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RSI Divergence
Trade when price and RSI move in opposite directions
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What Is This Strategy?
RSI Divergence occurs when price makes a new high/low but RSI doesn't confirm it. This suggests momentum is weakening and a reversal may be coming.
How It Works
- Bullish Divergence: Price makes lower low, but RSI makes higher low = Buy signal
- Bearish Divergence: Price makes higher high, but RSI makes lower high = Sell signal
- Divergence shows momentum weakening even as price continues
- Best when RSI is also in overbought/oversold territory
- Wait for price confirmation before entering
Key Parameters
RSI Period
RSI calculation period
Lookback
Bars to look for divergence
When to Use
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Best For
- • Identifying trend exhaustion
- • Finding reversal points
- • Counter-trend entries
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Avoid When
- • Strong trending markets
- • Without price confirmation
- • Multiple timeframe conflicts
Risks & Limitations
warning
Be Aware
- • Divergence can persist for long periods before working
- • Trading against the trend is risky
- • Need clear price confirmation to avoid early entries
Example Trade
Scenario
AAPL makes a new high at $180, but RSI peaks at 65 vs 75 on the previous high.
CAUTION/SELL
Reasoning
Bearish divergence suggests the uptrend is losing momentum. Watch for breakdown confirmation.
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