How do you calculate the RSI for cryptocurrencies?

The RSI is a key momentum indicator in crypto trading, identifying overbought (above 70) and oversold (below 30) conditions to help anticipate price reversals.

Aug 01, 2025 at 05:56 pm

Understanding the RSI and Its Role in Cryptocurrency Trading

The Relative Strength Index (RSI) is a momentum oscillator widely used in the cryptocurrency market to measure the speed and change of price movements. It helps traders identify overbought or oversold conditions in an asset. The RSI operates on a scale from 0 to 100, with readings above 70 typically indicating overbought conditions, and readings below 30 suggesting oversold levels. This technical indicator is particularly valuable in the volatile crypto space, where rapid price swings are common. By analyzing past price data, the RSI allows traders to anticipate potential reversals or continuations in price trends.

Core Components of the RSI Formula

To calculate the RSI, you must first understand its mathematical foundation. The formula is based on the average gains and losses over a specified period, usually 14 days by default. The calculation involves two primary components: average gain and average loss. These values are derived from closing prices over the chosen timeframe. The first step is to determine the price changes for each period—positive changes represent gains, while negative changes represent losses. Losses are recorded as absolute values for computational purposes.

The initial average gain and average loss are computed by taking the mean of gains and losses over the first 14 periods. For example, if the total gains over 14 days sum to 28 and the total losses sum to 14, the average gain is 2.0 and the average loss is 1.0. Once these averages are established, they are smoothed using a specific method in subsequent calculations, which helps maintain continuity in the RSI value.

Step-by-Step RSI Calculation Process

Calculating the RSI manually involves several precise steps. Below is a detailed breakdown:

• Collect closing prices for the cryptocurrency over the selected period (e.g., 14 days).
• Calculate daily price changes by subtracting the previous day’s close from the current day’s close.
• Separate gains and losses: Record positive changes as gains and negative changes as absolute values of losses.
• Compute the initial average gain by summing all gains over 14 days and dividing by 14.
• Compute the initial average loss by summing all losses over 14 days and dividing by 14.
• Calculate the Relative Strength (RS) using the formula:
  RS = Average Gain / Average Loss
• Derive the RSI using the formula:
  RSI = 100 – (100 / (1 + RS))

This process yields the first RSI value. For subsequent periods, the average gain and loss are updated using a smoothing technique.

Smoothing Averages for Ongoing RSI Updates

After the initial 14-period average, the RSI uses a modified approach to update average gain and average loss, ensuring responsiveness while reducing noise. Instead of recalculating over a full 14-day window each time, it applies a smoothing formula:

• New Average Gain = [(Previous Average Gain × 13) + Current Gain] / 14
• New Average Loss = [(Previous Average Loss × 13) + Current Loss] / 14

This method gives more weight to recent data while retaining historical context. For instance, if the previous average gain was 2.5 and today’s gain is 3.0, the new average gain becomes (2.5 × 13 + 3.0) / 14 = 2.535. The same logic applies to losses. This rolling update keeps the RSI sensitive to new price action without abrupt shifts.

Using this smoothed RS, the RSI is recalculated daily. This dynamic adjustment is essential in the fast-moving crypto markets, where sentiment can shift rapidly due to news, macroeconomic factors, or whale activity.

Practical Example Using Bitcoin Data

Let’s apply the RSI calculation to a hypothetical Bitcoin price series over 15 days. Assume the closing prices are as follows (in USD):
$40,000, $41,000, $39,000, $42,000, $41,500, $43,000, $42,500, $44,000, $45,000, $44,500, $46,000, $47,000, $46,500, $48,000, $49,000

• Compute daily changes: +1000, -2000, +3000, -500, +1500, -500, +1500, +1000, -500, +1500, +1000, -500, +1500, +1000
• Separate gains and losses for the first 14 days
• Sum gains: 1000 + 3000 + 1500 + 1500 + 1000 + 1500 + 1000 + 1500 + 1000 = 12,000
• Sum losses: 2000 + 500 + 500 + 500 + 500 = 4,000
• Average Gain = 12,000 / 14 ≈ 857.14
• Average Loss = 4,000 / 14 ≈ 285.71
• RS = 857.14 / 285.71 ≈ 3.00
• RSI = 100 – (100 / (1 + 3.00)) = 75

This RSI value of 75 suggests Bitcoin may be overbought, potentially signaling a pullback.

Using RSI on Trading Platforms

Most cryptocurrency traders use charting tools like TradingView, Binance, or CoinGecko to view RSI automatically. These platforms perform the calculations in real time. To access RSI on TradingView:

• Open a chart for your desired cryptocurrency
• Click on the “Indicators” button
• Search for “Relative Strength Index”
• Apply it to the chart
• Adjust the period (default 14) if needed

The RSI will appear in a separate pane below the price chart, updating with each new candle. Traders can customize overbought/oversold levels or add signals based on crossovers. Some platforms allow scripting for advanced strategies, such as alerting when RSI crosses 70 or 30.

Frequently Asked Questions

Can RSI be used on timeframes shorter than 14 days?

Yes, the RSI can be applied to any timeframe—1-hour, 4-hour, or even 5-minute charts. Shorter periods make the RSI more sensitive, generating more signals but increasing the risk of false readings. Traders often use a 7-period RSI for scalping or a 21-period RSI for longer-term trends.

What does it mean when RSI stays above 70 for a long time?

Extended periods above 70 do not always indicate an imminent reversal. In strong uptrends, especially in bullish crypto markets, RSI can remain overbought for days. This reflects sustained buying pressure rather than exhaustion. It’s crucial to combine RSI with trend analysis or volume indicators.

Is RSI reliable during low-volume periods?

RSI can produce misleading signals during low trading volume, as price movements may lack confirmation. Thin order books in smaller altcoins can cause sharp price spikes that distort RSI. It’s advisable to cross-verify with volume data or on-chain metrics.

Can RSI be used for automated trading bots?

Yes, many trading bots integrate RSI logic. You can program conditions such as:

• If RSI < 30 and price > 20-day moving average → buy
• If RSI > 70 and volume decreasing → sell
  
  Ensure backtesting is performed to validate the strategy across different market conditions.