Effectiveness of the Relative Strength Index Signals in Timing the Cryptocurrency Market

Abstract

In 2020 and 2021, the cryptocurrency market attracted millions of new traders and investors. Lack of regulation, high liquidity, and modern exchanges significantly lowered the entry threshold for new market participants. In 2021, over 5 million Americans were regularly involved in cryptocurrency trading. At that time, the interest in market indicators and trading strategies remained low, leading to the conclusion that most investors did not use decision-support indicators. The correct and backtested use of technical analysis signals can give the trader a significant advantage over most market participants. This work introduces an algorithmic approach to examining the effectiveness of the signals generated by one of the most popular market indicators, the Relative Strength Index (RSI). A model corresponding to an actual cryptocurrency exchange was used to backtest the strategies. The results show that the RSI as a momentum indicator in the cryptocurrency market involves high risk. Using alternative RSI applications can allow traders to gain an advantage in the cryptocurrency market. Comparing the results with the traditional buy and hold strategy shows the credible potential of the indicated method and the usage of signals generated by the technical analysis indicators.

A Performance Analysis of Technical Indicators on the Indian Stock Market

“…The results demonstrate that GNQTS successfully identifies optimized RSI parameters, yielding higher profits compared to both traditional RSI and buy-and-hold strategies. Zatwarnicki et al (2023) present an algorithmic methodology for assessing the efficacy of signals produced by the RSI. Backtesting of the strategies was conducted using a model mirroring an authentic cryptocurrency exchange.…”

Predicting Future Cryptocurrency Prices Using Machine Learning Algorithms

“…Additionally, feature selection is performed to identify the most relevant features for predicting prices, usually used for both cryptocurrency and stock markets. Among the various potential indicators, simple moving average (SMA) [9], relative strength index (RSI) [10], moving average convergence divergence (MACD) [11] and on-balance volume (OBV) [12] are selected as the most influential indicators based on previous literature and domain knowledge. SMA is a suitable feature for prediction because it provides a smoothed representation of historical data, reducing noise and highlighting underlying trends.…”

Pengaruh Dividend Payout Ratio Dan Dividend Yield Terhadap Harga Saham Pada Indeks Lq45

“…Menurut (Zatwarnicki et al, 2023) teknik analisa pergerakan suatu harga saham dapat menggunakan Relative Strength Index yaitu teknik analisa yang memberikan gambaran seberapa kuat atau lemahnya pergerakan harga saham dalam periode waktu tertentu. Teori ini dekembangkan oleh J. Welles Wilder sebagai indikator melihat pergerakan suatu saham pada indeks saham (Panigrahi et al, 2021;Setiawan, et al, 2021).…”