The RSI, a prominent technical analysis indicator for Bitcoin has firmly broken through a more than six-month downward trend line.
What Exactly Is The RSI?
The Relative Strength Index (RSI) is a well-known momentum oscillator in technical analysis. It compares the size of price movements to past gains or losses. Its visual counterpart is a line chart that goes from 0 to 100.
The RSI is commonly used to assess if an asset is overbought (above 70) or oversold (below 30). In the first instance, we get a bearish indication, whereas, in the second, we get a bullish signal. J. Welles Wilder Jr. invented the indicator and detailed its use in a 1978 book.
Typically, the RSI is calculated using the 14 previous periods (e.g. 14 weeks, 14 days, or 14 2-hour periods).
RSI Breaks Out Of Six-Month Downward Trend
The RSI indicator for Bitcoin recently broke out of the long-term downtrend line it had been below since January 8, 2021.
At the time, the index value was 89. This was the highest number in more than three years, when the index reached a high of 94 in December 2017 at the height of the last bull market.
On the RSI chart, we can observe a descending trendline (blue) that was in place when the RSI reached a new all-time high (ATH) of $64,895 on April 14. The line was also more prominent during the May falls and subsequent consolidation in the $28,600 – $41,300 area.
Over six months, the downtrend line was retested 8 times in total (194 days). However, there has been a clear breakthrough since July 21. (green arrow).
Today, the indicator reports a value of 66, the highest since April 16. The ATH was set shortly after Bitcoin. The Bitcoin price chart is following the bullish RSI signal, having recently reclaimed the $38,000 support level.
RSI Breakouts In The Past About The Bitcoin Price
To understand the long-term implications of a continuing RSI breakout, consider comparable circumstances in past BTC price movements.
Over the previous three years, there have been many breakouts after several months of RSI downtrends and associated Bitcoin uptrends.
From August 1 to September 23, 2020, the RSI was clearly in a decline. On January 8, 2021, the indicator broke through the trendline (blue), followed by a bullish re-test (green circle), and climbed to 89 levels.
On February 8, 2019, the RSI broke out above the long-term downtrend line. Following the breakout, the BTC price increased by 320% from $3,337 to a high of $13,880 on June 26, 2020. Following this breakout, Bitcoin increased by 53%.
Conclusion: BTC Profits By 166%
The average of the five gains described above (320 percent, 53%, 103%, 37%, and 317% ) is 166 percent. On July 21, the daily candle concluded at $32,138. By multiplying this figure by 166 percent, we have a BTC objective of $85,487.