How to create a profitable trading strategy with a relative force index (RSI)
The cryptocurrency trading world has grown significantly in recent years and requires effective trading strategies. One popular tool that can help traders make reasonable decisions is the Relative Resistance Index (RSI), a technical indicator created by J. Weller Wiler Jr.
In this article, we will go into it to create a profitable trading strategy through RSI, including its foundations, benefits and best implementation practices.
What is the Relative Strength Index (RSI)?
The RSI is an impulse indicator that measures the size of the last price changes to determine overcrowded or sold conditions. It is calculated as the difference in stock prices over the period of relationships, dividing by average price changes over the same period. The resulting value ranges from 0 to 100 and higher value shows higher price changes.
How does RSI work?
Here is an example of how the RSI indicator works:
- If the stock price has risen significantly (more than 50), RSI will be less than 30, stating that the current price is sold.
- On the contrary, if the share price has fallen significantly (less than 30), RSI will be greater than 70, stating that the current price is too high.
RSI Trade Strategy
This indicator should be used to determine the cost of buying and selling possible. Here is a step by step:
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Draw the RSI indicator : Set the candlestick chart with two indicators: RSI and other indicator of your choice (such as MacD or Bollinger bands). The RSI should also be pulled out in the same chart.
- Set overflowing and resale levels
: Use historical data to set RSI sales and sales levels, such as 70-80 sales and 30-40 sales.
- Enter the purchase signal : When RSI crosses above the sales level (less than 20), enter a long active position when the stop loss is less than the selected level.
- Come from trading : When RSI exceeds high level, leave a long position and enter a short sales order at the same price.
RSI Trade Strategy
Here are some popular trading strategies that cover the RSI indicator:
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RSI benefits
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Simplified trade solutions : RSI provides clear signals for purchase and sale, reducing the complexity of trade solutions.
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Increased accuracy : Using some indicators with RSI, traders can increase their ability to successfully trade.
Conclusion
To develop a profitable trading strategy with RSI, you need to understand how this figure works and included it in the common trade plan. By doing the steps described above and combining it with other technical analysis tools, you can create a reliable trading strategy to help make reasonable decisions in the world of cryptocurrency trade.