The relative strength index (RSI) is an indicator used in technical analysis to identify overbought and oversold areas on a graph. The manual formula for calculating RSI is:
RSI = 100 – 100 / ( 1 + RS ); where RS is relative strength obtained by dividing the average of positive price changes by the average of negative price changes.
Understanding the term
RSI helps traders figure out the strength of up movements as compared to the down movements at any specific point. Those who rely heavily on technical analysis use RSI at their preferred settings every day.
RSI can be used the same way in different financial markets, which establishes the fact that the RSI definition holds true in all cases. If a trader wants to know whether the price of an asset will cool off for a moment or for a long time, they would need to check the RSI.
In the crypto market, RSI indicates not only the momentum but also the rate of speed of the constantly moving crypto price. RSI belongs to the momentum oscillator category of technical indicators, just like MACD, or the moving average convergence/divergence indicator. RSI finds its usage in making technical strategies for trading an asset like crypto.
RSI’s meaning does not change whether it is applied to the stock market or crypto. This is why the relative strength index is considered one of the most powerful indicators across all markets.