What is the RSI and how to apply it to crypto trading?

The RSI or Relative Strength Index is one of the most beloved oscillators in the trading world. Professionals adore it. And it's no wonder. It measures how quickly the price of assets changes. In the crypto universe, many consider it essential.

Beginners often start with it. It's quite intuitive. The RSI basically tells you if something is too expensive or too cheap, and that can be gold for your strategies.

What is RSI really?

People who trade crypto often look at charts. A lot. They look for patterns that tell them what will happen. The RSI is like their compass.

Prices go up and down. Sometimes it seems chaotic, but there are patterns.

This indicator belongs to the oscillator family. It was created by J. Welles Wilder back in 1978. It gives results between 0 and 100. It usually analyzes 14 periods, although that can be changed. It depends on you.

You can use it on any time scale. Weeks. Days. Even minutes. All trading platforms already include it. You just have to interpret it.

The calculation of the RSI

The formula is this:

RSI = 100 - [100/ (1 + RS)]

Where:

• RS = Average gain / Average loss

It always comes out between 0 and 100. It seems complicated, but the platforms do the dirty work.

The standard period is 14. In a daily chart, it is 14 days. In a weekly chart, 14 weeks. But you can adjust it however you want.

How to interpret the RSI

When the RSI falls below 30, it seems that the asset is cheap. It might go up soon. If it exceeds 70, it might be too expensive. It could fall.

Sell signal: RSI above 70

The asset is rising, but it could change direction. It may be time to sell or go short.

Buy signal: RSI below 30

The price is falling but could bounce back. Many see buying opportunities here.

Beware, sometimes the RSI lies. That's why no one who knows what they're doing uses just one indicator. You have to combine.

The RSI also shows more sophisticated things like convergences and divergences.

Convergence and Divergence

Convergence

It's when the price and the RSI dance to the same song. If the price makes lower lows and the RSI does too, we have convergence.

Divergence

It happens when they go their separate ways. The price rises, but the RSI falls. It's as if the indicator is warning.

RSI for crypto trading in 2025

Signals on higher timeframes tend to be more reliable. A signal on 4 hours is worth more than one on 15 minutes.

Many keep the period at 14, although in the volatile crypto world some adjust the levels to 80 and 20. Reduce the noise.

Strategies for 2025

Identify overbought/oversold

The RSI is great for this, but it's better to confirm with other indicators. Don't take chances.

Divergences and convergences

They give powerful signals. A bearish divergence is when the price rises but the RSI falls. Bad signal. Divergences usually appear at the end of trends, but the price does not always react immediately. Be patient.

Settings According to Your Style

For day trading, try using periods between 9 and 14 on 1-hour charts. It's a good balance.

In swing trading, adjust the levels to 60-40 or even 80-20. The crypto market is wild, and this helps filter out false signals.

Conclusion

The RSI remains a titan in 2025. It is especially useful for day traders and swing traders.

It shows you if a crypto is expensive or cheap, and alerts you about divergences. Valuable information.

But don't just rely on it. Combine it with Stochastic, MACD, and trend lines. This will increase your chances of success.

The crypto market does not forgive those who rely on a single indicator. Be wise.