What is RSI Divergence
Relative Strength Index – RSI is one of the most popular indicator in the world among traders. But it is very strange that mostly trader are doing loss in trading even they know how RSI is working. Because they follow simple rules of RSI and they don’t know about What is RSI divergence.
RSI divergence is one of hidden gems of the trading world, only few people know exactly how to use this and how to get profit from this tool. ISFM – Best Stock Market School explaining in this blog about this hidden gem. We also explain this concept in video which link is given in bottom of the blog.
What is RSI Divergence?
Divergence occurs when an indicator and the price of stock or index are heading in opposite directions. If there is a normal situation means RSI is going to move as per the price of an asset. We will try to explain in the picture given below :
Above mentioned picture is showing in last 2 situation divergence occur and we must react accordingly in during trading.
Types of Divergence : –
1. What is Positive Divergence : –
Positive divergence occurs when the price is in a downtrend but an indicator starts to rise. It showing bottom out of this stock / index and we should exit from out short selling trade and we should start profit booking in short trades. If there is positive divergence in any stock / index we should start buying and with the passage of time we accumulate the stock in good quantity so that we will get maximum benefits if stock price goes up. Positive divergence showing trend reversal but we should also take help from supportive indicators like Moving average, MACD and support line to confirm the trend.
2. What is Negative Divergence : –
Negative divergence happens when the price of a securities is in an uptrend and a major indicator like RSI is going in to opposite direction. Its showing top of this share / index is near by we should book the profit and can exit from this trade. If might be price may be slightly high after this situation but they will not stay in market. Negative divergence showing trend reversal but we should also take help from supportive indicators like Moving average, MACD and support line to confirm the trend.
How to use RSI Divergence in Trading : –
You need great patience and continuous practice to find our positive or negative
divergence in the market. So it would be better you can maintain you daily trader diary
for better measurement of price and RSI level on daily basis.
Watch Video also for RSI Divergence : –
