📊RSI DIVERGENCE TRADING STRATEGY📊
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➡️ An RSI divergence indicator signal shows traders when price action and the RSI are no longer showing the same momentum.
+The RSI shows the magnitude of a price move in a specific timeframe. The RSI is one of the most popular oscillators used in technical analysis. A divergence looks at it in relation to the current price action.
+ A divergence is a signal that the current trend in the time frame on the chart has lost momentum. This is a possible signal and set up to bet on a reversal in the direction of the market price action. An RSI divergence is saying that the indicator does not agree with the price action.
🛑 Divergences 🛑
+ If a chart has a RSI divergence then the relative strength index (RSI) on the chart has lower highs when price is at a higher high or the RSI makes higher lows when price makes new lower lows.
+ When RSI stops breaking out to higher highs during an uptrend in price or breaking down to lower lows when price is in a down trend then it is said to be an RSI divergence.
🟢 A bullish divergence 🟢
+ It is signaled when the RSI indicator has an oversold reading then a higher low that correlates to lower lows in the price action.
+ This can show increasing bullish momentum, a break out back above an oversold reading is a common buy parameter used to signal a new long position.
🔴A bearish divergence 🔴
+ It is signaled when the RSI indicator has an overbought reading then a lower high that correlates to higher highs in the price action.
+ This can show decreasing momentum and a potential reversal in the uptrend.
+ A break down back below an overbought reading is a common profit taking or short selling parameter used to signal a new short position.
☣️ IMPORTANT ☣️
A divergence does not always lead to a strong reversal and often price just enters a sideways consolidation after a divergence. Keep in mind that a divergence just signals a loss of momentum, but does not necessarily signal a complete trend shift.
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