RSI Indicator Divergence Trading Setups

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

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

RSI Index Divergence Example:

In the trading chart below we identify 2 chart points, point A & point B (swing highs)

Then using RSI indicator we check and analyze the highs formed 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 Divergence Setups - Index Divergence Setup Strategy using RSI Trading Indicator

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

How Do You spot divergence

In order to spot this divergence trade setup we look and check 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 explanations of these trading terms

Index Divergence Strategy using RSI - RSI Index Divergence Tutorial

Divergence Terms Definition

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

Stock Index Divergence Terms Definition Examples

There are 2 types of divergence setups patterns:

Classic Divergence Setup
Hidden Divergence

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RSI Indicator Divergence Trading Setups