The recent rallies in Bitcoin and Ethereum have pushed them into the “overbought” zone, according to the Relative Strength Index (RSI) indicator. RSI is one of the most demanded indicators in technical analysis due to its ease of use and accuracy of the signals provided.
It shows the ratio of the average price increase to the average fall over a period of time and, among other things, helps to determine the strength of the trend, as well as the likelihood of its change. RSI is measured from 0 to 100. When it deviates significantly up or down, they say that the market is “oversold” or “overbought”. Such emergencies help traders understand when a situation becomes dangerous and a trend reversal may occur. Values between 30 and 70 are considered neutral.
During Bitcoin’s rise from $ 3,858 in March 2020 to its current $ 41,500, the RSI on the daily chart rose to 89.48. Ether also recently climbed to multi-year highs of around $ 1,300 with an RSI of 89.36.
Under normal conditions, based on such manifestations of overheating, market participants come to the logical conclusion that a deep correction lies ahead. However, analyst Koroush AK notes that the RSI indicator is used incorrectly in this case. He reminds that the RSI is an oscillator, that is, a leading indicator. This means that it shows itself most effectively in a sideways trend in the absence of a pronounced trend. In a growing market, as with the current parabolic trend in Bitcoin, oscillators can provide incorrect signals.
RSI is an oscillator.
-Great for ranging markets
-Less so for parabolic uptrends
Don’t sell your $ BTC and $ ETH based on RSI.
– Koroush AK (@KoroushAK) January 8, 2021
“Don’t sell your BTC and ETH based on RSI,” the analyst urges.
Thus, despite the extreme overbought on the RSI, Bitcoin and Ethereum continue to move to new highs. Against this background, traders, as expected, want to know when the market will reach its inevitable peak. Analyst Willie Wu previously noted that at current levels that are completely new to Bitcoin, it is increasingly necessary to rely on Fibonacci ratios.
The CEO of the CryptoQuant analytical platform, Ki Yong Joo, makes forecasts based on assumptions about the actions of large players.
“Looking at the recent churns from Coinbase, possibly OTC trades, I think we can estimate the profit and loss (PnL),” he writes. – BTC is up 24% since January 2. If you are an institutional investor, would you be satisfied with 24% PnL from bitcoin? Bullish factor. ”
Looking at the latest Coinbase outflow, possibly OTC deals, I think we can estimate their PNL. $ BTC surged 24% since Jan 2.
If you were institutional investors, would you be satisfied with 24% PNL for Bitcoin?#Bullish pic.twitter.com/WfLIDEfsbJ
– Ki Young Ju 주기영 (@ki_young_ju) January 8, 2021
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