What is Technical Analysis?
Technical Analysis (TA) is a market analysis strategy that can be used in order to assist traders in identify potential trading opportunities. A trader utilizing TA strategies will typically analyze statistical trends gathered from historical asset prices.
Chart Indicators
Chart indicators are a specific subset of TA used for performing market analysis. Chart indicators can be applied to price charts and provide traders with additional data used to make trading decisions.
There are thousands of chart indicators available which use a variety of data in order to give traders insights into future price movements. The Ookiversity chart indicator series will focus on some of the more popular indicators.
In this weeks article we are focusing on RSI (Relative Strength Index).
RSI
The Relative Strength Index, known as RSI, is an oscillator that measures the rate of change in addition to the rapidity of price movements. The RSI varies between 0 and 100 on a regular basis. In general, the RSI is regarded to be overbought when it exceeds 70 and oversold when it falls below 30.
These historical values may also be altered as necessary to properly represent the asset. This adjustment can be made whenever it is necessary. For instance, if the same asset keeps hitting the overbought level of 70, you have the option of adjusting this level to 80 instead.
How is RSI used in Trading Strategies
There are several ways to use the RSI. Two of the most used techniques are explained here:
- RSI signals indicate bullish or bearish divergence
When trading using the RSI, one strategy that can be used is to watch for divergences between the RSI and the price of the market. Traders watch for cases in which momentum is flowing in the opposite direction of the price, which may signify a likely turning point in the market.
- RSI-50 Crossover
Traders may determine whether or not there is a price trend by looking at the RSI 50, which is the middle line. A confirmation of a downturn in accordance with this trading method occurs when the RSI moves from being above 50 to being below 50. In a similar manner, an uptrend is validated when the RSI climbs over the 50 level.
RSI and Ooki
You can also use RSI on Ooki. Just click on "Indicators" in the chart, type "RSI" in the search box and select the indicator.
Conclusion
Indicators can help by using historical data to reflect the current state. This can be used to draw conclusions about possible future movements.
Indicators alone, however, are largely useless. In principle, other techniques should also be included in trading, such as candlestick analysis.
