Though I have already covered the RSI divergence and how to trade it, in one of posts earlier, but that was text based post and I wanted to demonstrate the topic through visuals. This is reason why I decided to make this video. The video was posted on Youtube and is being embedded here for the blog readers.
The video is small but informative and effectively shows the way the RSI divergence is traded. Only bullish RSI divergence has been shown in the video, for bearish divergence, do opposite of what you do in bullish RSI divergence.
Let's briefly discuss RSI divergence-
✅ An RSI divergence occur when price moves in one direction but RSI fails to follow the suit.
✅ A bullish RSI divergence is formed when price makes a lower low and RSI makes a higher low. Conversely, a bearish RSI divergence occurs when price makes a higher high but RSI makes a lower high.
✅ An RSI divergence is a reversal signal, that is, it indicates that the prevailing trend is weakening and a trend reversal might happen.
✅ In order to trade the RSI divergence, you need to mark the nearest resistance (in case of bullish RSI divergence) or support ( in bearish RSI divergence) levels.
✅ Enter the trade once this resistance or support level is broken. In bearish RSI divergence, you go short when support is broken and in bullish RSI divergence you go long when nearest resistance level is broken.
✅ Though RSI divergences are reliable signals that indicate reversals, however, they are not failsafe. Other indicators like volume profile should be looped in to assess its validity.
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