How to Trade Bitcoin with a Relative Strength Indicator | Bitbuy.ca

Investors are always trying to garner some type of advantage to improve their odds of taking a winning position on a trade.

This could consist of reading Securities and Exchange Commission (SEC) filings or determining what a company could be anticipating in the upcoming quarterly earnings report.

But rather than pinning all your hopes on your deduction skills and predictive powers, perhaps you can rely on indicators for your next stock or cryptocurrency trade.

Indeed, the financial markets offer a treasure trove of information, signals, and technical indicators. That is, of course, if you know how to read them.

The Relative Strength Indicator (RSI) is amore popular mechanism. This momentum indicator measures the size of recent price movements to help determine if a security is overbought or oversold, relying on a scale from 0 to 100 – anything above 70 indicates overbought, and anything below 30 suggests oversold.

But while RSI is widely used to judge where a stock is headed, can it be utilized for Bitcoin?

How to Trade Bitcoin with the RSI

First, yes, Bitcoin investors can turn to the RSI when buying, selling, and holding cryptocurrency.

Like anything else, the RSI is not infallible, meaning that it has made errors in the past. For example, whenBitcoin reached oversold territory last year, the price rallied as much as 300percent in the following months.

Still, as traders would in any type of market, it is important to complement your technical factors with other measurements.

So, here are five ways to integrate the RSI with your Bitcoin trade:

1. 0 or 100?

Bitcoin investors must never wait until theRSI hits zero or 100 to make a trade. This rarely happens. It is best to find a spot in a conservative location to execute a bullish or bearish position inBitcoin. This is especially important when choosing to hold a long-term position in the top digital currency in the sector.

Rule of thumb: A good RSI to buy is when the asset is below 40, and a good RSI figure to hit the sell button is when it is above 70.

2. Convergence vs. Divergence

The next component in your RSI utilization is determining the convergence and divergence.

Convergence is when the price makes a lower high or a lower low, while the RSI oscillator completes a higher high or higher low.

Divergence occurs when the price enjoys a higher high or a higher low, while the RSI oscillator puts together a lower high or a lower low.

But why does this matter?

For one thing, investors will typically home in on the divergence aspect because it spotlights a change in the price trend or investor sentiment, meaning that it could be a sign that it is time to trade by either taking profits or changing strategies.

3. Time to Breakout?

A benefit of the RSI is that it can also act as an early signal for an asset to breakout (or even break down, if you will).  

Advance breakout in the RSI is when the indicator has touched the previous top, although the Bitcoin price has yet to hit the previous top.  

In other words, it functions as an advanced indicator that the price will soon follow the RSI in the coming sessions.

4. Meeting You Halfway

Wait a minute.

What happens if the RSI flirts with the mid-50line?

This is undoubtedly a critical line to anticipate a price direction. Investors view this figure because it means that the price will likely stay above this line during the bull run - and vice versa in the bearish phase.

Undoubtedly, there will be plenty of whipsaws during a single session. Therefore, expanding your horizons and using a weekly time frame is best.

In the end, the mid-50 line in your RSI could be the start of a new trend.

5. Set Up Alerts

So, it is terrific that you can use the RSI for your Bitcoin trades.

But how can you be alerted to the latest developments without staring at a chart in this 24/7 market?

Many crypto traders will establish alerts on TradingView. The popular website lets users add custom alerts for all trade indicators, which are emailed or texted to the investors.

Conclusion

An RSI will prove to be a valuable tool for all of your trades in bull and bear markets. While the five-decade-old resource is the only component you should gape at in your investment crusade, it should most certainly be one of the most widely used tactics in your chest of measures. Indeed, Bitcoin is not easy to trade, whether day trading or swing trading, so you should mitigate the challenges by including as much information and strategies in your toolbox as possible.

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