Let me just start by making this statement, which has caused more reaction than I have ever cared, but it simply is true:
1 - RSI's divergences do NOT foretell an impending decline in price. Instead, they are associated with sustained rise in price.
2 - RSI's divergences do NOT foretell an impending rise in price. Instead, they are associated with a sustained decline in price.
Yes, I know. You have been told, taught and even paid for statements that come in direct contradiction to this, but let me tell you right now: Put your gun down, Google Positive Divergence in (not ) for instance, and you would be more apt to find a signal associated with a consistent premonition in terms of signal than any of that bearish/bullish divergence.
I have given multiple lessons to private individuals or public audiences demonstrating that before any reversal, there are multiple bearish/bullish divergences, and that the reversal only comes true after a sustained numbers of the said divergences.
In contrast, a Positive/Negative Divergence in only comes in a great while, and is typically associated with a deeper retracement, if not a reversal.
I continue to be dismayed that even professional traders keep on pointing at bearish/bullish divergences. I have to explain here that the trader is NOT completely wrong to point these out, but remember that these divergences are associated with a contrarian trend (i.e.: with decline and with rising prices for the most part).
As a predictive analyst/forecaster, and having worked, decorticated and peeled studies for many years (I started in 1997, the year I entered medical school), I soon learned that is and continues to be erroneously taught.
Another feature of my trading is that I do NOT trade off of price. As many of you might have heard from me: "Price is the dangling carrot at the end of the stick held by institutional hands". The institutional traders know every stop-losses, every positions and can decide to move a M5, M15, H1 or even a H4 chart against a widely held position of retail traders, wide the screen clean of these SLs and yet not impart much changes at the daily/weekly levels at which they trade for their liquid providers/banking clients. So, keep that in mind as well.
So, best is to use certain indicators. I use the RSI-14 set at HLC/3. Here is an old method I used to decide on entries:
Take a look at the bottom of the chart. See a trend? Do you also realize that all the lines are perfect parralels to one another (there are one steep and one soft-sloped). See how they keep on failing while price remains (recently) in a downward trend?
Now, of late, is approaching its upper steep-TL boundary. Do you see the association with the price's own TL?
My point here is to use an indicator in the most discreet and alternative way. After so many years of doing research on (lots of backtesting in several values, and across many TF and markets), can definitely be one of your best trading buddy.
By the way, the author of himself has a few residual students who are now teaching. These students are teaching the first rule I mentioned above, so this is not something I made up, but something that comes right from the author himself - Question is: Why do institutional trading firms continue to erroneously teach and offer you to open an account there? Is this a misleading attempt, or simply a developing case of the blind leading the clueless?
Predictive Analysis & Forecasting
Alias: 4xForecaster (Twitter, LinkedIn, StockTwits)
Signal Service or Private Course - Contact: MarketPredictiveAnalysis@gmail.com
All updates on https://twitter.com/4xForecaster
In the last instance, price may have crossed above its own overhead trendline, but RSI has continued its patterned move. So, it may or may not be a signal of anything. However, it is highlighted here to emphasize again RSI's ability to filter price action and direction at times when price seems directionless or unclear.
In this particular instance, price had moved lower, then retraced back up but failed to post a higher high just as RSI has completed its patterned move.
Therefore, there is a possibility that the recent move in price remains bearish, not simply based on the failure of price to rally to higher highs, but precisely based on RSI's rhythmic pattern of resistance and support failures.
So, the outlook, based on this RSI, remains bearish.
Is this somewhat answering your question?
There are a lot of lines in your charts, so I am not sure what you are pointing to. However, if you look at the most recent RSI, where it forms a lower low whereas price posts a higher high, then you effectively have a POSITIVE divergence.
Here is what I just posted on Twitter:
"$BTCUSD: Example of POSITIVE RSI divergence which is more reliable than the "bullish" divergence - via @tradingview "
I hope this makes sense to you and others.
"In this example, it shows how the POSITIVE divergence is formed: RSI makes a lower low against a higher high in price, giving the impression of RSI LIFTING price UP, as in a shovel motion.
The opposite is true with NEGATIVE divergence, where RSI forms a higher high against a lower low in price, giving the impression of RSI HAMMERING price DOWN, as in a hammer motion.
Hence the SHOVEL & HAMMER analogy I used with my students
- David Alcindor"
Most widely distributed name is that from John Hayden who wrote a concise book called "RSI: The Complete Guide" among other so-called authoritative books on the subject. Mr. Hayden call this phenomenon a "MDRP"
MDRP stands for Momentum Discrepancy Reversal Point.
Some others call it a positive/negative divergence, or some other distinguishing designation. What Mr. Hayden did was to make it sound a whole lot more complex that what it should be called. In my prior lessons, I have made the distinction solely on the positive vs. bullish, or negative vs. bearish. Otherwise, non of the concept changes at all.
I contacted both Mrs. Welles Wilder and Andrew Cardwell in the past.
First, Cardwell verified that John Hayden, author of the RSI book, "plagiarized" his course, having taken notes and transcribed them into that red little book. Mr. Cardwell course is found on http://www.CardwellRSIEdge.com - You will see that the lessons are very expensive, but I am still curious about these, since I conducted my own research on RSI and came across interesting findings. I once tried to share these with Mr. Cardwell when I referred to John Hayden's book, however, all I ever heard from him was his plagiarism accusation towards Mr. Hayden.
On my own, I have taught RSI in my own ways, revealing only a few of the features I had discovered, but this little "tool" is really more than an indicator. Some erroneously refer to it as a price-lagging indicator, when in fact, I use it as an integral part of my predictive analysis and forecasting among other things, proving that this is a forward-looking tool which can determine with great precision where price will move to in terms of direction, where it will stall in terms of consolidation, and where it will turn in terms of reversal.
Second, as an aside anecdote, Mr. Welles Wilder, original author of the RSI indicator (among other indicators) left the field of technical analysis shortly after his RSI publication in a trading magazine to turn to inter-planetary motions as a method to predict the stock market. Quite weird, but he got such a large international following crowd that is still going on today. I paid my membership too, thinking that I could get close and talk to him. Instead, I was only able to call his organization (www.DeltaSociety.com), but an older gentleman informed me that Mr. Wilder has stepped out of technical analysis and was not available to discuss any of his former works on RSI.