RSI: The Tool Every Trader Should Master

Have you ever seen a trader looking at charts with dozens of colored lines? They were probably using the RSI (Relative Strength Index), one of the most popular technical indicators in crypto and traditional markets.

Where Did the RSI Come From?

We go back to 1978. A mechanical engineer named J. Welles Wilder got into trading after selling his real estate business for $100,000. He needed reliable tools to read the market, so he compiled his research into formulas and indicators. The RSI was one of his biggest hits.

How Does This Indicator Work?

The RSI is basically a momentum indicator that evaluates the speed and magnitude of price movements on a scale of 0 to 100. By default, it analyzes the last 14 periods (14 days on daily charts, 14 hours on hourly charts, etc.).

The formula divides the average gain by the average loss and gives a number between 0-100. Simple but effective.

The Key Areas:

• RSI < 30: The asset is oversold (possible rebound)
• RSI > 70: The asset is overbought (possible drop)
• 30-70: Neutral zone

Adjust the RSI According to Your Style

Not everyone trades the same. If you want more sensitivity to quick movements, reduce the periods to 7. If you prefer slower signals and less noise, increase to 21. Some traders in short positions also move the thresholds to 20/80 instead of 30/70 to avoid false signals.

The Advanced Trick: Divergences

This is the part where many traders make money.

Bullish Divergence: The price is making lower lows ( but the RSI is making higher lows ). This signals that momentum is strengthening despite the drop → Possible trend reversal to the upside.

Bearish Divergence: The price is rising (higher highs) but the RSI is falling (lower highs). The market is losing strength, even though the price may not show it yet → Be careful, a correction may be coming.

The Reality of RSI

Here goes the important disclaimer: the RSI is not 100% reliable, especially in strong trends. In highly volatile markets, you will see a lot of false signals. That is why professional traders never use a single indicator; they always combine it with MACD, Bollinger Bands, support/resistance levels, or volume analysis.

In sideways markets or gentle trends, the RSI shines. In panic markets… well, take any indicator with a grain of salt.