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  1. INDICATOR & TRADING STRATEGY
  2. Trading Strategy (Advance)

RSI divergences

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Last updated 3 years ago

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THE RELATIVE STRENGTH INDEX (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.

Alert when

  • Bullish signal: The RSI forms two rising lows that correspond with two falling lows on the price

  • Bearish signal: The RSI forms a series of two falling highs that correspond with two rising highs on the price

Indicator config

  • RSI length: 14

TIPs for trading

A bullish divergence occurs when the RSI creates an oversold reading followed by a higher low that matches correspondingly lower lows in the price. This indicates rising bullish momentum, and a break above oversold territory could be used to trigger a new long position.

A bearish divergence occurs when the RSI creates an overbought reading followed by a lower high that matches corresponding higher highs on the price.

As you can see in the following chart, a bullish divergence was identified when the RSI formed higher lows as the price formed lower lows. This was a valid signal, but divergences can be rare when a stock is in a stable long-term trend. Using flexible oversold or overbought readings will help identify more potential signals.

Tradingview Script

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[YummyProfit] RSI Divergence — Indicator by yummyprofitTradingView
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