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How to create a profitable trading strategy with relative force index (RSI)
The world of cryptocurrency trade has registered a significant increase in recent years and, with this, effective trading strategies are needed. A popular tool that can help operators to make the knowledge of the case is the relative resistance index (RSI), a technical indicator developed by J. Welles Wilder Jr.
In this article, we will deepen how to create a profitable trading strategy using the RSI, which covers the foundations, advantages and best practices for implementation.
What is the relative resistance index (RSI)?
The RSI is a motorcycle indicator that measures the extent of recent prices variations to determine the conditions of the sovereign or hyper. It is calculated as a relationship between the differences between the prices of the shares for a certain period divided by the average price variation in the same period. The resulting value varies from 0 to 100, higher values that indicate more extreme price movements.
How does RSI work?
Here is an example of how the RSI indicator works:
- If the price of the shares has increased significantly (over 50), RSI will be less than 30, indicating that the current price is hyper -time.
- On the contrary, if the price of the shares has dropped abruptly (less than 30), RSI will be higher than 70, indicating that the current price is overloaded.
RSI Trading Strategy
Creating a profitable trading strategy with RSI involves using this indicator to identify potential purchase and sale opportunities. Here is a step -by -step guide:
- Identify the market
: Choose a cryptocurrency or a resource you want to trade, such as Bitcoin (BTC), Ethereum (ETH) or Litecoin (LTC).
- Set your graph : Use a technical analysis platform, such as Tradingview, to create a graph with different times.
- RSI indicator tract : sets a chandelier table with two indicators: RSI and another indicator of your choice (for example, MACD or Bollinger bands). RSI should also be watched on the same graph.
- Determine the levels of overload and surveillance : Use historical data to establish overload and surveillance levels, as 70-80 for hyperventi and 30-40 for overload.
- Enter a purchase sign : When RSI crosses a level of hyper -time (less than 20), enter a long position with an arrest loss below the chosen level.
- Exit in a trade : When RSA passes the level of hyper -mp, get out of the long position and enter a short -term sales order at the same price.
RSI Trading Strategies
Here are some popular trading strategies incorporating the RSI indicator:
- Bollinger Band Stradle : Use Bollinger bands to generate purchase and sale signals based on RSI higher than 80 or less than 20.
- Long tendency with low RSI : Identify a long trend in a cryptocurrency, then use RSI to determine if it is hyper -por before entering a trade.
- Short trend with high RSI : Use RSI to identify short trends in a cryptocurrency, then enter a short sales order when RSI is less than 20.
Advantages of using RSI
- Simplified trading decisions : RSI offers clear signals for purchase and sale, reducing the complexity of trading decisions.
- Improved risk management : RSI helps to identify sovereign and hyper -trained conditions, allowing operators to set up arrest orders.
- Precision incision : Using several indicators with the SSI, traders can increase the possibility of successful operations.
Conclusion
Creating a profitable trading strategy with RSI requires understanding how this indicator works, as well as incorporating it into your general trading plan. Following the steps described above and combining it with other technical analysis tools, it is possible to develop a reliable trading strategy to help you make the knowledge of the cryptocurrency trading.