Today we have a fun one because I love making money. There is nothing better than nailing down an awesome trade and today I am going to teach you about something called 'divergence'. It might seem a bit complicated at first but it will be well worth it. As you can see in the BITFINEX:BTCUSD chart above, the prediction is stupid accurate.
The Basics You are going to notice that I have a few lines drawn on the chart above and they tell you buy/sell scenarios. The return you would have had by simply following this would be INSANE! So I want you to keep an eye on it in the future. Here is what you need to know:
(Disclaimer: Trading is never perfect. I am not saying there are not scenarios that are exceptions to the rules I am about to talk about. What I am saying is this stuff is gold and will make you money...so pay attention)
So divergence can be done with any indicator but today I am using the RSI.
Bullish Divergence (aka when to Buy): When the price created a lower low but the RSI creates a higher high - So you can see at all the 'buy' points the price of COINBASE:BTCUSD is making a lower low but the RSI indicator is making a higher high. Bearish Divergence (aka when to SELL): When the price created a higher high but the RSI creates a lower low - So you can see at all the 'sell" points the price of COINBASE:BTCUSD is making a higher high but the RSI indicators is making a lower low.
Right now COINBASE:BTCUSD looks good based on divergence! It is moving in that positive direction and the price and RSI are both making higher highs. I will keep you updated on this thread for new developments.
Oh yeah, before I forget...this can be used on short time frames! Be smart with it but it can be SUPER powerful. Let me know if you have any questions or need any help. Cheers!
Thanks for sharing. I'm a rookie but my trades really improved since i learned this tool...One thing i want to mention is beware of different time frames it can give conflicting signals sometimes...trading is never perfect.
Here's a conflicting signal between 1day and 4h timeframes
janor123
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How do you decide on lookback period for the RSI?
UnknownUnicorn1542001
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@janor123, I personally use a period length of 25 because it gives a clear picture of a 50 cross. The period length of the RSI matters less than other indicators
janor123
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@stephenskyle30, is that for all time frames or specifically the 4H?
tradingview.com/x/Dp4Fi
Here's a conflicting signal between 1day and 4h timeframes