Today I wanna talk about RSI Divergence and how to properly use them.
So thoese who are new to this I will explain in few words what "Divergence" means.
Bassicaly divergence is disagreement between the indicator in our case RSI and the price.
Traders use the highs and lows of the indicator along with the highs and lows of the price on the chart and see whether they agreeing or disagreeing on what wll gonna happen on future price action.
If we look on RSI we can see that there is overbought and oversold levels, anything over 70s are considered as overbought and anything below 30s are considered as oversold. But you cannot base your trades of off that alone. So that's why you need to understand "Divergence" , thats bassicaly is advanced understanding of RSI indicator and once you will understand this you won't look at this indicator as before.
Look at the picture first:
We are looking at EURUSD 4h chart .
So first you look at number 7, this is a clasic bullish Divergence. Here we can see that those arrows are indeed divergence and they're going away from each other. This is indication that this downtrend has Ended and EUR/USD will probably develop a bullish momentum.
So now we look at number 5, this is a bearish Divergence and here you can see that are indeed divergence and they're going away from each other. This is indication that this uptrend is dying and the price will probably go down.
Make sure you line up your hash mark to the same spots, so that you marking from same spot to same spot.
And Remember that this applies to stocks, this applies to crypto, basicaly whatever your traiding asset happens to be this applies.