But how is it calculated and how is it used?
To calculate the RSI, you must first determine the number of periods to consider, for example 14. Then, what you must do first is calculate the average of all the positive variations and divide it by the average of all the declines, in the last 14 days. This will result in the Relative Strength or Relative Strength (RS).
Once RS is calculated, the following formula must be followed: RSI = 100 – 100 / (1 + RS). And to know what to do with the result, follow these general interpretation rules:
RSI > 70: Sell signal
RSI < 30: Buy signal
It is important to consider that the RSI is a useful tool for forecasting price trends, but it is not always reliable and must be complemented with other indicators and even fundamental analysis of stocks or cryptocurrencies.
moving averages
To observe the trend in the historical prices of an asset, it is necessary to remove the “noise” caused by the volatility or randomness of stock movements or the cryptocurrency market.
For this, moving averages are used, which have the function of qualifying that volatility and exposing a follow-up of the underlying trend to it.
Thus, they are considered to be lagging indicators, since they provide delayed information: that is, when the price movement has already occurred.
Investors often use moving averages for 20, 50 and even 200 periods. Although those who invest in short observe moving averages of 5 and 10 periods.