Learning to use RSI zones
23 Sep 2021
RSI stands for Relative Strength Index and is a popular momentum oscillator indicator developed in the 1980s. It is one of the most popular indicators around and is commonly used by both traders and trading bots
Table of Contents
- Traditional 30 to 70 levels do not work with cryptocurrencies
- RSI zonal adjustments
- From levels to areas
What is the RSI?
RSI stands for Relative Strength Index and is a popular momentum oscillator indicator developed in the 1980s. It is one of the most popular indicators around and is commonly used by both traders and trading bots. For example AAX have partnered with Quadency, offering trading bots on the AAX exchange including RSI based bots.
What the RSI looks like
When trading on AAX we have the RSI fully integrated into the indicators section on our charts. In the figure below you can see the RSI against ADA, a cryptocurrency we recently conducted a critical study on.
Figure one - RSI against ADA/USDT.
How to read the RSI
The RSI has a line which will move between the values of 100 and 0. The RSI will never go above or below these values. It is extremely rare for a cryptocurrency to reach either of these levels on a x / USDT chart.
Figure two - RSI against ADA/USDT.
The RSI has two levels, the overbought and oversold levels. Traditionally the overbought level is found at the numerical value of 70, while the oversold value is at 30, as shown below.
Figure three - RSI against ADA/USDT overbought / oversold traditional.
Traditional 30 to 70 levels do not work with cryptocurrencies
Traditionally the 30 oversold level is a `buy` signal, with support typically found at this level. On the other hand, the 70 level is a `sell` signal, with resistance located there. Using the 30 / 70 levels does not typically work with cryptocurrencies, especially on the higher time frames, as shown below.
Figure four - BTC / USDT, traditional RSI levels failing
The reason for this is because we need to conduct RSI zonal adjustments.
RSI zonal adjustments
Rather than simply using 30 / 70, we can shift these numerical values according to whether the cryptocurrency in question is bullish or bearish.
For example, we can see than having the 40 / 80 levels for BTC with the RSI on the daily is substantially more accurate than 70 / 30, as shown in the figure below.
Figure five - BTC / USDT, traditional level adjustment.
From levels to areas
The RSI typically has levels. However, something which some traders like to do is look at RSI zones. This is where rather than having an exact RSI level, you have a zone which traders either look to accumulate or sell off their cryptocurrencies.
For example, AAX analyst Oliver Page typically likes to use the 42 - 49 (accumulation) and 80 - 85 levels (sell off) when BTC is looking bullish (daily charts), as shown below.
Figure six - BTC / USDT, traditional level adjustment.
On the contrary, when BTC is in a bearish position, he tends to focus on the 60 / 65 (sell) and 30 (buy) levels.
Figure seven - BTC / USDT, traditional level adjustment.
Here's an example of price analysis on the RSI
RSI zones conclusion
In conclusion RSI zones are a useful tool. However, they should not be used by themselves. This is for a variety of reasons such as:
- The occurrence of RSI divergences
- Single indicator inaccuracy
- Increased likelihood of correct trend identification.
The best indicators suited alongside the RSI are:
This article is not financial advice.
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