Experienced traders use a lot of tools to analyze markets. The Relative Strength Index (RSI) is one of the most popular that sniffs out trend strength and momentum extremes.
Right now, the RSI is signaling that bitcoin is oversold, suggesting that the recent selloff has been too intense and that prices may see a relief rejection. But don’t bet on the farm: the oversold reading doesn’t promise a full-blown bull run.
Mechanical engineer and noted technical analyst J. Welles Wilder Jr. invented the RSI in 1978 and revealed the formula and interpretation in his book “New Concepts in Technical Trading Systems.”
The indicator measures price gains and losses over a standard 14-day period, yielding a value that fluctuates between 0 and 100. A reading below 30 signals that losses have outpaced gains too aggressively over the past 14 days, a sign of strong bearish momentum.
Wilder and RSI followers call it oversold: the market has dipped too far, too fast by recent norms, setting it up for a mean reversion or a rally.
The market often bounces when the RSI prints oversold conditions, although a reading below 30 by itself only indicates what has happened recently.
The logic behind such oversold rejections is simple: Trader interpretation makes it a self-fulfilling prophecy as enough desks and algos pile into oversold rejections, causing the pullback to happen.
This is especially true when an oversold reading appears while the asset is trading near key support – a price level where buyers previously stepped in to stop the slide at that point.
This is precisely the situation with bitcoin right now.
The chart shows BTC’s daily price swings in candlestick format with the 14-day RSI in the lower pane. A candlestick chart visually captures the price action of an asset over a specific period of time, such as a day or an hour, and displays the open, close, high and low prices in a single, compact form, similar to the candlesticks we use in everyday life.
The RSI has dipped below 30, signaling oversold conditions, while bitcoin is trading near the $73,000-$75,000 support zone. The April 2025 slide ran out in this area, and the early 2024 bull run stalled in the same area. This cements it as a crucial battleground for buying and selling over the past two years.
Thus, the self-fulfilling prophecy could play out, leading to a remarkable price jump.
That said, a bounce is not promised, and a potential bounce does not necessarily indicate the beginning of a new bull run. Like any other indicator, the RSI can produce false signals.
Furthermore, context is important. Oversold gauges have historically produced only modest rejections amid broader bearish trends, such as in 2022. The last one, in November, heralded a multi-week consolidation that ultimately gave way to last month’s deeper selloff.
