Crypto Relative Strength Index (RSI)

A momentum oscillator is a type of technical indicator used in financial analysis to measure the speed (momentum) and magnitude of price movements of an asset over time. It helps traders identify overbought, oversold, or potential reversal conditions in markets. The goal is to measure how quickly prices are changing and to show that movement on a scale with a fixed range, for example from 0 to 100.

One reason that traders like momentum oscillator tools is that they can measure and highlight strong momentum in sideways markets. This means that they do not only track direction.

"Overbought" and "oversold" are terms used in technical analysis to describe potential extremes in price movements of a financial asset. They signal when an asset might be trading at an unsustainably high or low price, often based on recent momentum.

When an asset is considered overbought, it means the price has risen significantly over a short period and may be due for a pullback or a correction. This doesn't guarantee that the price will fall immediately, but it suggests that the upward momentum might be overextended and that buyers may soon run out of steam. Traders watching for overbought conditions might interpret this as a sign to take profits or to be cautious about entering new long positions.

On the other hand, when an asset is deemed oversold, it means the price has dropped sharply and could be undervalued in the short term. Just like with overbought conditions, this doesn't mean the asset will bounce back right away, but it could indicate that selling pressure is overdone and that a reversal or at least a stabilization may be near. Some traders see oversold conditions as potential buying opportunities.