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Bullish Divergence

Reversal Trading Strategy Using GOLDEN RSI Divergence Indicator Overview Reversal trading strategies capitalize on identifying turning points in the market where a potential reversal from a downtrend to an uptrend, or vice versa, occurs. In this post, I will introduce a strategy based on divergence patterns spotted with a custom RSI (Relative Strength Index) indicator. This method enhances traditional RSI analysis by making divergence detection clearer and actionable. By combining it with a strong understanding of price action, traders can gain an edge in timing market reversals effectively. Key Features of This Strategy Divergence Analysis: The core of this strategy is to identify bullish or bearish divergences between the RSI and price action. Custom RSI Indicator: The custom RSI indicator simplifies divergence detection by highlighting critical levels and marking divergence points directly on the chart. Confluence with Price Action: Reversals are validated using trendlines, support/resistance zones, and candlestick patterns. Chart Example: S&P 500 Index In the attached chart: Bullish Divergence: The price made lower lows, while the RSI made higher lows (indicated by green arrows). This divergence signaled weakening bearish momentum and potential reversal. Entry Point: A clear breakout above the trendline validated the reversal. Enter long positions near this breakout level. Stop Loss: Place the stop loss just below the recent swing low. Target Profit: Aim for the next major resistance zone or use a fixed risk-reward ratio (e.g., 1:2 or 1:3). How to Spot Divergence Bullish Divergence: Price forms lower lows. RSI forms higher lows. This indicates waning bearish pressure and a potential upward reversal. Bearish Divergence: Price forms higher highs. RSI forms lower highs. This suggests weakening bullish pressure and a possible downward reversal. Why This Strategy Works Strength of RSI Divergence RSI divergence reflects the loss of momentum in the current trend. By detecting it early, traders can position themselves ahead of major reversals. Combining Confluence Factors The success rate of this strategy increases when RSI divergence aligns with other technical factors like: Horizontal support or resistance levels. Trendline breaks. Volume spikes. Practical Tips for Using This Strategy Use Multiple Timeframes: Confirm divergence signals on higher timeframes for stronger setups. Avoid Overtrading: Only act on clear and validated divergence setups to minimize false signals. Risk Management: Never risk more than 1-2% of your trading capital on a single trade. Conclusion This custom RSI-based divergence strategy is a powerful tool to identify high-probability reversal setups. When combined with proper risk management and confluence analysis, it can significantly improve trading outcomes. Start experimenting with this strategy on your demo account and refine your approach before deploying it in live markets. If you have questions or want to discuss this further, feel free to comment below!
SP:SPXEducation
by thejamiul
20
Quick Look - Bullish Divergence vs Bearish DivergenceHere is a graphical representation of the simple concept of bullish and bearish divergences. Rules are pretty clear Bearish Divergence Happens only in uptrend Observed on pivot Highs Price makes higher high whereas oscillator makes lower high, indicating weakness and possible reversal Bullish Divergence Happens only in downtrend Observed on pivot Lows Price makes lower low whereas oscillator makes higher low, indicating weakness and possible reversal Watch out for hidden divergences on the opposite pivots and breakouts in the direction of trend.
ASX:FMGEducation
by Trendoscope
Introducing Dynamic Action Convergence Divergence (DACD)Hello, it's Stock Justice here! In our latest video, we explore the intricate workings of the Dynamic Action Convergence Divergence (DACD) - a tool that synergizes the robustness of the ADX and the DI lines to create a dynamic and responsive trading indicator. We plunge into the depths of DACD, starting with the base components - the Average Directional Index (ADX) and the Directional Movement System (DI). We then demonstrate how these two indicators are harmoniously fused together to form a comprehensive tool capable of signaling market momentum and potential trend reversals. We further elucidate how the DACD uses moving averages to mark potential bullish or bearish trends, and how divergence within the DACD can indicate trend continuations or reversals. The video also highlights the DACD's proficiency in multi-timeframe analysis, enabling traders to view market trends from a broader perspective. Closing out, we underline the DACD's versatility as a powerful trading instrument, while emphasizing the need for using it in conjunction with proper risk management and a balanced blend of other technical analysis tools. This video is an essential watch for all traders seeking to enhance their trading arsenal and navigate the market more proficiently!
