RSI: The King of Indicators
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If I had to choose one (and only one) indicator to use for the rest of my life, it would most certainly be the Relative Strength Index (RSI). Anyone who's spent more than 30 seconds on TradingView understands, in the most basic sense, that RSI indicates when an asset is over- or undervalued (overbought or oversold). But this delicious little oscillator can do a lot more than that. In fact, you could develop a winning trading strategy based entirely on RSI signals and nothing else (though, why would you?). Here are some of my favorites:
SMA Crossovers
TradingView's built-in RSI indicator now comes equipped with a Simple Moving Average applied by default. Like other MA crossover strategies, RSI SMA crossovers can be a very effective tool. Note that this sort of strategy is probably best implemented programmatically, though. But if you do intend to trade these signals the old fashioned way, you'll definitely want to work on a high time frame. Eventually I intend to write a PineScripts strategy to do some back-testing and get some win/loss rates and ratios for different RSI and SMA lengths.
Divergences
Who doesn't love RSI divergences? They're easy to spot, and very reliable on a variety of time frames. Just look for local highs/lows in the RSI that "diverge" from the corresponding local highs/lows in price. Below is an example of a divergence and a hidden divergence. There is a bearish and bullish flavor of each type of divergence.
Overbought/Oversold conditions
Probably the most common use of RSI is to determine whether and asset is overvalued or undervalued. In general, an asset is considered overbought when RSI is greater than 70, and oversold when RSI is less than 30. This is a dangerous rule to follow blindly though, because the rest of the context is important. Here are a couple tips/caveats:
(1) Each asset has a different "normal" RSI range. i.e. one asset might be overbought at RSI = 70, but another could ride well above 70 for some time before coming down to earth.
(2) The macro trend matters. A lot. Zoom out and see which way the market is trending. In a bull market, RSI may ride close to the oscillator's upper bounds and not touch "oversold" territory for a while. And vice-versa in a bear market. If the market is ranging, you can feel better about trusting the 70/30 "rule".
Take a look at the charts below. In one, you see a bitcoin bull market, where BTC soars way above 70, and stays above the midpoint (50) for the duration of the run. If you had sold when bitcoin first hit "overbought" territory >70, you would have missed out on >3800% gains! In the other chart, you see the S&P500 during the 2008 bear market. We see values <30 a number of times without ever seeing anything above 70. So if you bought when the index first went below 30, you would have potentially exposed yourself to almost a 50% decline.
Breakouts/Breakdowns
Just like patterns in price, RSI follows trendlines and patterns as well. RSI breakouts aren't much help on their own (as it's often too late by the time you spot one), but they can help confirm price breakouts, or increase your confidence in another trading idea.
What are your favorite RSI use-cases? What other indicators does it work best in confluence with? Do you have another favorite indicator that you think can contend with the king? Feel free to share your thoughts in the comments.
SMA Crossovers
TradingView's built-in RSI indicator now comes equipped with a Simple Moving Average applied by default. Like other MA crossover strategies, RSI SMA crossovers can be a very effective tool. Note that this sort of strategy is probably best implemented programmatically, though. But if you do intend to trade these signals the old fashioned way, you'll definitely want to work on a high time frame. Eventually I intend to write a PineScripts strategy to do some back-testing and get some win/loss rates and ratios for different RSI and SMA lengths.
Divergences
Who doesn't love RSI divergences? They're easy to spot, and very reliable on a variety of time frames. Just look for local highs/lows in the RSI that "diverge" from the corresponding local highs/lows in price. Below is an example of a divergence and a hidden divergence. There is a bearish and bullish flavor of each type of divergence.
Overbought/Oversold conditions
Probably the most common use of RSI is to determine whether and asset is overvalued or undervalued. In general, an asset is considered overbought when RSI is greater than 70, and oversold when RSI is less than 30. This is a dangerous rule to follow blindly though, because the rest of the context is important. Here are a couple tips/caveats:
(1) Each asset has a different "normal" RSI range. i.e. one asset might be overbought at RSI = 70, but another could ride well above 70 for some time before coming down to earth.
(2) The macro trend matters. A lot. Zoom out and see which way the market is trending. In a bull market, RSI may ride close to the oscillator's upper bounds and not touch "oversold" territory for a while. And vice-versa in a bear market. If the market is ranging, you can feel better about trusting the 70/30 "rule".
Take a look at the charts below. In one, you see a bitcoin bull market, where BTC soars way above 70, and stays above the midpoint (50) for the duration of the run. If you had sold when bitcoin first hit "overbought" territory >70, you would have missed out on >3800% gains! In the other chart, you see the S&P500 during the 2008 bear market. We see values <30 a number of times without ever seeing anything above 70. So if you bought when the index first went below 30, you would have potentially exposed yourself to almost a 50% decline.
Breakouts/Breakdowns
Just like patterns in price, RSI follows trendlines and patterns as well. RSI breakouts aren't much help on their own (as it's often too late by the time you spot one), but they can help confirm price breakouts, or increase your confidence in another trading idea.
What are your favorite RSI use-cases? What other indicators does it work best in confluence with? Do you have another favorite indicator that you think can contend with the king? Feel free to share your thoughts in the comments.
Nota
As promised, I've published a script for the RSI SMA crossover strategy. It's open-source, so feel free to make a copy and adjust parameters as you'd like. 
Testing on Bitcoin (all time index) 1D chart, with all default parameters.
$1,000 initial investment on 10/07/2010 turns into almost $2.5 billion as of 08/30/2022 (compared to $332 million if the initial investment was held over the same period)
Nota
Correction: $334 millionNota
And here's my divergence indicator:
Nota
New and improved divergence tool, worth a look:
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