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

  1. Mark two consecutive swing lows in price.
  2. Compare the RSI values at each low.
  3. If price is lower but RSI is higher, note bullish divergence.
  4. 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.