RSI Indicator Divergence Trading Setups
Indices Divergence is one of the trade setups used by traders. It involves looking at a chart and one more technical indicator. For our example we shall use the RSI.
To spot this divergence setup find two stock chart points at which price makes a new swing high or a new swing low but the RSI indicator doesn't, indicating a divergence between trading price & momentum.
RSI 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 trading RSI, these are highs that are directly below the Chart points A & B.
We then plot one line on the chart & another line on the RSI.
RSI Divergence Setup - Divergence Trading using RSI Indicator
How to spot trade divergence
In order to identify this stock trade divergence setup we look for the following:
HH = Higher High - 2 highs but last is higher
LH = Lower High : two highs but last is lower
HL = Higher Low : 2 lows but last is higher
LL = Lower Low - 2 lows but last is lower
First let us look at the illustrations of these terms
Divergence Terms Definition
Divergence Terms Definition Example
There are two types of stock trade divergence setups:
- Classic Trading Divergence
- Hidden Trading Divergence Setup
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