I've seen a lot of technical analysis in the realm of digital coins. Those who know are very well aware that those are just the same patterns from every stock market, because the basic assumption of foreseeing the future is that "history repeats itself". But we all know that spotting the patterns isn't enough, we need something more to know when to open a position.
There is something called Relative Strength Index and it's one of the fundamental tools in trading. It's so simple that is often neglected, forgotten and discarded by professional traders with more complex indicators.
So, what is RSI and how can You use it?
By many school books and Internet sources you will see that is one of the 4 most basic Trading Indicators. It tells you if something is currently oversold or overbought. The RSI should be between it's natural values of 30 and 70. Now I could go deeper into the RSI, trying to explain you the formula and why it works, but I think that would make you bored, you wouldn't remember anyways and the most important thing it doesn't really matter. What matters is that RSI *is working* and you should listen to it.
Now, pictures:
RSI is a momentum trading index. It helps identifying the right moment to open a position be that buy or sell. In this situation it's clear that the market is oversold and that a reversal is going to happen.
Here we have an opposite situation, where RSI is above 70 in value and is overbought. A reversal is going to happen because buyers are exhausted and bears are coming IN.
These are just 2 basic examples of RSI. The index can also help in spotting trends bullish/bearish when the value of the index moves between 30 to 70 and the market is bullish its a upwards trend. The same is for downwards.
There are other Trading Indicators beside RSI which can greatly help to spot the right moment for action. I will probably write about them. I see that there is a lot of posts with some great super complex patterns. In my opinion it is very important to learn and absorb the basics of trading and then go for more complex things.
Milan @ trudex.io
Sources for pictures: babypips.com