How to arrange the monthly RSI oversold + weekly moving average bullish + daily gap?

A monthly RSI below 30, weekly price above 200 SMA, and a confirmed daily gap with volume signal a high-probability long entry in crypto.

Jul 25, 2025 at 09:35 am

Understanding the Components of the Strategy

Before arranging the monthly RSI oversold + weekly moving average bullish + daily gap strategy, it's essential to understand each indicator and how they function within the cryptocurrency trading ecosystem. The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. When applied on a monthly timeframe, an RSI below 30 typically indicates an oversold condition, suggesting that the asset may be undervalued and due for a potential reversal.

The weekly moving average bullish signal refers to a scenario where the current price is above a key moving average—commonly the 50-period or 200-period simple moving average (SMA)—on the weekly chart. This reflects a longer-term bullish trend and confirms that the broader market sentiment aligns with a potential upward move. A daily gap occurs when the opening price of a new trading day is significantly higher than the previous day’s closing price, often due to overnight news or strong buying pressure. In crypto, gaps are more common due to 24/7 trading but can still signal strong momentum.

Combining these three elements allows traders to filter high-probability setups that align across multiple timeframes. The monthly RSI oversold provides a long-term reversal signal, the weekly moving average bullish confirms trend alignment, and the daily gap acts as a short-term catalyst for entry.

Setting Up the Monthly RSI Oversold Signal

To identify the monthly RSI oversold condition, access a cryptocurrency charting platform such as TradingView or Binance Futures with monthly candlestick data. Navigate to the indicators section and apply the RSI with a standard period of 14. Ensure the chart is set to the 1-month (1M) timeframe.

Monitor the RSI value at the close of each monthly candle. When the RSI drops below 30, it signals that the asset has been oversold over the past month. This doesn’t guarantee an immediate reversal, but it increases the probability of one, especially if supported by other confirmations. It’s critical to wait for the full monthly candle to close before acting, as premature decisions based on incomplete data can lead to false signals.

Once the monthly RSI is confirmed oversold, mark the asset as a potential candidate for further analysis. Do not enter a trade yet. Instead, proceed to evaluate the weekly moving average alignment to ensure higher-timeframe trend confirmation.

Confirming the Weekly Moving Average Bullish Signal

Switch the chart to the weekly (1W) timeframe. Apply both the 50-week SMA and the 200-week SMA to the price chart. The bullish moving average signal is triggered when the current price is above both moving averages, particularly the 200-week SMA, which acts as a major long-term trend filter.

Alternatively, a golden cross—where the 50-week SMA crosses above the 200-week SMA—can also serve as a strong bullish confirmation, though it's less frequent. In the context of this strategy, the key is that the price must be trading above the 200-week SMA, indicating that the long-term trend remains bullish despite the monthly oversold condition.

This step is crucial because it prevents traders from catching falling knives in assets that are in a long-term downtrend. Even if the monthly RSI is oversold, entering a trade in a bearish weekly structure increases risk. Only assets that are oversold in the short term but still in a long-term uptrend should be considered.

• Open the weekly chart
• Apply 50 and 200 SMAs
• Confirm price is above both, especially the 200 SMA
• Verify that the moving averages are sloping upward or flat, not declining sharply

If all conditions are met, the asset passes the second filter.

Identifying and Validating the Daily Gap

Now shift to the daily (1D) chart to detect a gap up. A daily gap in crypto is less common than in traditional markets due to continuous trading, but it can still occur during exchange-specific outages, high volatility events, or sudden news-driven spikes.

To spot a gap, compare the current day’s opening price with the previous day’s closing price. If the opening price is significantly higher—typically by more than 1% to 2% depending on the asset’s volatility—it qualifies as a gap. Use horizontal lines or visual markers to draw the gap zone.

The gap acts as a momentum trigger, suggesting strong buying interest. However, not all gaps are reliable. Validate the gap by checking:

• Volume spike on the gap day: higher than average volume confirms institutional or large trader participation
• No immediate fill: if the price doesn’t quickly return to fill the gap, it indicates sustained bullish pressure
• Candlestick pattern: a bullish engulfing or hammer candle on the gap day strengthens the signal

Only when the gap is confirmed with volume and price action should it be considered valid.

Arranging the Strategy into a Trading Plan

With all three conditions met—monthly RSI oversold, weekly moving average bullish, and daily gap—you can now structure a precise entry and risk management plan.

• Wait for the gap to form on the daily chart
• Enter a long position at the close of the gap day’s candle or on the next day’s open
• Set a stop-loss just below the gap zone or the recent swing low on the daily chart
• Use a risk-reward ratio of at least 1:3, targeting previous resistance levels or Fibonacci extensions
• Monitor for gap fill behavior; if the price drops back into the gap zone, reassess the trade

Position sizing should reflect the multi-timeframe confluence. Since this setup combines long-term reversal, trend confirmation, and short-term momentum, it warrants a higher allocation than average trades—though never exceeding 5% of total portfolio risk.

Use alerts on TradingView to automate monitoring of monthly RSI and weekly moving averages, reducing manual chart checking.

Backtesting and Historical Validation

To validate the effectiveness of this strategy, conduct a manual or automated backtest using historical data. Select major cryptocurrencies such as BTC, ETH, or BNB and scan for past instances where all three conditions aligned.

For each occurrence:

• Note the date of the monthly RSI crossing below 30
• Confirm weekly price was above 200 SMA at that time
• Identify if a daily gap occurred within 1–2 weeks after the RSI signal
• Track the price movement over the next 7 to 30 days

This process helps determine the win rate and average return of the strategy. Tools like Python with libraries such as Pandas and TA-Lib, or TradingView’s Pine Script, can automate this analysis.

Avoid curve-fitting by testing across multiple assets and market cycles, including bear, bull, and sideways phases.

Frequently Asked Questions

Can this strategy be applied to altcoins?

Yes, but with caution. Major altcoins like ADA, SOL, or DOT may exhibit similar behavior, but their liquidity and volatility can lead to false signals. Always verify volume and exchange reliability. Stick to top 20 cryptocurrencies by market cap for better accuracy.

What if the monthly RSI is oversold but the weekly trend is bearish?

Do not trade. The weekly moving average bullish condition is a mandatory filter. An oversold RSI in a downtrend can remain oversold for extended periods, leading to losses if traded prematurely.

How do I handle a gap that gets filled quickly?

If the price moves back into the gap zone within 1–2 days, exit the trade or avoid entry. A rapidly filled gap indicates weak momentum and lack of follow-through buying, invalidating the signal.

Is there a specific time of day to enter after a daily gap?

No fixed time applies. However, waiting for the New York or London session open (if trading on global exchanges) can provide better volume confirmation. Avoid entering during low-liquidity periods like weekends or holidays.