RSI in Trading: The Tool You Need to Master to Read the Market

The Relative Strength Index (RSI) is much more than an ordinary technical indicator. It is a gauge that captures the momentum of price movements, allowing you to identify when an asset like BTC, BNB, or PAXG has experienced excessive buying or selling over a specific period (typically 14 candles or days in its standard setting).

How to Interpret RSI Readings?

The scale of the Relative Strength Index ranges from 0 to 100, but not all levels carry the same significance for your trading strategy. The three critical thresholds you need to master are:

When it exceeds 70 (overbought territory): In this scenario, the asset has been excessively purchased by buyers. This situation often anticipates a correction or price drop, as the bullish momentum has peaked and a change in direction is likely approaching.

When it falls below 30 (oversold territory): The opposite occurs here: the asset has been excessively sold off in the market. These levels often precede a recovery or rebound, indicating that the price could be ready to rise again.

The 50 level as a reference point: This central line acts as a dividing line. If the RSI stays above it, it reflects strength in the upward trend. If it remains below, it confirms downward pressure in the market.

The Essential Recommendation for Traders

Remember that the RSI works best when combined with other technical analysis tools. It should never be your sole decision-making source. Pair it with trend lines, moving averages, or other indicators to validate your analyses and increase the accuracy of your trades. This complementarity of tools is what separates consistent traders from those who make hasty decisions.

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