RSI Indices Indicator Divergence Indices Trading Setups

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

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

RSI 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 indices trading RSI indicator, these are the highs that are directly below the indices trading 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 Indices Trading Setup - Divergence Indices Trading using RSI Indices Indicator

How to spot indices trading divergence

In order to spot this stock indices trading 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 indices trading terms

Divergence Indices Trading Terms Definition

Divergence Indices Trading Terms Definition Examples

There are two types of stock indices trading divergence setups:

1. Classic Divergence
2. Hidden Divergence