BITCOIN DAILY RSI
MILESTONES OF THE BEARS
IntroductionDuring Bitcoin’s recent sell-off from 6,300 USD on Nov 14th down to a (up to this point) low of 3,456 USD on Nov 25th, I saw many posts on Telegram, Reddit and Twitter expressing “hopium” for a price rebound due to Bitcoin’s daily RSI being in oversold range. But is that even backed by facts or is an oversold RSI just a meme? Let’s find out!
What is the RSI?The “Relative Strength Index” (RSI) is a momentum indicator used in technical analysis, that measures the magnitude of price movements on a scale of 0-100.1 Its main purpose is to identify whether the price of an asset is in overbought, neutral or oversold range.2 An RSI value below 30 is commonly perceived as oversold, indicating a future uptrend, whereas an RSI value above 70 is perceived as overbought, indicating an upcoming downtrend.3 In general, the lower the RSI value, the higher the chance for the price bouncing upwards and the higher the RSI value, the higher the chance for the price going downwards. However, it is not guaranteed that the price will move in the direction indicated by the RSI.
Bitcoin overbought on the daily RSISo, how did the daily RSI behave for Bitcoin in the past? The “BraveNewCoin Liquid Index for Bitcoin” on Tradingview provides us with data about Bitcoin’s price movements from 2010 onwards. Since Bitcoin has been an incredibly bullish asset in the past, it has way more upticks to the overbought zone than downticks to the oversold zone. In fact, most of the time Bitcoin went below 30 on the daily RSI, it went back above it again in the following two days.
There have only been five occasions in the past, where it stayed below 30 for more than two consecutive days. One occurred in 2011, one in 2012, and three in 2014. Since an RSI value in the oversold range should indicate an uptrend, I analyzed how long it took to get back to the closing price of the day before the RSI value went below 30. Two times (in October 2012 and October 2014) the price rebounded quickly, reaching the previous closing day price within a couple of weeks (10 days in October 2012, 23 days in October 2014). On two different occasions it took around two months for the price to recover (57 days in September 2014 and 66 days in October 2011). However, in opposite to these four rather quick rebounds, it took nearly two years for Bitcoin’s price to reach 568 USD again, which was the closing price on 12th of August in 2014, before it went into the oversold range on August 13th (and went back into the neutral zone on August 19th).
Classifying the recent sell-offComparing the recent sell-off in terms of RSI value to these other five occasions, shows that the recent sell-off is a historical milestone for the bears. Never in the history of Bitcoin has the RSI value stayed below 30 for more than 6 days, whereas we are now approaching the 13th day of Bitcoin’s daily price remaining in oversold range. The daily RSI value has also produced several new lows, setting a new record low at 9.6 a couple of days ago on 20th of November, 2018.
Wrap-upThe historical RSI movement of Bitcoin in the past two weeks showed us, that even after 8 years of Bitcoin trading, new patterns can evolve. Bitcoin’s RSI value on a daily timeframe has never been this low and has never stayed this long in the oversold area. The RSI value being this low is an indicator for a higher probability to enter an uptrend, than with the value being above 30. However, it could only rebound in the short-term and a higher probability of an uptrend still doesn’t guarantee an upwards movement. As we saw in 2014, it could take years to go back to the daily closing price before entering oversold range, although most people in the cryptocurrency market would presumably appreciate a quicker recovery.
PosterI also made a downloadable version of the poster displayed in this article, which you are more than welcome to share or print! Download it here:
DownloadBitcoin’s Bearish RSI Milestones – Ultra High Quality – Width: 4960 Pixel
“The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.”
Investopedia; Official Website; Relative Strength Index – RSI; 25.11.2018
“Most oscillators including RSI work with so called overbought and oversold areas. Market is overbought when there has been “too much” buying in the recent past (last few price bars). Conversely, an oversold market occurs when sellers have prevailed and pushed the price down. Common way of looking at oscillators and their overbought and oversold areas is to think of them as a signal to trade in the other direction. As the name suggests, when market is overbought, the buying has been excessive and we can expect the price to make a downward correction or a reversal. On the other side an oversold market signals a possible increase in prices.”
Macroption; Official Website; RSI Overbought and Oversold Condition; 25.11.2018
“The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30. Signals can be generated by looking for divergences and failure swings. RSI can also be used to identify the general trend.”
Fidelity; Official Website – Learning Center; Relative Strength Index (RSI); 25.11.2018