Market momentum

Wat What drives the price up or down?

Market momentum shows how fast and how strongly the value of an asset changes. Discover how indicators such as the Relative Strength Index (RSI) can help you recognise trends and make strategic investment decisions.

What is market momentum?

Market momentum refers to the speed with which the price of an asset rises or falls. It measures the strength of the price movement in a particular direction. A handy tool to understand market momentum is the Relative Strength Index (RSI). The RSI is a popular technical indicator that helps investors determine whether an asset is overbought (too much bought) or oversold (too much sold).

How does the RSI work?

The RSI calculates momentum by looking at recent price changes of an asset over a certain period, usually 14 days. The result is a value between 0 and 100. An RSI of 70 or higher suggests that an asset might be overbought, meaning it has risen too quickly in a short period and may be ripe for a correction.
An RSI of 30 or lower indicates that the asset may be oversold, meaning it has dropped too much in a short period and a rebound might be on the cards.

RSI in the crypto market

For crypto assets such as Bitcoin or Ethereum the RSI can be very useful, because these markets are often volatile and prices can change quickly. Investors use the RSI to identify potential turning points in the market. For example, when the RSI for Bitcoin rises above 70, this might be a signal that the price could soon fall. Conversely, if the RSI falls under 30, it might point to a buying opportunity, because the price has likely reached a low.

How to use the RSI?

The RSI helps in understanding oversold or overbought situations, but it’s important to combine it with other indicators for a complete picture. A high RSI may point to an imminent price drop, but this doesn’t always mean the price will drop immediately. Markets with strong momentum can sometimes stay “overbought” for a while before a correction happens.

Risk and interpretation of RSI

A high RSI often indicates a strong, potentially too rapid rise in price — this may signal a correction (bearish signal). A low RSI may mean the asset is possibly undervalued and may rise in value soon (bullish signal). However, caution is still required because markets in the crypto-space can remain “overbought” or “oversold” for a long time, especially in volatile conditions.

The RSI thus helps you see whether there is a lot of demand for a particular asset or not, and thereby make better decisions. It prevents you from buying when the market is already too high or selling when it’s already too late.

Oversold: < 30

Average: 30 - 70

Overbought: > 70