RSI Stocks Indicator Divergence Setups

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

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 & momentum.

RSI Stocks Divergence Example:

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

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

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

RSI Divergence Setup - Stocks Divergence Stocks 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

Stocks Divergence Terms Definition Examples

There are two different types of divergence setups:

1. Classic Trading Divergence
2. Hidden Trading Divergence