Relative Strength Index (RSI) Meaning

The RSI (Relative Strength Index) is a popular technical analysis indicator that measures the "Momentum" of price changes. It oscillates between 0 and 100 and is used to determine whether an asset is "Overbought" or "Oversold." By comparing the magnitude of recent gains to recent losses, the RSI helps traders identify potential "Trend Reversals" before they happen.The mathematical calculation is based on the Average Gain and Average Loss over a 14-day period.

An RSI value above 70 suggests the price has risen too far, too fast and may be due for a correction (Overbought). An RSI below 30 suggests the price has dropped too quickly and might be due for a bounce (Oversold).

However, in strong bull markets, an asset can remain "Overbought" for weeks, making it a tool that must be used alongside other indicators.Traders also look for "Divergence," which occurs when the price of a coin makes a "Higher High," but the RSI makes a "Lower High." This signal suggests that even though the price is still going up, the actual "strength" of the move is weakening, which is often a warning of a coming market peak.

Conversely, "Bullish Divergence" occurs when the price makes a "Lower Low" but the RSI makes a "Higher Low," suggesting selling pressure is exhausting.