Timing the Crypto Market With RSI

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An asset is considered undervalued or "Oversold" and due for a corrective rally when the RSI drops below 30.00.

The higher the RSI goes above 70.00, the more overbought the asset is and deeper could be the pullback in prices.

The above daily chart for ether, the cryptocurrency that powers ethereum, showcases six occasions when the RSI signaled overbought conditions.

The RSI can also signal when the plummeting price may reach exhaustion by returning an "Oversold" value.

The lower the RSI goes below 30, the more oversold the asset is and the stronger could be the turnaround in prices.

As seen in the daily chart above, the RSI dipped to or below 30, signaling oversold conditions four times in roughly 11 months and each time bitcoin responded by rallying 22 to 83 percent gains in the subsequent days.

Key Takeaways A quick rally to the upside tends to occur after a severe price drop, known as an "Oversold bounce." Using the RSI to time trade entries during an oversold bounce is one of the most effective ways to make a profit on the intra-day time frames.

A divergence occurs when the RSI moves in the opposite direction of the price.

A bullish divergence occurs when the RSI makes a higher low while price sets a lower low.

A bearish divergence occurs when the RSI sets a lower high while price sets a higher high and suggests the buying momentum is nearing its climax.

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