Strategies School / Trend & Indicators
RSI Divergence
Intermediate ยท 8 min read
When price makes a new extreme but RSI does not, momentum may be fading. Learn to trade it with confirmation.
What it is
The RSI (Relative Strength Index, usually 14 periods) measures momentum on a 0 to 100 scale. Bullish divergence is price making a lower low while RSI makes a higher low.
It suggests selling pressure is weakening. Bearish divergence is the mirror image at highs.
Divergence can persist in strong trends, so it is a warning, not an entry. Confirm with structure.
How to spot it
- Mark two consecutive swing lows in price.
- Compare the RSI values at each low.
- If price is lower but RSI is higher, note bullish divergence.
- Wait for a break of the last swing high before entering.
Trade plan
- Entry: After a break of the most recent swing high (long) following the divergence.
- Stop loss: Below the second low.
- Target: The prior swing high or the next level, at least 2R.
Common mistakes
- Wrong: Buying every divergence in a strong downtrend. Right: Wait for a structure break.
- Wrong: Using it on very low timeframes where noise dominates. Right: Prefer 1H and above.
Pro tip: Divergence at a higher timeframe support level is more meaningful than in empty space.
Quiz
- Bullish RSI divergence is: Answer: Price lower low, RSI higher low. Price falls further but RSI does not.
- Divergence on its own is: Answer: A warning that needs confirmation. It can persist in strong trends.
- A good confirmation is: Answer: A break of the latest swing high. Structure confirms the momentum shift.
Educational content, not financial advice. Diagrams are illustrations, not real market data.