DR. REDDY S LABORATORIESEducation
RSI Divergence - Regular & Hidden
Updated
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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