SP:SPXEducation
by FadingExtremes
How to Trade Bullish DivergenceAt some point in your trading career, you will hear the term "Divergence Trading". Divergence simply means when the price and indicator are telling the trader two different things. It can be an effective addition to your trading strategy, especially if already using indicators like RSI or MACD to find overbought and oversold levels but should not be replied on by itself and requires practice to get it right. There are two types of Divergence you want to be familiar with: Regular bullish and bearish divergence and Hidden bullish and bearish divergence. In this educational tutorial, I will cover Bullish Divergence. You should note that the appearance of divergence doesn't happen 100% of the time, but when it does, you can use it for additional confluence (extra confirmation) for entering trades. Bullish Divergence Overview: A bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that bulls are ready to control the market again—often a bullish divergence marks the end of a downtrend. Notice in this example of GBPCAD, the price was in a downtrend and eventually came to a low at 5494 and rejected the area. The price shows a decline, while the RSI shows the oscillator moving higher. This is an example of regular bullish divergence, as it signaled a potential trend reversal. How to Draw Bullish Divergence You want to draw lines on successive tops and bottoms. Connect the tops and bottoms only, and keep your eyes on the price. If you draw a line connecting two lows on price, you MUST draw a line connecting two lows on the indicator. They have to match! Divergence only exists if the SLOPE of the line connecting the indicator tops/bottoms DIFFERS from the SLOPE of the line connecting the price tops/bottoms. Popular Indicators to Use When Identifying Divergence You can use indicators such as RSI, MACD, CCI, or Stochastic to trade divergence. Your selection in one of these indicators will depend on personal preference. I personally prefer the RSI at a 7 period. If you spot divergence but the price has already reversed and moved in one direction for some time, the divergence should be considered played out. You missed the boat this time. All you can do now is wait for another swing high/low to form and start your divergence search over. What is your favorite way to trade Divergence? Let me know in the comments! Happy Trading! :) - Brian & Kenya, BK FOREX ACADEMY
Education
by BKTradingAcademy
9
The only divergences guide you needHello, everyone! There are a lot of traders and many of them use divergence in their own way. Most of these ways lead to the deposit losses in the long run, because generate the late entries. I like to trade with Alexander Elder’s approach to the divergence. It has the clear entry condition and the small stop-losses in case of mistake. Divergences allows to enter the market exactly before the actual trend reverse, thus you always buy the dip and sell the rip, which produces the best risk to reward ratio. Foe divergence defining we will use MACD indicator, but you can choose any oscillator with zero-lne. After reading this guide you will be able to define divergences on every appropriate oscillator. Let’s consider this approach! Bearish Divergence What is bearish divergence? For the true bearish divergence we should see four obligatory signs. (1) Point C on the price chart should be higher than point A. (2) Point C on the MACD is below than point A. (3) The MACD histogram have to cross the zero-line to the downside to form the point B (4) The MACD histogram have to cross the zero-lne to the upside after the (3). Now it’s time to find the entry point. Point C is formed when the decreasing column appeared on the MACD. (5) It is the time to execute short position . Stop loss we should take above the point’s C high. As you can see we have the very small stop loss with the huge profit potential. Next condition enhances the short signal: (6′) Decreasing MACD lines while the price increases. Bullish Divergence Bullish divergence is the opposite to the bearish. We have to see the following conditions. (1) Point C is below the point A on the price chart. (2) Point C is above the point A on the MACD histogram. (3) We have to see first MACD histogram crossover with zero-line to the upside to form the point B. (4) Than we have to see the opposite crossover to the downside. Now it’s time to wait the first increasing column on MACD histogram to spot the point C and (5) execute the long positions . Stop loss should be set below the point C low. We can often see the price decrease continuation to the point D, this point is (6) also forms divergence, which enhances long signal, like the (7) divergence with MACD lines. In this particular case the stop loss was not hit, but it could be the case. In this case we should re-enter position when the divergence conditions was met again. DISCLAMER: Information is provided only for educational purposes. Do your own study before taking any actions or decisions at the real market.
