RSI Trading Indicator Divergence Setups

Stock Index Divergence is one of the trade setups used by traders. It involves looking at a chart & one more technical indicator. For our example we shall use the RSI indicator.

To spot this divergence setup find two chart points at which price makes a new swing high or a new swing low but the RSI indicator does not, indicating a divergence between price and momentum.

RSI Stock Index Divergence Example:

In the chart below we identify two chart points, point A & point B (swing highs)

Then using RSI indicator we check the highs made by the RSI indicator, these are the highs that are directly below the Trading Chart points A & B.

We then draw one line on the chart & another line on the RSI indicator.

RSI Indicator Divergence Trading Setups - Index Divergence Strategy using RSI Trading Indicator

RSI Divergence Stock Indices Set Up - Stock Index Divergence Trading using RSI Indicator

How Do You spot divergence

In order to spot this divergence setup we look for the following:

HH=Higher High- two highs but the last one is higher

LH= Lower High- two highs but the last one is lower

HL=Higher Low- two lows but the last one is higher

LL= Lower Low- two lows but the last one is lower

First let us look at the illustrations of these terms

Index Divergence Strategy using RSI Indicator - RSI Stock Indices Divergence Tutorial

Divergence Terms Definition

RSI Trading Indicator Divergence Setups - Stock Index Divergence Strategy using RSI Indicator

Stock Index Divergence Terms Definition Examples

There are two types of divergence set-ups:

Classic Divergence Setup
Hidden Divergence

Learn More Topics & Lessons:

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RSI Trading Indicator Divergence Setups