The Relative Strength Index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a security. The RSI is displayed as an oscillator and the momentum is calculated by comparing current gains to previous losses.
A stock is considered overbought when the RSI reaches 70 or above, meaning it has been rising faster than it has been falling and may be due for a pullback. Conversely, a stock is considered oversold when the RSI falls below 30, meaning it has been falling faster than it has been rising and may be due for a bounce. .
NOTE: WARNING: Trading with RSI in Binance can be risky. It is important to understand the basics of how the indicator works and the risks associated with trading with it. It is also important to understand the different types of orders available in Binance and how they can be used to limit losses. Trading with RSI can be profitable, but it is important to research and understand how it works before making any trades.
The RSI is most commonly used as a technical indicator but can also be used as a leading indicator. A stock that is overbought may be ripe for a pullback, while a stock that is oversold may be due for a bounce. The RSI can also be used to look for divergences, which occur when the price of a security diverges from the direction indicated by the RSI.
A bullish divergence occurs when the price makes a new low but the RSI does not, which can be interpreted as weakening bearish momentum. A bearish divergence occurs when the price makes a new high but the RSI does not, which can be interpreted as weakening bullish momentum.
The RSI is a versatile tool that can be used in conjunction with other technical indicators to create a well-rounded trading strategy. While the RSI itself is not enough to make trading decisions, it can provide valuable information that can help traders make more informed decisions.
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