Okay, let's begin with the most obvious question. We'll explore what RSI Divergence really is and what trading signals we could take away from it. If the price action and RSI indicators aren't in line, a divergence is evident on the chart. In an economy that is in a downtrend Price will make a lower low. However, the RSI indicator makes higher lows. Divergence occurs the time when an indicator does not agree with the price movement. This should be an indicator that you need to pay close attention to the market. Both the bullish RSI and the bearish RSI divergence can be easily evident in the chart. The price movement was actually reversed by both RSI Divergence signals. We'll now talk about a different topic before we get into the exciting topic. Follow the top backtesting platform for more examples including RSI divergence cheat sheet, trading with divergence, forex backtest software, backtesting platform, automated trading, crypto backtesting, divergence trading, crypto trading bot, cryptocurrency trading, position sizing calculator and more.
How Can You Analyze The Divergence Of RSI?
Because we employ the RSI indicator to identify trend reversals, it is very important to identify the right trend reversal, in order to do this, we need to have an upward trending market. After that, we can use RSI divergence to identify weaknesses of the current trend and then we can utilize that information to catch the trend reversal in the right moment.
How To Spot Rsi Divergence During Forex Trading
At the beginning of the trend, both RSI indicator as well as Price Action did the same process by making higher highs. This is an indication that the trend is gaining strength. However, at the end of the trend, Price forms higher highs but the RSI indicator has formed lower highs that indicate that there is something worth watching in this chart. This is the reason we have to be attentive to the market. The indicator and the price actions are not in sync which could indicate an RSI divergence. The RSI divergence in this instance signifies a bearish trend change. Check out the chart to see the changes that happened after the RSI diversification. It is evident that the RSI divergence is highly accurate in identifying trend reversals. Now, the issue is how do you spot the trend reversal. Let's discuss four strategies for trade entry which provide better entry signals when combined with RSI divergence. Take a look at top software for automated trading for more tips including online trading platform, forex backtester, crypto trading, backtesting platform, crypto trading backtester, trading platform crypto, crypto trading bot, crypto trading backtester, forex backtesting, automated cryptocurrency trading and more.
Tip #1 – Combining RSI Divergence & Triangle Pattern
Triangle chart pattern comes in two variants. There is an ascending triangular pattern that works in the downtrend. Another variant is the descending circle, which is reverse patterns when the market is in an upward direction. The forex chart below displays the downward Triangle pattern. Like the previous example, market was in an upward trend , but the price began to slow down. RSI, however, also indicates the divergence. These clues show the weak points in the uptrend. We can see that the momentum of the ongoing uptrend has waned and that the price has ended in a descending triangular pattern. This is also a confirmation of the reverse. It is now time to make the short trade. Like the previous example, we used the same breakout techniques for this trade as well. Let's now move on to the third technique for trading entry. This time , we'll be combining trend structure with RSI diversity. Let's look at the best way to deal with RSI divergence if the trend structure shifts. Have a look at the top backtesting platform for website recommendations including automated trading platform, forex tester, automated forex trading, backtesting platform, trading platforms, forex backtest software, backtesting trading strategies, crypto trading backtester, trading platform crypto, trading with divergence and more.
Tip #2 – Combining the RSI Divergence Pattern with the Head & Shoulders Pattern
RSI divergence helps forex traders recognize market reversals, isn't it? Combining RSI diversification with other reversal indicators like the Head and Shoulders patterns can increase our trade probability. This is great! Let's look at how we can make our trades more profitable by combining RSI divergence with the head and shoulder pattern. Related - How To Trade Head and Shoulders in Forex - A Reversal Trading strategy. An enviable market conditions are required before you can trade. We're trying to find the reverse of a trend, so it is best to be in a market that is in a trend. Take a look at this chart. Follow the top crypto trading for site advice including best forex trading platform, trading platform, forex backtest software, backtesting strategies, automated crypto trading, backtesting tool, trading platform cryptocurrency, crypto trading backtesting, trading platform cryptocurrency, crypto backtesting and more.
Tip #3 – Combining RSI Divergence and the Trend Structure
The trend is our friend, isn't it! We must trade in the trend direction so long as the market is trending. This is the way that professionals train. Trends don't last forever. It is likely to change. Let's find out how to recognize reversals swiftly by looking at the structure of the trend as well as RSI Divergence. We all know that upward trends are creating higher highs and downtrends lower lows. In light of that Let's take a close review of the chart below. Now if you take a look to the left of this chart, you'll observe that it's a downtrend with a series of lower highs and lows. Take a closer look at the RSI divergence that is highlighted on the chart (Red Line). Price action can create Lows, but the RSI can create higher lows. What's the meaning of this? While the market may be creating low , the RSI is doing the opposite thing this indicates ongoing downward trend is losing momentum and we should prepare for a reversal. Read the top divergence trading for more info including RSI divergence, crypto trading backtester, crypto trading backtester, RSI divergence cheat sheet, backtesting tool, backtester, forex trading, cryptocurrency trading bot, trading platform crypto, best forex trading platform and more.
Tip #4 – Combining Rsi Divergence Along With The Double Top & Double Bottom
Double top, also referred to as double bottom, is a reversed pattern that is formed in the course of an extended move or following the direction of a trend. In the double top, the first top is formed when the price is at the level at which it cannot be broken. When that level is attained, the price will fall slightly, then come back to test the earlier level. If the price bounces again from the point, you've got a DOUBLE OPTION. Have a look at this double top. The double top you see above shows two tops that were formed from a strong move. The second top is unable to over the one. This is a strong indication that the buyers are struggling to move higher. Similar principles apply to the double bottom, however, it's done in reverse. We use breakout entry. This means that we sell the trade once the trigger line is below the price. The price broke below the trigger line and we executed a sell trade within one day. QUICK PROFIT. The same trading techniques are applied for the double bottom too. Look at this chart to see the best way you can trade RSI divergence and double bottom.
Keep in mind that this isn't your only strategy to trade. There is no one trading strategy that is ideal. Additionally, all trading strategies experience losses. We earn consistence profit through this trading strategy however we have a strict risk management as well as a strategy to cut our losses quickly. This allows us to minimize drawdown, which opens up the door for huge upside potential.