Rekt, Resistance and RSI

Numerous trading indicators are available at traders’ fingertips to guide a manifold of trading strategies, be they qualitative, quantitative or a mix of other variants. We will explore in detail several foundational indicators that are indispensable to traders in this week’s Crypto Terminology: A to Z series.

First up, we have: Resistance.

A familiar trading concept that is used by traders both within and outside the crypto industry, resistance levels are usually charted on asset price graphs. These levels help traders to predict market movements and determine whether they should buy or sell a particular asset. In order for an asset to surpass resistance, formidable buying pressure is required.

Back in June last year, before Bitcoin’s dizzying price rallies began in December 2020, the bellwether cryptocurrency continuously failed to breach the $10,000 resistance level, as shown in the graph above. Significant selling pressure came from traders looking to profit from short-term gains, hoping to cash in before the orange coin inevitably dipped from the $10,000 mark back into the lower $9,000 range or worse. 

(Of course, hindsight is 20/20 — Bitcoin has conquered multiple higher resistance levels since, creating new historical price milestones.)

Traders use resistance levels to set triggers for trading activity, allowing them to capitalize on the price action to either cut their losses or make profits.

Another familiar one: RSI.

A popular trading concept developed in the late 1970s, RSI is presented as a range between zero to 100, where anything above 70 is considered overbought, and anything below 30 is oversold. It measures how quickly an asset’s price is rising or falling in different timeframes, known as look-back periods, of which most frequently used is the 14-day RSI. 

As reflected in the 14-day RSI graph below for BTC from November 2019 to July 2020, the sections highlighted in green represent the periods when RSI was in the oversold territory, while those in the red indicate that prices were in the overbought range.

There are many ways to formulate a trading strategy with RSI. For example, if an asset has fallen into the oversold territory, traders may wait for its RSI to move out from the under-30 range, indicating a rise in prices before moving in to buy. Similarly, they may also wait for the RSI of an overbought asset to fall under 70, where prices are lower, before deciding to enter the market. 

And a bonus mention for: Rekt.

A word that originated from the e-gaming space, “rekt” has now been repurposed by the crypto community for when traders make wrong trading decisions and incur heavy losses as a result. To minimize the possibility of being “rekt”, it is important that traders use a suite of trading indicators and utilize both technical and fundamental analysis to guide their trades. Resistance levels and RSI indicators, as mentioned above, cannot be looked at in silo. Seasoned traders certainly deploy variegated tools and look at a more diverse set of indicators before making any trades.