RSI Divergence - Regular & Hidden
The price is moving in parallel channel as can be seen. So suppose once it reaches the lower line/ support, how to verify whether we can go long or we need to short. RSI Divergence comes handy here. We already have one confirmation that since price is moving in a channel and the lower line does seem to be support so it may bounce back.The next confirmation comes from RSI Divergence discussed below.
CASE STUDY 1 - RSI Positive Divergence
We observe a positive divergence in RSI opposite to negative/downward movement of price. In case of regular positive diveregnce ( where RSI moves upward making higher lows , opposite in direction to price's lower low movement , it is better to take a long position. Well that worked and the price bounced back.
Case Study 2 - RSI Hidden Divergence
Here as we see a positive hidden divergence where the price is making higher lows and the RSI is making lower lows. No that hidden divergence indicates " Trend Continuation ". So the price kept moving up and up and may move to the upper parallel line. The price may make a downward move once it reaches the upper line.
Please correct me if i am wrong.
CASE STUDY 1 - RSI Positive Divergence
We observe a positive divergence in RSI opposite to negative/downward movement of price. In case of regular positive diveregnce ( where RSI moves upward making higher lows , opposite in direction to price's lower low movement , it is better to take a long position. Well that worked and the price bounced back.
Case Study 2 - RSI Hidden Divergence
Here as we see a positive hidden divergence where the price is making higher lows and the RSI is making lower lows. No that hidden divergence indicates " Trend Continuation ". So the price kept moving up and up and may move to the upper parallel line. The price may make a downward move once it reaches the upper line.
Please correct me if i am wrong.
Note
As stated earlier the hidden divergence indicated a positive continuation trend and indeed the price moved up by 250 points i.e almost 5 %.Will it continue or move down ?
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.