks again for your effort, and we look forward to reading your next work.
Sincerely,@kouba01
Thanks for the review. Ill do better next time