RSI is also known as God's indicator because of it's ability to spot reversals better than other indicators.
Traders use divergences in RSI and price instead of just RSI's value to strengthen their analysis.
In this chart two types of divergences are displayed.
1) Bearish Divergence.
2) Hidden bullish Divergence.
Bearish Divergence
When the price making higher high and RSI makes higher low in overbought zones it is called as bearish divergence. Traders on the long side should take caution and should look for short trades on confirmation.
Now after creating bearish divergence price dips and dips till or below it's previous high from where the divergence was created. Once it corrects till there one should look for bullish divergence to spot reversals.
Hidden Bullish Divergence
Hidden bullish divergence is said to form when RSI dips below it's previous swing low but price remains above previous swing low. THIS INDICATES THAT PRICE HAS STRENGTH.
HOW TO TRADE THIS DIVERGENCE?
Since RSI has started giving signals of strength and weekly chart has formed indecision candle. One should look for long once price goes above previous week's high that is 36844. Stoploss will be below the low of indecision candle that is 35327.
Traders use divergences in RSI and price instead of just RSI's value to strengthen their analysis.
In this chart two types of divergences are displayed.
1) Bearish Divergence.
2) Hidden bullish Divergence.
Bearish Divergence
When the price making higher high and RSI makes higher low in overbought zones it is called as bearish divergence. Traders on the long side should take caution and should look for short trades on confirmation.
Now after creating bearish divergence price dips and dips till or below it's previous high from where the divergence was created. Once it corrects till there one should look for bullish divergence to spot reversals.
Hidden Bullish Divergence
Hidden bullish divergence is said to form when RSI dips below it's previous swing low but price remains above previous swing low. THIS INDICATES THAT PRICE HAS STRENGTH.
HOW TO TRADE THIS DIVERGENCE?
Since RSI has started giving signals of strength and weekly chart has formed indecision candle. One should look for long once price goes above previous week's high that is 36844. Stoploss will be below the low of indecision candle that is 35327.
Trade active:
Trade triggered. Candle broke previous week's high and close above.