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Divergence PDF 1 .01

This document provides an overview of RSI divergence and how it works. It begins with four types of RSI divergence from strong to hidden. It then explains what the RSI is and how it is interpreted as an indicator. Specifically, values above 70 indicate overbought conditions while values below 30 suggest oversold conditions. The document discusses bullish and bearish RSI divergence patterns and how they provide signals of momentum slowing or rising. It stresses that RSI signals need to be added as confirmation, not taken as the sole indicator. Resources for further information are also provided.

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10 views

Divergence PDF 1 .01

This document provides an overview of RSI divergence and how it works. It begins with four types of RSI divergence from strong to hidden. It then explains what the RSI is and how it is interpreted as an indicator. Specifically, values above 70 indicate overbought conditions while values below 30 suggest oversold conditions. The document discusses bullish and bearish RSI divergence patterns and how they provide signals of momentum slowing or rising. It stresses that RSI signals need to be added as confirmation, not taken as the sole indicator. Resources for further information are also provided.

Uploaded by

jurematic123098
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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DIVERGENCE GUIDE

UNDERSTADING RSI DIVERGENCE AND HOW IT


WORKS

@PRECISIONMARKETSINC
DIVERGENCE SUMMARY

STRONG MEDIUM WEAK HIDDEN

PRICE

INDICATOR

PRICE

INDICATOR

GREEN - BULLISH
RED - BEARISH

@PRECISIONMARKETSINC
UNDERSTANDING RSI

What Is the Relative Strength Index (RSI)?


The relative strength index (RSI) is a momentum
indicator used in technical analysis that measures
the magnitude of recent price changes to evaluate
overbought or oversold conditions in the price of a
stock or other asset. The RSI is displayed as an
oscillator (a line graph that moves between two
extremes)

Traditional interpretation and usage of the RSI are


that values of 70 or above indicate that a security is
becoming overbought or overvalued and may be
primed for a trend reversal or corrective pullback in
price. An RSI reading of 30 or below indicates an
oversold or undervalued condition.

@PRECISIONMARKETSINC
Interpretation of RSI and RSI Ranges
Generally, when the RSI surpasses the horizontal
30 reference level, it is a bullish sign, and when it
slides below the horizontal 70 reference level, it is a
bearish sign. Put another way, one can interpret
that RSI values of 70 or above indicate a security
is becoming overbought or overvalued and may be
primed for a trend reversal or corrective price
pullback. An RSI reading of 30 or below indicates
an oversold or undervalued condition.

During trends, the RSI readings may fall into a


band or range. During an uptrend, the RSI tends to
stay above 30 and should frequently hit 70. During
a downtrend, it is rare to see the RSI exceed 70,
and the indicator frequently hits 30 or below. These
guidelines can help determine trend strength and
spot potential reversals. For example, if the RSI
can’t reach 70 on a number of consecutive price
swings during an uptrend, but then drops below 30,
the trend has weakened and could be reversing
lower.

The opposite is true for a downtrend. If the


downtrend is unable to reach 30 or below and then
rallies above 70, that downtrend has weakened and
could be reversing to the upside. Market Structure
paired with the premium/discount fib are helpful
tools to include when using the RSI Divergence.

@PRECISIONMARKETSINC
BULLISH RSI DIVERGENCE
A bullish divergence occurs when the RSI creates an
oversold reading followed by a higher low that
matches correspondingly lower lows in the price. This
indicates rising bullish momentum, and a break above
oversold territory could be used to trigger a new long
position. This has to be added confluence to the trade
plan. Not the only confluence!

@PRECISIONMARKETSINC
BEARISH RSI DIVERGENCE

A bearish divergence is the pattern that occurs when


the price reaches higher highs, while the technical
indicator makes lower highs. Although there is a
bullish attitude on the market, the discrepancy means
that the momentum is slowing. Therefore it is likely
that there will be a rapid decline in price. The RSI
signals needed to be added confluence levels, not the
only confluence!

@PRECISIONMARKETSINC
Resources
www.precisionmarketsinc.com
www.investopedia.com

@PRECISIONMARKETSINC

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