RSI is a technical indicator mainly used by day traders while they are trading, and even investors sometimes rely on it to check the trend mainly for swing trading. RSI stands for Relative Strength Index used to analyze any financial market, whether crypto or the stock market.
What is Relative Strength Index?
It is also known as a momentum indicator used to check where the market price is heading. It generally works on average gains made by a stock or crypto and average loss caused for a specific timeline.
The period depends on the trader. He can select it as per his strategy, but mostly the Rsi indicator used by a trader during trading is 14 days on average. This was too technical, but no worries, we would see with an understanding example.
Also Read: A Beginner’s Guide to On-Chain Analysis
Relative Strength Index with an Example
So everyone has gone to school or college. Still, they have the one thing called marks when we hit a specific marks range; for example, an average student passes the exam when he hits certain spots, but the same average student who tops the exam is considered a topper.
Likewise, an average student not hitting particular marks is considered to be failed, and more attention needs to be given by the teaching staff.
So if marks are more minor, then it means it is oversold attention needs to be given by the trader to consider it the right time to buy. But when effects are more than the average marks he used to get, the paper checker would check why suddenly there was a sudden peak so, for a trader, it is a sell indicator.
It is often quoted that it is time to sell if the RSI rises above 75 and it is time to buy if it falls below 25.
How to gain returns from RSI?
Firstly I would say it is just an Indicator, and it just tracks the momentum of stock where the stock would go.
But I would like to quote one more important point: we had covid 19, which was unexpected, and every indicator failed at the time, and the market corrected more than 50 percent.
It is just an indicator, not a surety. To master it one needs to give equal time to the market and the indicator and follow the trends of what is happening in the global market.