Trade Stock Indices

RSI Indicator Divergence Trading Setups

Traders use Index Divergence as one way to set up trades. It means looking at a graph along with another indicator. We will use the RSI indicator in our example.

To identify this divergence trade setup, observe two points on the chart where the price creates a new swing high or swing low, while the RSI indicator does not follow suit, indicating a disparity between price movement and momentum.

RSI Index Divergence Example:

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

Using the RSI indicator, analyze the highs directly positioned below Trading Chart points A and B for better insights.

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

Using RSI divergence setups for strategic index trading with the RSI indicator.

RSI Divergence Setup - Conducting Stock Index Divergence Trading Utilizing the 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- 2 highs but the last one is higher

LH= Lower High- 2 highs but the last one is lower

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

LL= Lower Low- 2 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 and index divergence strategy using RSI

Stock Index Divergence Terms Definition Examples

There are 2 types of divergence setups patterns:

  1. Classic Divergence Setup
  2. Hidden Divergence


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