How To Create A Profitable Trading Strategy With RSI

How to create a profitable trading strategy with a relative power index (RSI)

The world of cryptocurrency trading in recent years has noted significant growth, and with that comes the need for effective trade strategies. One popular tool that can help dealers make informed decisions is the relative power index (RSI), a technical indicator developed by J. Welles Welder Jr.

In this article, we will dive in how to create a profitable trading strategy using RSI, covering its basics, advantages and best practices for implementation.

What is the relative power index (RSI)?

RSI is an indicator of momentum that measures the size of the recent prices changes to determine the overblown or overturned conditions. It is calculated as a ratio of differences in shares’ prices in a certain period divided by an average change in price in the same period. The resulting value ranges from 0 to 100, with higher values ​​indicating more extreme prices movement.

How does RSI work?

Here’s an example of how the RSI indicator works:

• If the share price has increased significantly (above 50), the RSI will be below 30, indicating that the current price is transplanted.

• Contrary to this, if the price price has dropped sharply (below 30), the RSI will be above 70, indicating that the current price is exaggerated.

RSI trading strategy

Creating a profitable trading strategy with RSI involves the use of this indicator to recognize the potential opportunities of buying and sales. Here’s a detailed guide:

• Identify the market : Choose a crypto currency or property you want to trade, such as Bitcoin (BTC), Ethereum (ETH) or Litecoin (LTC).

• Set your chart : Use a technical analysis platform, such as traditionview, to create a chart with several time frames.

• Set the RSI indicator : Set a candle chart with two indicators: RSI and another indicator of your choice (eg, MacD or Bollinger Bands). RSI should be drawn on the same chart.

• Determine excessive levels and roll over : Use historical data to place excessive levels and roll over for RSI, such as 70-80 to roll over and 30-40 for over-surge.

• Enter a purchase signal : when RSI yarn above the rollover level (below 20), enter a long position in the property with a stop loss below the selected level.

• You go out the store

  

  : When the RSI yarns above the excessive level, go out to a long position and enter a short sale order at the same price.

RSI trading strategies

Here are some popular trading strategies involving the RSI indicator:

• Bollinger Band Straddle : Use Bollinger Bands to generate a purchase and sale signal on the basis of RSI value above 80 or below 20.

• ** Low RSI long trend: Identify a long trend in a crypto currency, then use the RSI to determine if it is overflowed (above 80) before entering the store.

• Short Trend with High RSI : Use RSI to identify short trends in the cryptocurrency currency and then enter a short sale order when the RSI is below 20.

Benefits of using RSI

• Simplified trade decisions : RSI provides clear signals to buy and sell, reducing complexity of trading decisions.

• Improved risk management : RSI helps recognize overcrowded and overturned conditions, allowing traders to effectively set up stops to stop.

• Increased precision : using multiple indicators in combination with RSI, traders can increase their chances of successful stores.

Conclusion

Creating a profitable trading strategy with RSI requires an understanding of the way this indicator functions as well as involving your overall trading plan. Following the above steps and combining it with other technical analysis tools, you can develop a reliable trading strategy that helps you make informed decisions in the world of cryptocurrency trading.

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