The Relative Strength Index (RSI) is a momentum oscillator measuring the speed and magnitude of price changes on a scale of 0-100, developed by J. Welles Wilder in 1978. RSI compares average gains vs average losses over a specified period (typically 14 periods) to determine whether an asset is overbought (RSI above 70) or oversold (RSI below 30). Key RSI interpretations: RSI above 70 indicates overbought conditions (price may be due for a pullback, but can remain overbought in strong trends); RSI below 30 indicates oversold conditions (potential bounce opportunity, but can remain oversold in downtrends); RSI Divergence occurs when price makes a new high while RSI makes a lower high (bearish divergence – signals weakening momentum); RSI Midline (50) acts as support in uptrends and resistance in downtrends. In crypto volatile markets, RSI often reaches extreme values (above 85 or below 15) during euphoric or panic phases. RSI should be used alongside other indicators rather than in isolation – overbought RSI in a strong uptrend can be a continuation signal, not a sell signal.
Example: Example: Bitcoin RSI reached 95 in December 2017, November 2021, and March 2024 – each ATH accompanied by extreme RSI readings with prices falling significantly within weeks. Conversely, RSI hitting 20 during the November 2022 bear market bottom ($15,500) signalled oversold conditions preceding a 500% recovery. Extreme RSI readings consistently mark cycle turning points.
Learn more: Investopedia – RSI
