Is the second golden cross of RSI above 70 a signal of strong continuation?

Understanding the RSI Indicator and Its Role in Technical Analysis

The Relative Strength Index (RSI) is a momentum oscillator widely used in cryptocurrency trading to assess whether an asset is overbought or oversold. Typically measured on a scale from 0 to 100, an RSI reading above 70 is traditionally interpreted as a sign of overbought conditions, potentially signaling a reversal or pullback. Conversely, an RSI below 30 indicates oversold conditions, which may suggest a potential bounce or uptrend.

However, in strong trending markets, especially within the volatile crypto space, the RSI can remain above 70 for extended periods without immediate reversal. This behavior challenges conventional interpretations and leads traders to explore additional signals such as multiple crossings of the RSI line above key levels like 70.

What Is a Golden Cross in the Context of RSI?

While the term 'golden cross' is more commonly associated with moving averages (e.g., when a short-term MA crosses above a long-term MA), in the context of RSI, it refers to a situation where the RSI line crosses above the 50 level after being oversold, indicating a shift in momentum from bearish to bullish. However, some traders extend this concept metaphorically to describe multiple instances where the RSI crosses above 70, interpreting them as signs of continued strength rather than reversal.

In this interpretation, the first crossing above 70 might be seen as the initial signal of strength, while a second crossing above 70 after a brief pullback could be interpreted as confirmation that the uptrend remains intact.

Interpreting the Second Golden Cross Above RSI 70

When the RSI crosses above 70 for the second time, especially after retracing toward the 50 level, it can indicate continued buying pressure and sustained bullish momentum. In fast-moving crypto markets, such patterns are often observed during parabolic moves or strong rallies where accumulation continues despite high RSI readings.

This phenomenon suggests that market participants are still aggressively buying, pushing prices higher even after a temporary consolidation phase. The second rise above 70 may reflect renewed confidence among traders and investors, reinforcing the idea that the trend has not yet exhausted itself.

It's crucial to note that this does not guarantee further upward movement, but rather serves as a technical indication that the current momentum remains positive.

How to Identify a Valid Second RSI Golden Cross Signal

To determine if the second RSI crossing above 70 constitutes a valid continuation signal, consider the following steps:

• Confirm the First Crossing: Ensure that the RSI previously crossed above 70 and remained elevated for a period before pulling back.
• Look for Retracement Below 70 but Not Below 50: A healthy correction often sees the RSI dip below 70 but stay above 50, suggesting underlying strength.
• Watch for Re-entry Above 70: A re-crossing above 70 should occur on rising volume or price acceleration, confirming renewed bullish control.
• Check Alignment with Price Action: The price should be making higher highs or consolidating within an uptrend channel, supporting the idea of continuation.

These criteria help filter out false positives and ensure that the second golden cross isn't simply noise but part of a broader momentum pattern.

Common Misinterpretations and Risks Involved

One of the most common pitfalls in using RSI is overreliance on fixed thresholds like 70 or 30. In trending markets, especially in cryptocurrencies, these levels can become misleading. For example, a persistent RSI above 70 doesn’t necessarily mean overbought in the traditional sense; instead, it may reflect a strong, one-sided market.

Another risk involves ignoring divergences between RSI and price action. Even if the RSI makes a second trip above 70, if the price fails to make a new high simultaneously, it may indicate weakening momentum and an imminent reversal.

Lastly, trading solely based on RSI without considering other indicators or market context can lead to poor decisions. It’s essential to use tools like volume analysis, moving averages, or support/resistance levels to confirm any RSI-based signal.

Practical Example Using a Cryptocurrency Chart

Let’s walk through a practical scenario using a real-world chart of a major cryptocurrency like Bitcoin (BTC):

• Step 1: Initial Uptrend and First RSI Crossing Above 70 – BTC begins a rally, and the RSI crosses above 70, signaling strong momentum.
• Step 2: Temporary Pullback and RSI Retreat – BTC experiences a minor correction, causing the RSI to fall to around 55, but not dipping into oversold territory.
• Step 3: Renewed Buying Pressure and Second RSI Crossing Above 70 – Buyers return, pushing BTC higher again, and the RSI crosses above 70 once more.
• Step 4: Confirming Continuation via Volume and Price Structure – If volume increases during the second leg up and BTC forms higher lows and higher highs, it supports the continuation narrative.

This setup would suggest that the uptrend is still alive and that traders could look for opportunities to enter long positions or hold existing ones.

Frequently Asked Questions

Q: Can RSI stay above 70 indefinitely in a strong uptrend?Yes, especially in strong, parabolic trends seen frequently in cryptocurrency markets, RSI can remain above 70 for prolonged periods without a significant reversal.

Q: What other indicators should be used alongside RSI for better accuracy?Traders often combine RSI with volume indicators, moving averages, and MACD to validate momentum and avoid false signals.

Q: Does the second RSI crossing above 70 always confirm continuation?No, it depends on price structure, volume, and market sentiment. There are cases where even a second rise above 70 precedes a sharp reversal due to exhaustion.

Q: How long should I wait after the second RSI cross above 70 before taking action?It’s advisable to wait for confirmation in price action, such as a breakout or increased volume, before entering trades based on this signal.