What It Is
RSI Divergence occurs when price and the RSI indicator move in opposite directions. This disagreement between price action and underlying momentum often precedes trend reversals - the indicator is revealing weakness (or strength) that price hasn't yet reflected.
The RSI (Relative Strength Index) measures momentum by comparing the magnitude of recent gains to recent losses. When price makes a new high but RSI makes a lower high, it tells us that the new price high was achieved with less momentum than the previous high - a warning sign.
Divergence is one of the most powerful applications of the RSI because it's predictive rather than confirmatory. You're seeing the weakness before price confirms it - giving you an edge on entries.
How To Trade It
How To Trade It Entry Trigger Never enter on divergence alone. Wait for price confirmation - a break of the trendline connecting the swing points, or a reversal candlestick pattern...
Place stop beyond the most recent swing low (for bullish) or swing high (for bearish). This is where the divergence thesis is invalidated...
Minimum target is the swing high between the divergence points. Extended target is the next major support/resistance level...
Triple divergence (three consecutive higher lows on RSI while price makes three lower lows) is one of the most powerful reversal signals. If you see triple divergence at a key support zone, pay very close attention.
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Compare this reference with related structures and readings before applying it to a live chart.