Dear friends, hello everyone! Today we will not discuss complex theories, but just keep it simple — how to use the RSI indicator to assess the strength of the cryptocurrency market, helping everyone avoid traps in trading and seize better opportunities.

First, I want to ask everyone a question: Sometimes when you see the coin price rising very happily, you buy in and immediately see a correction; when you see a sharp decline, you sell and it bounces back? Actually, it's not bad luck on our part, but mainly because we haven't fully understood the market's “buy and sell strength.” The RSI indicator, in simple terms, is a tool that measures this strength. Its full name is Relative Strength Index, with results ranging from 0 to 100, easy to understand.
Let's start with the basics: how to read RSI to identify overbought and oversold conditions? The standard is above 70 indicating “overbought,” meaning too many buyers, rapid price increases, likely to correct; below 30 indicating “oversold,” meaning too many sellers, excessive price drops, possibly bouncing back. Due to the high volatility of cryptocurrencies, some traders adjust the standard to 80/20, especially for altcoins, and for more specific cases, a 21-day cycle with thresholds of 75/25 is recommended, while for stablecoins, a 14-day standard is sufficient.
Another extremely useful signal is “divergence,” which is a core concept of RSI. When the price makes a new high but RSI does not follow and makes a lower high, it’s called “divergence at the top,” indicating a potential decline; when the price makes a new low but RSI does not, called “divergence at the bottom,” indicating a likely rebound. For example, previously Bitcoin reached a new high, but RSI was declining, followed by a correction, demonstrating the power of divergence at the top. Additionally, when RSI exceeds 90 or drops below 10, the market is in an extreme state, often leading to significant movements or reversals, so caution is advised when encountering these situations.
RSI typically has three moving averages: 6-day, 12-day, and 24-day, each used differently. The 6-day line reacts fastest, suitable for short-term trading but prone to false signals; the 12-day line is more moderate, suitable for medium-term trends; the 24-day line is the most stable, helping to predict major turning points in long cycles. For example, in January 2023, Bitcoin’s 24-day RSI moved from oversold territory above 30, leading to a weekly recovery, illustrating the power of long-term signals. These three lines can also “cross”: when the 6-day crosses above the 12-day, it’s called a “golden cross,” indicating a potential buy; crossing downward is a “death cross,” suggesting a sell. If all three lines move in the same direction, the trend is very stable.
Next, let’s discuss how to use RSI during trading sessions to find opportunities. Intraday trading requires continuous monitoring: when RSI exceeds 70, it signals a correction; breaking below 30 indicates a potential rebound. Short-term traders can use cycles shorter than 7 days for quicker reactions; medium to long-term traders typically use 14-21 days, less affected by short-term volatility. But don’t rely solely on RSI; combine it with other tools for confirmation: look at price patterns, whether there are divergence signals at tops or bottoms; check trading volume—larger volume when signals appear increases reliability; also consider support and resistance levels—buy when a bottom divergence occurs at support, sell at a top divergence at resistance.
For example, if RSI breaks above 70 while the price is still rising rapidly but with high volume and no further price increase, avoid chasing; be cautious of a correction. Conversely, if RSI breaks below 30 with continuous price decline and a divergence at the bottom, the rebound is highly probable, and a small position can be considered.
When using RSI, be aware of false signals. In ranging markets, RSI can be misleading; it’s best to combine it with other indicators like moving averages or Bollinger Bands. For example, if the price is above the moving average and RSI is overbought, consider shorting; the opposite applies as well. Also, signals on smaller cycles are less reliable—if a 1-hour chart shows overbought conditions, check the 4-hour or daily chart for confirmation to avoid misjudgment. During black swan events, market volatility can invalidate RSI signals; in such cases, avoid relying on it and wait for market stabilization.
Position management is also crucial. When RSI enters oversold territory, do not open positions exceeding 15% of your total capital initially; wait for the indicator to recover before adding more. When overbought, use leverage no more than 3x; oversold, no more than 5x. Never take excessive risks. When profits reach 5%, move your stop-loss back to the entry price, so even if the market corrects, your principal remains safe.
Finally, I want to share a learning roadmap for beginners: first, understand the basic concepts of RSI, such as overbought, oversold, divergence; then learn to combine RSI with other indicators like MACD, Bollinger Bands; next, backtest with historical data to find suitable parameters for different coins; and finally, practice simulated trading to accumulate real experience.
In summary, RSI is not difficult to use. The core is to observe overbought/oversold conditions, divergence, and crossovers of the three lines, confirmed with volume, support, and resistance levels, and to control positions and stops well. This approach can help us more accurately predict market strength. But remember, no indicator is perfect; trading requires respecting the market and making decisions rationally. I hope today’s sharing can be helpful to everyone. Wishing you successful trading!