RSI Indices Indicator Divergence Trading Setups

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

RSI Indices Divergence Example:

In the chart below we spot two stock chart points, point A and point B (swing highs)

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

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

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

How to spot trade divergence

In order to identify this stock trade divergence setup we look for the following:

HH=Higher High- two 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 illustrations of these indices trading terms

Divergence Indices Trading Terms Definition

Divergence Indices Trading Terms Definition Examples

There are two types of stock trade divergence setups:

1. Classic Indices Trading Divergence
2. Hidden Stock Indices Trading Divergence