To identify any divergence, first of all look at the current structure that the price is forming like the above case, Price is consolidating at the same place and when we look at RSI it is forming up Higher highs and Higher lows.
Therefore RSI contradicts the price and this tells us that RSI doesn't support what the price is doing & is not inline with the price, so it's a bullish RSI Divergence.
Also, if we look at the stock in higher time frame then the consolidation was happening at the key support level, which was another sign that the price was getting ready for breakout.
Breakout with the volume is the sign to go long on the trade keeping SL below the consolidation line.
This is an example of Bullish RSI divergence.
Now for spotting Bearish RSI divergence the price must be forming higher highs or distributing at the same place whereas the RSI will be forming Lower highs which is an early signal that price is going against the RSI and hence we should short.
That's how RSI divergence works, hope I made it simple!
Enjoy Trading...
Therefore RSI contradicts the price and this tells us that RSI doesn't support what the price is doing & is not inline with the price, so it's a bullish RSI Divergence.
Also, if we look at the stock in higher time frame then the consolidation was happening at the key support level, which was another sign that the price was getting ready for breakout.
Breakout with the volume is the sign to go long on the trade keeping SL below the consolidation line.
This is an example of Bullish RSI divergence.
Now for spotting Bearish RSI divergence the price must be forming higher highs or distributing at the same place whereas the RSI will be forming Lower highs which is an early signal that price is going against the RSI and hence we should short.
That's how RSI divergence works, hope I made it simple!
Enjoy Trading...