🔄Relative Strength Index

Relative Strength Index is used to identify overbought or oversold conditions and potential reversals. RSI focuses on momentum and exhaustion rather than direction.

What is RSI?

The RSI is a momentum oscillator. Think of it like a speedometer for price changes.

Range: It moves between 0 and 100.

It compares the magnitude of recent gains to recent losses.

• If the price is going up rapidly with very few down candles, the RSI approaches 100.

• If the price is crashing without relief, the RSI approaches 0.

Main use

RSI is commonly used to answer two questions that moving averages cannot:

1. "Is the price too expensive right now?" (Overbought)

   • When RSI > 70, the asset is considered "overheated." The buyers are exhausted, and a reversal (price drop) is likely.

2. "Is the price too cheap right now?" (Oversold)

   • When RSI < 30, the asset is "oversold." The sellers are exhausted, and a bounce (price rise) is likely.

Use Case: While your current Moving Average tools tell you what the trend is (Up or Down), RSI tells you if the trend is about to end.