RSI Indicator Divergence Trading Setups

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

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

RSI Stock Indices Divergence Example:

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

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

We then draw one line on the Stock Indices chart and another line on the RSI Stock Indices indicator.

RSI Divergence Stock Indices Trading Setup - Stock Indices Divergence Trading using RSI Indicator

How Do I spot Stock Indices divergence

In order to spot this Stock Indices 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 Stock Indices trading terms

Divergence Stock Indices Trading Terms Definition

Stock Indices Divergence Trading Terms Definition Examples

There are two types of Stock Indices divergence setups:

1. Classic Divergence
2. Hidden Divergence