this is a possible signal and set up to bet on a reversal in the direction of the market price action.
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rsi divergence occurs when the relative strength index indicator starts reversing before price does. A bearish divergence consists of an overbought rsi reading, followed by lower high on rsi. At the same time, price must make a higher high on the second peak, where the rsi is lower.
what is rsi divergence? With rsi divergence, the relative strength index of a specific stock shows lower highs when the price uptrend hits higher highs. Conversely, when the price is trending downward, it will hit lower lows with divergence while the rsi hits higher lows.
rsi divergence rsi divergence forms when price goes up and forms higher highs, and at the same time rsi goes down and forms lower highs. This pattern forms at the top of bull markets (uptrends), and is known as a strong reversal pattern, and usually the price changes its direction and goes down when rsi divergence forms.
there are two types of hidden divergences rsi hidden bullish divergence rsi hidden bearish divergence rsi hidden bullish divergence occurs in an uptrend and after the divergence the prices is likely to continue on the upside.