RSI Indicator Divergence Setups

Divergence is one of the trade setups used by traders. It involves looking at a trade chart & one more technical indicator. For our example we shall use the RSI indicator.

To spot this divergence setup find two Stock Indices trade chart points at which price makes a new swing high or a new swing low but the RSI indicator does not, indicating a divergence between price & momentum.

RSI Divergence Example:

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

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

We then draw one line on the trade chart & another line on the RSI indicator.

RSI Divergence Stock Indices Set Up - Divergence using RSI Indicator

How Do You spot divergence

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

HH=Higher High- two highs but the last one is higher

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

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

LL= Lower Low- two lows but the last one is lower

First let us look at the illustrations of these terms

Divergence Terms Definition

Divergence Terms Definition Examples

There are two types of divergence setups:

1. Classic Divergence
2. Hidden Divergence