What My Favorite “Less Is More” Strategy Says About Crypto Right Now

August 18, 2023

Less is more.

That’s a big lesson I’ve learned from years of trading.

I know a lot of traders who still haven’t learned it. No doubt, that’s hampering their ability to lock in on great investments.

And I get it… It’s easy to get drawn into the glamour of a complicated trading strategy. Go on YouTube right now and you’ll see guys talking up the use of Fibonacci extension levels or drawing Gann fans on price charts.

But these sorts of complex indicators are rarely worth your time.

Their results don’t justify the effort.

I’ve found that this is especially true in a market where many people overthink things a lot – cryptocurrencies.

Many crypto traders look for trends in things like blockchain hash rates, mining difficulty, the number of unique wallet addresses used per day and so on. They hope that this information will give them a trading advantage.

It rarely does.

As Andy has shown, volume is a far more effective way to vet a crypto’s strength. It’s simple and agnostic – the crowd is either buying or selling.

Less is more.

But there’s another, even simpler approach to gauging strength in the crypto market. In fact, you might even think it’s grossly simplistic.

Indeed, it is. That’s why I love it.

It’s called the relative strength index (RSI).

If you haven’t used RSI for yourself, you’ve probably at least heard of it. It was created by J. Welles Wilder in 1978 and has been a prized tool among traders ever since.

It was designed to help traders spot trends and predict when those trends might reverse. It does this by tracking the strength of a stock’s price momentum and rating it on a scale of 0 to 100.

Stocks with RSIs over 70 are viewed as “overbought”… meaning they’re more likely to turn downward.

And stocks with RSIs below 30 are considered “oversold”… or more likely to move back up.

The beauty of RSI lies in its simplicity – unlike other convoluted indicators. It’s easy for traders to understand and use.

I like to use it to assess long-term trends in the stock market. But I’ve also used it to look at other highly traded assets… like cryptos.

Let’s take Bitcoin, for example.

The chart above shows Bitcoin’s price history over the past few years… and its 14-week RSI.

Remember, values below 30 often mean it’s a good time to buy, while values above 70 could indicate a possible peak in the price action.

As you can see, periods when the RSI fell below 30 marked excellent buying moments for Bitcoin. They often signaled that the stock was at or near a bottom in its price action.

Again, some might think this way of looking at things is too simple… especially for something as complicated as the crypto market.

Perhaps. But let’s consider the results…

On January 12, 2015… Bitcoin’s 14-week RSI dropped below 30. It was the same week Bitcoin hit its near-term low of $152… and began a surge of 130X to a high of about $20,000.

The same thing happened on December 10, 2018. Once again, Bitcoin’s 14-week RSI dropped below 30. The same week, the king of cryptos hit a low of about $3,100… but then it launched into a distinct uptrend.

Bitcoin went on to produce a 22X gain, rising to an all-time high of $69,000.

And last year… on June 13… the same signal screamed “Buy.” Bitcoin had begun approaching its recent low of about $15,500.

It’s nearly doubled in less than a year since hitting that low.

If history is our guide, June 2022’s RSI is suggesting that Bitcoin could already be on its way to setting new all-time highs in the months and years to come.

And smaller coins have typically followed in Bitcoin’s wake.

Of course, no one can know for sure what will happen, especially given the regulatory landscape surrounding crypto. But what we do know is that RSI has proved its worth time and again.

It tells us some big moves could be coming. And I trust it a whole lot more than some overstuffed indicator on YouTube.

Less is more.