RSI Indicator Divergence Trading Setups

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

To spot this divergence setup find two Index trade chart points at which price forms a new swing high or new swing low but the RSI does not, indicating a divergence setup between price and momentum.

RSI Divergence Example:

In the trade chart below we identify 2 Index trade chart points, point A and point B (swing highs)

Then using RSI we analyze the highs made and formed 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 Index Set Up - Divergence using RSI Indicator

How Do You spot divergence

In order to spot this divergence setup we check 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 exemplifications of these terms

Divergence Terms Definition

Divergence Terms Definition Examples

There are two types of divergence patterns:

1. Classic Divergence
2. Hidden Divergence Setup

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