📖 A Guide to RSI Divergences - By Trading-GuruIn this guide I will walk you through the three main different kind of divergences and explain to you how you can spot them.
I also show you the extreme power RSI divergences have by looking at BTC/USD and mark them on the chart. It's quite special to see all these three kinds immediately after another, and it's really nice to see them all working out here as well.
Obviously, no signal will not provide a 100% success guarantee. But this text-book example on the BTC price showing how they work out every time is great for both learning and profit taking.
It can be very hard to trade an asset that has seen such immense growth and nearly vertical upwards momentum. Using RSI divergences you will still be able to predict price reversals and trade successfully. So let's take a closer look at the three different forms of RSI divergences that I cover here on the chart.
Exaggerated Divergences
Exaggerated divergences are similar to regular divergences, but are considered weaker and less predictive variations. The term exaggerated refers to a circumstance where either the oscillator or price makes an equal high or low.
Regular bullish divergences and regular bearish divergences both have two exaggerated variations, so there are four exaggerated variations in total. In this case we look at a bullish version where the price is consolidating the but the RSI shows an increase in momentum.
Hidden Bullish Divergences
A Hidden Bullish Divergence is considered a continuation signal in an uptrend. It refers to a circumstance where an oscillator reading falls down below its previous low, while price is still higher than its previous low.
Hidden bullish divergences are most likely to occur in the middle of an uptrend – often after a healthy pull back – and indicate that the uptrend will most likely continue.
The starting point of a hidden bullish divergence should be a clear swing, not just a red candlestick.
Regular Bearish Divergence
A Regular Bearish Divergence is considered a strong reversal signal in an uptrend. It refers to a circumstance where price rises and makes a higher high, while the corresponding oscillator reading is still lower than its previous high.
Bearish divergences are most likely to occur in strong uptrends and signify that upward momentum is weakening. A reversal – or at least a pull back – is then expected to follow. Regular bearish divergences also appear in exaggerated form.
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Disclaimer!
This post does not provide financial advice. It is for educational purposes only!
