RSI Indicator Divergence Trading Setups

XAUUSD Divergence is one of the trade set-ups used by traders. It involves looking at a chart and one more technical indicator. For our example we shall use the RSI.

To spot this divergence set up find two chart points at which price makes a new swing high or a new swing low but the RSI indicator doesn't, indicating a divergence between price and momentum.

RSI Divergence Example:

In the chart below we identify two chart points, point A and point B (swing highs)

Then using RSI indicator we check the highs made by the RSI technical indicator, these are the highs that are directly below the Chart points A & B.

We then plot one line on the chart and another line on the RSI indicator.

RSI Divergence Setup - XAUUSD Divergence XAUUSD using RSI Technical Indicator

How to spot divergence

In order to identify this divergence setup we look for the following:

HH = Higher High : two highs but last is higher

LH = Lower High : 2 highs but last is lower

HL = Higher Low : 2 lows but last is higher

LL = Lower Low - two lows but last is lower

First let us look at the illustrations of these terms

Divergence Terms Definition

XAUUSD Divergence Terms Definition Example

There are two types of divergence:

1. Classic Divergence Setup
2. Hidden Divergence

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