Education

How to properly use RSI for a high reward v/s low risk strategy

This tutorial on RSI is the first part of a RSI Masterclass series.
RSI or Relative Strength Index is classified as a momentum oscillator, measuring the velocity and magnitude of directional price movements.

Momentum is the rate of the rise or fall in price.
The RSI computes momentum as the ratio of higher closes to lower closes: cryptos which have had stronger positive changes have a higher RSI than cryptos which have had stronger negative changes.
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Risk Management
The thresholds are generally set to a safe 70-30.
Risk tolerant: 33-60
Risk averse: 20-80.

Overbought-Oversold Levels:
If the RSI is less than 20, it means that the market is oversold, and that the price might eventually increase.
Once the reversal is confirmed, a buy trade can be placed.
Conversely, if the RSI is more than 80, it means that it’s overbought, and that the price might soon decline.
After a confirmation of the reversal, a sell trade can be placed.

RSI will only cross 80-20 when there’s a strong momentum jump and thus can give us better and safer quality trades than 70-30. Where as in case of 66-33, RSI might oscillate quite frequently in that range so it’s safer to use this pair along with some trend indicator to prevent losses.

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- Mudrex

Mudrex

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