Recently, some friends asked me how to interpret RSI, so I might as well organize the core methods of this indicator. To be honest, RSI is indeed a commonly used tool in the crypto space, but many people tend to fall into dead ends after using it for a while. Today, let’s talk about how to truly use it well.

First, let’s discuss the essence of RSI. Simply put, it reflects the balance of buying and selling forces in the market by comparing the average gains and average losses over a period of time. For example, if BTC rises 5% over 9 days, RSI can not only show this increase but also indicate whether the rise is gradual or rapid. That’s why how to read RSI is essentially about assessing the market’s momentum strength.

Regarding those three lines, many people get confused. The white line is the 6-day RSI (short-term), the yellow line is the 12-day RSI (mid-term), and the purple line is the 24-day RSI (long-term). Each has its own purpose: the 6-day line reacts most sensitively to price changes, while the 24-day line is more stable. When the short-term and mid-term lines cross above the long-term line near 50, forming a golden cross, it usually indicates a buying opportunity; conversely, if they cross below, forming a death cross, it’s time to consider selling.

RSI values range from 0 to 100, with 50 as the dividing line between bullish and bearish. Here’s a very practical judgment method: when RSI > 70, the market may be overbought; when RSI < 30, it may be oversold. However, this rule is more sensitive on short-term charts, so sometimes 80 and 20 are used instead of 70 and 30. But a special reminder here: the key to reading RSI is not to rely on a single indicator alone; it must be combined with candlestick patterns, volume, and other information.

The calculation formula isn’t complicated. Suppose over 14 days, there are 9 days of gains totaling 28%, so the average gain is 2%; 5 days of losses totaling 7%, so the average loss is 0.5%. Then RSI = 2% / (2% + 0.5%) × 100 = 66.7. In actual trading platforms, this function is built-in, so you can just call it directly without manual calculation.

The most valuable use of RSI is observing divergence phenomena. When the price hits a new high but RSI diverges downward, or the price hits a new low but RSI diverges upward, this is called divergence. Divergence often signals a potential trend reversal and is one of RSI’s strongest signals. But be cautious: in strongly trending markets, divergence signals might not be very reliable.

In practical trading, my advice is as follows: when both the 6-day and 12-day RSI are below 50, and they break above 50 together forming a golden cross, that’s a fairly strong buy signal, especially if volume is gradually increasing at the same time. Conversely, if both lines run downward from high levels and form a death cross, it’s time to quickly exit. Another simple method is to buy when the short-term RSI crosses upward through the mid-term RSI from below (below 20), and consider reducing positions when it crosses downward from above (above 80).

But there’s a trap to avoid: the so-called “dampening phenomenon.” In particularly strong one-sided trends, RSI can stay in extreme zones for a long time, greatly reducing its reference value. So never habitually chase trades; once you notice the trend starting to stagnate, it’s best to stand aside and observe.

Finally, I want to emphasize that RSI only reflects past price conditions over a certain period and cannot predict the future. It also cannot show the full picture of long-term trends; it’s only useful for assessing the relative strength within a specific timeframe. The correct way to interpret RSI is to treat it as an auxiliary tool, combining it with other technical indicators, support and resistance levels, candlestick patterns, and multi-dimensional analysis to improve success rates. Relying solely on RSI often leads to pitfalls—I’ve fallen into this trap myself. I hope everyone can use RSI more rationally, and remember, there’s no perfect indicator—only a reasonable combination of tools.