RSI and price divergence strategy
The divergence strategy between the Relative Strength Index (RSI) and price is a powerful tool in technical analysis. This approach is based on identifying potential turning points in the market trend by monitoring movement differences between price and RSI.
Bullish divergence:
Bullish divergence occurs when the price records lower lows while the RSI records higher lows. This indicates that the downward momentum is waning and a bullish reversal may occur soon. For example, in the attached chart of RUNE/USDT, a bullish divergence can be observed where the RSI has risen while the price has fallen, indicating a potential price bounce higher.
Bearish divergence:
Bearish divergence occurs when the price records higher highs while the RSI records lower highs. This indicates weak upward momentum and a possible bearish reversal.
How to use the strategy:
Identify divergence: Look for situations where price and RSI are moving in opposite directions.
Move Confirmation: Use additional confirmations such as Market Structure Break (MSB) as seen in the chart, where the price breaks an important resistance level.
Entry and Exit Points: Determine the entry point once the divergence is confirmed and adjust the stop loss and take profit accordingly.
This strategy enhances traders' ability to identify potential reversal points and make informed trading decisions based on the RSI and price divergence indicators.
