RSI Indicator Divergence Trading Setups

XAUUSD Divergence is one of the trade setups 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- 2 highs but the last one is higher

LH= Lower High- 2 highs but the last one is lower

HL=Higher Low- 2 lows but the last one is higher

LL= Lower Low- 2 lows but the last one 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