#Educational on DIVERGENCE using RSI (10 tweets🧵)
Meaning: When price and indicator are moving in opposite directions.
Common questions answered:
-What does a divergence look like?
-What does a divergence indicate?
-The difference between regular and hidden divergence.
Meaning: When price and indicator are moving in opposite directions.
Common questions answered:
-What does a divergence look like?
-What does a divergence indicate?
-The difference between regular and hidden divergence.
1. First we look at regular divergence.
Price downtrending while RSI uptrending = positive or bullish div. (Connect bottoms)
Price uptrending while RSI downtrending = negative or bearish div. (Connect tops)
Price downtrending while RSI uptrending = positive or bullish div. (Connect bottoms)
Price uptrending while RSI downtrending = negative or bearish div. (Connect tops)
2. How does this look on a real chart?
In the case of RSI, the strongest reversal indications happen when RSI hits 'oversold(below 30) and overbought(above 70) levels.
In the case of RSI, the strongest reversal indications happen when RSI hits 'oversold(below 30) and overbought(above 70) levels.
3. However the oscillator can remain in a prolonged state of divergence.
A divergence does not signal an immediate reversal. So it can't be used as a timed buy or sell signal. Rather it tells you that the major (price) trend is weakening.
A divergence does not signal an immediate reversal. So it can't be used as a timed buy or sell signal. Rather it tells you that the major (price) trend is weakening.
4. A divergence is not always present when price reverses. So it can't be used solely. Always find confluence.
Also 1 indicator might not indicate a divergence while others do. In this example I use RSI and OBV to show difference between two indicators using 2 data points.
Also 1 indicator might not indicate a divergence while others do. In this example I use RSI and OBV to show difference between two indicators using 2 data points.
5. What is Hidden Divergence?
This is when price and oscillator move in opposite directions indicating the major trend isn't weakening but will continue.
This is when price and oscillator move in opposite directions indicating the major trend isn't weakening but will continue.
6. Let's combine them the indicators and divergences.
RSI is indicating the major downtrend is likely to continue while OBV is indicating that the minor uptrend is weakening.
RSI is indicating the major downtrend is likely to continue while OBV is indicating that the minor uptrend is weakening.
7. There are different kinds of divergences. Study the:
Lower or Higher Highs and
Lower or Higher Lows of
both Price and Indicator.
Class A divergences: Strongest
Class B divergences: Less strong
Class C divergences: Weakest
Class A gives the best trading opportunities.
Lower or Higher Highs and
Lower or Higher Lows of
both Price and Indicator.
Class A divergences: Strongest
Class B divergences: Less strong
Class C divergences: Weakest
Class A gives the best trading opportunities.
8. A divergence is the opposite of a confirmation. A confirmation is when the indicator and price are moving in the same direction.
9. There are more indicators besides RSI that can be used to spot divergence, such as:
OBV,
MACD,
Momentum.
I don't use any outside of these, because less is more. Too little is nothing.
OBV,
MACD,
Momentum.
I don't use any outside of these, because less is more. Too little is nothing.
10. Some general remarks.
Connect candle closes and not wicks.
RSI can be used for more than divergences.
Investopedia.com is a good friend.
💯 retweets and I'll make a new educational thread.
Much Love♥️.
Connect candle closes and not wicks.
RSI can be used for more than divergences.
Investopedia.com is a good friend.
💯 retweets and I'll make a new educational thread.
Much Love♥️.
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