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A Unique Way to Use the RSI in Crypto Trading

The Relative Strength Index (RSI) is not just a popular momentum oscillator, but it’s also a very versatile indicator. Once you understand the power of the RSI indicator and how to use it correctly, you will know when it’s the best time to enter and exit a trade.

RSI Trendline Setup

There are many different ways to use the RSI oscillator, but a unique way to use it in cryptocurrency trading is the RSI trendline setup. This method implies using trendlines on the oscillator itself instead of the price.

The RSI trendline strategy will help you find leading signals.

How to Draw RSI Trendlines

RSI trendlines are drawn by connecting at least two peaks or valleys on the oscillator itself. An RSI trendline is drawn in an uptrend by connecting higher swing lows on the oscillator itself. Conversely, in a downtrend, an RSI trendline is drawn by connecting lower swing highs.

A trading opportunity is presented when the RSI trendline is broken. When the RSI changes direction, that’s a leading signal that has the potential to result in a significant move in the crypto price.

RSI Trendline examples

Here is an example of an RSI trendline break in the Bitcoin/USDT market.

rsi example trendline
rsi example trendline

An RSI trendline break is a strong leading indicator. If you are trading a cryptocurrency in the direction of the trend, you can use the RSI trendline break as a trigger to exit your trade. Conversely, if you are trading against the trend, the RSI trendline break could be a good trigger to enter a trade.

In the example above, the RSI trendline break was a good indication that the prevailing downtrend was ending and that a new uptrend was underway.

The RSI trendline break also gives us an idea of where to place the initial stop-loss. The stop-loss should be placed on the other side of the RSI trendline, so that if the RSI trendline is broken in the opposite direction, you know your trade was wrong and you can exit the trade.

Bottom Line: The RSI trendline method is used to gauge when the prevailing trend has ended, and a new trend is underway.

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