RSI Continuation Secrets: The Power of Positive ReversalsIf you are like most traders, you probably have the RSI indicator on your chart right now. And if you use the RSI, you have likely spent countless hours hunting for "divergences" to catch the exact top or bottom of a market.
We all love the thrill of catching a trend reversal. But let’s be honest: markets trend much longer than we expect, and trying to pick tops can be exhausting (and expensive).
What if, instead of using RSI to figure out when a trend is ending, you used it to spot when a strong trend is primed to continue ?
Enter a massively overlooked concept: The Positive Reversal .
What is a Positive Reversal?
Originally discovered by Andrew Cardwell (and sometimes called a "Hidden Bullish Divergence"), a Positive Reversal happens during an uptrend. It tells you that the current pullback might just be a trap for bears, and the price is gearing up to shoot higher.
Here is the simple formula:
Price makes a Higher Low .
RSI makes a Lower Low .
Let's Look at the Nifty Weekly Chart
Take a look at the Nifty 50 Weekly chart attached to this post. It provides a textbook example of this pattern playing out.
The Price Action: Notice how Nifty formed a swing low (around 21,743), rallied, and then pulled back to form a higher low (around 22,182). The price structure is clearly still bullish.
The RSI Trap: Now look at the RSI at the bottom of the chart. During that second price pullback, the RSI dropped significantly lower than it did during the first pullback (from around 34 down to 27).
Why Does This Work?
Think of this pattern like pushing down on a coiled spring.
The RSI dropping to a "Lower Low" shows that the sellers were pushing downward with incredible momentum. But look at the price! Despite all that heavy selling pressure, the buyers were so strong that the price refused to make a lower low.
When sellers throw everything they have at a market and the price still holds up, it points to immense underlying strength. The spring is compressed, and the trend is likely getting ready to explode upward again.
Setting a Target
One of the best parts about Positive Reversals is that they give you a clear mathematical target. To find it, you simply take the difference between your two price lows and add it to the high in the middle.
On our Nifty chart:
Step 1: Subtract the first low from the second low (22,182.55 - 21,743.65 = 438.90).
Step 2: Add that difference to the swing high in the middle (26,373.20 + 438.90).
Target: 26,812.10
The Reality Check: Nothing is Bulletproof
As powerful as this setup is, we have to talk about the golden rule of trading: Nothing is guaranteed. Just like any other technical pattern, Positive Reversals can and will fail. Sometimes market conditions change, news breaks, or the selling pressure simply becomes too much for the buyers to handle. You should never blindly trust a pattern without protecting your capital.
Always use a stop loss. For a Positive Reversal, a common and logical place to put your stop loss is just below the second "Higher Low" (in our Nifty example, slightly below 22,182). If the price breaks below that level, the bullish structure is broken, the pattern has failed, and it is time to exit the trade safely.
The Takeaway
The next time you are in a strong uptrend and the RSI starts looking weak, do not panic sell or rush to short the market. Instead, check if the price is holding a higher low. Manage your risk, place your stop loss, and you might just be staring at your next great trade entry!
Education
