RSI Indicator Divergence Setups

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

To spot this divergence setup find two stock chart points at which price makes and forms 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 and analyze highs made and formed 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 identify a 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 explanations of these trading terms

Divergence Terms Definition

Divergence Terms Definition Example

There are 2 types of stock trade divergence setups:

1. Classic Trading Divergence
2. Hidden Trading Divergence Setup

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