If you’re wondering whether the crypto market is overheated, the crypto RSI heatmap can help. In this guide, I’ll explain what the RSI heatmap is, how it works, and how to use it the right way in your investment strategy.
Contents
YouTube video version of this guide
A quick primer on the Relative Strength Index (RSI)
Before we unpack the crypto RSI heatmap, we first need to understand the RSI indicator – aka the Relative Strength Index. Put simply, the RSI is a momentum indicator that measures the speed and distance of recent price moves to determine if buying or selling pressure has more strength.
The RSI ranges between 0 and 100. And the higher that number is, the stronger buying pressure is relative to selling pressure (and vice versa). For example, the chart below shows bitcoin and its RSI in blue. In this weekly chart, each red or green candle represents one week of price movement for bitcoin. So here, the RSI compares the average gains of “up weeks” (over the past 14 weeks) with the average losses of “down weeks”. But you could do the same thing for an hourly, daily, or even monthly price chart for any investment.
The RSI gets closer to 100 as the average gains get bigger relative to the average losses (i.e. buying pressure gets stronger). And it gets closer to zero when the average losses get bigger versus the average gains (i.e. selling pressure gets stronger).
Side note: The RSI was invented by a mechanical engineer named J. Welles Wilder Jr in 1978. Like most engineers, Wilder was good at maths. You can watch the video below (taken from our free technical analysis course) to learn all about Wilder and how the RSI works.
What’s the crypto RSI heatmap?
Now that we’re up to speed on the RSI, let’s get the low down on the crypto RSI heatmap. Essentially, it’s a tool that plots the current RSI values for different coins and tokens in one place.
I’ve used Coinglass to pull up the RSI heatmap for a few blue chip crypto assets below (based on their weekly price charts). As you can see, the heatmap goes from green (oversold) to red (overbought) depending on the RSI value. So in this example, bitcoin (BTC) and ether (ETH) have the highest RSI values. That means buying pressure is the strongest (compared to selling pressure) for BTC and ETH on the heatmap. XRP, meanwhile, has a weekly RSI of less than 40 right now – so it’s relatively weak (selling pressure is stronger).
I can also adjust the slider in Coinglass to include way more coins, like so:
Or, I could adjust the time frame to get the RSI values for the 1-hour chart (and many other time frames):
Also, notice the AVG RSI line above in yellow. This shows the average RSI value across each crypto investment (more on that later).
How to use the Crypto RSI Heatmap (properly) in your strategy
There are two ways that the crypto RSI heatmap can help with your investment strategy.
1. Use the RSI heatmap to get a general sense of the overall risk in the crypto market.
When the average RSI (yellow line) starts to climb above 70, it means the market is in “overbought” territory. In other words, there’s a lot of froth in the market. And while the market can certainly stay frothy for a while, there’s no harm in taking some profits off the table at this stage.
2. Use the RSI heatmap to spot specific coins and tokens for your next trade.
With so many investments in one place, the heatmap can give you a bird’s eye view of the crypto market. This can help you spot potential opportunities that you might have missed otherwise.
For example, you might notice that Coin X has just moved up from the “neutral” to the “strong” RSI zone. That could mean buyers are starting to take control of the trend for Coin X. So in this case, you could do more research on Coin X to see if there’s a potential buying opportunity.
On the other hand, you might see that Coin Y is way down in the “oversold” region. But after more research, you find out that the project has good fundamentals – and it might be trading at a bargain price.
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Key Takeaways
- The RSI Heatmap is useful tool for crypto investors: It provides a visual representation of the Relative Strength Index (RSI) across various crypto assets and timeframes. This can help investors quickly identify overbought and oversold conditions.
- Market sentiment analysis: The average RSI value of the heatmap can give us a general sense of risk in the crypto market. Be cautious when the average RSI starts to climb above 70.
- Opportunity spotting: The RSI heatmap can gives us bird’s eye view of the crypto market. This can help us spot hidden opportunities.