Education
by Skyrexio
2
How to analyse Divergences using RSI for BTCUSDThis tutorial on RSI Divergences is the second part of a RSI Masterclass series. We have already discussed how to make use of the basic RSI indicator in our previous masterclass tutorial. We will understand the use of Divergence oscillators in short timeframes for BTCUSD. A divergence happens when the price of an asset (BTC in this case) moves in the opposite direction to a momentum indicator or oscillator. It is the opposite of a confirmation signal, which is when the indicator and price are moving in the same direction. How to use Divergence in trading A divergence is often seen as a sign that the current market action is losing its momentum and weakening, meaning it could soon change direction. there is a significant chance of a price retracement Bullish Divergence A bullish divergence is the pattern that occurs when the price falls to lower lows, while the technical indicator reaches higher lows. After a bullish divergence pattern, it is common to see a rapid price increase. Bearish Divergence A bearish divergence is the pattern that occurs when the price reaches higher highs, while the technical indicator makes lower highs. There is a likelihood of a rapid decline in price following the divergence Please note: One of the most common problems with divergences is ‘false positives’, which is when the divergence occurs but there is no reversal. The technique does not give a set price point at which to open or close a trade, just an indication of the strength or weakness of the underlying market sentiment. ------------------------------------------------------------------------------------------------------------------------------------------------------------------- If you find the analysis useful, please like and share our ideas with the community as well as follow to stay updated with new ideas! - Mudrex
BITSTAMP:ETHUSDEducation
by Mudrex
1
Using the Relative Strength Index (RSI)Using the Relative Strength Index The Relative Strength Index (RSI) is a very popular and often used indicator that can be used effectively in many different ways. My personal favorite two are: 1. As a tool to indicate a reversal. This is the most popular way. 2. As a momentum indicator. This is what it was designed for. Below we will discuss how to read the RSI, and how to set it properly depending on market conditions. What the numbers mean Before we discuss what to do with the information that the RSI gives us, we should learn what the numbers mean. The RSI is a line graph that moves from 0 to 100. When the RSI is 70 or over, we consider our crypto to be overbought (people bidding up the price). Then when the RSI is 30 or below, we consider our crypto to be oversold (people bidding down the price). Overbought means that the crypto might be overvalued. Oversold is the reverse. The crypto might be undervalued. The actual number is calculated using the average gain or loss over a set period of time. The default time period is 14 (minutes, hours, days, based on how the chart you are currently looking at is set). You could also set your period length to a lower number, I use 10 sometimes, so that the RSI is more sensitive to recent moves. This is good to do in markets that are highly volatile (crypto for example). The actual RSI number will increase as there are more and more positive closes within your time period, and will fall as there are more and more negative closes within your time period. As with every trading indicator, the RSI should not be used as the sole reason for a trading decision. It helps paint a picture of the market of the particular crypto you’re looking at. Nor are the default values always to be used. We’ve discussed time changes, but you could also change the upper and lower bands. In a bull market you may want to change the upper band to reflect the general trend of the market (more on that later). Trend Reversal Now, let’s about how to actually use the RSI. The first way to use it is as a way to spot a possible trend reversal. Put simply, the RSI can help us see if we have, in the last few candles, changed from an up-trend to a down-trend, or from a down-trend to an up-trend. When the RSI is below 30 and crosses up, we consider this a bullish move. When the RSI is above 70 and crosses down, we consider this a bearish move. Just to reiterate: A bullish cross up is not an automatic buy, just as a bearish cross down is not an automatic sell. As you can see below. But it is pretty accurate. Nothing in TA is 100%, but the closer you get to 100% the better trader you will be. One other thing to note based on the above picture is that there was no time that the RSI dipped below 30. In a crypto bull market (which we are currently in) it is more common to see cryptos that are overbought as opposed to oversold. You can compensate for this by changing the oversold line to 40. Additionally, as the crypto moves up in price, you can see the RSI making consistent higher lows. Divergence One thing to look for when you are trying to spot trend reversals is what is called a Bullish Divergence. This means that the price of your crypto is in a downtrend and making lower lows. At the same time, the RSI is oversold and is making higher lows. When you spot this, it can be a very powerful indicator that the trend is reversing to the upside. A bearish divergence is the same thing but in reverse. The price of the crypto is getting higher and higher while the RSI is overbought and making lower highs. RSI as a momentum indicator Another way to effectively use the RSI is by using it for its intended use as a momentum indicator. As we talked about before, the RSI rises as we have more and more positive closes in our time window. It rises more (faster) when the price movements are more extreme to the upside. The reverse is true for the downside. So, if we are oversold that means there is momentum to the upside, and if we are overbought that means there is momentum to the downside. Generally, it is better to trade with the momentum than against it. Unless we spot the reversal signals that we discussed above; crossing back down, or crossing up. It is also better to go long in bull-markets and short in bear markets when using the RSI in this way. Let’s take a look at the chart below: In a bull market the 50-60 range of the RSI acts as support and the RSI usually stays above 40. I like to set my upper band to 60 in a bull market so I can trade with the bullish momentum and spot potential reversals in the 50-60 range. As you can see it is necessary to use the RSI differently in different market conditions. Final thoughts As you can see there are different ways of successfully using the RSI. I hope I’ve made at least two of those ways clear in this beginner guide. Please let me know if you have any questions and if you like it, please hit the thumbs up and be sure to follow for more! Thanks for reading!
Education
by zsamochin
63