RSI Indicator Divergence Setups
Indices Divergence is one of the trade transaction setups used by the traders. It involves looking at a chart and one more indicator. For our example we shall use RSI technical indicator.
To spot this divergence trade setup find two stock chart points at which price makes and forms a new swing high or a new swing low but the RSI doesn't, indicating a divergence between trading price & momentum.
RSI Divergence Example:
In the chart below we spot two stock chart points, point A & point B (swing highs)
Then using RSI 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 Trading Setup - Divergence Trading using RSI Indicator
How to identify a divergence
In order to identify this stock trade divergence trade setup we check 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:
- Classic Trading Divergence
- Hidden Trading Divergence Trading Setup
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