RSI Divergence Strategy

RSI divergence occurs when price makes a new high or low but RSI does not. Bullish divergence: price lower low, RSI higher low—suggests selling exhaustion. Bearish divergence: price higher high, RSI lower high—suggests buying exhaustion. Divergence is a warning, not a signal; confirm with price action.

Bullish: price makes a lower low, RSI makes a higher low. Bearish: price makes a higher high, RSI makes a lower high. Draw trend lines on both price and RSI to spot divergence. RSI period 14 is standard; adjust for timeframe.

Wait for divergence to form, then look for confirmation: candlestick reversal (engulfing, hammer), break of short-term trend line, or RSI crossing back above 30 (bullish) or below 70 (bearish). Enter on the confirmation candle or next.

Divergence works on 15M to daily. Higher timeframes give stronger signals but fewer setups. Avoid trading divergence in strong trends—price can extend despite divergence.

Entering on divergence alone: always confirm. Ignoring trend: divergence in a strong trend can persist. Using RSI in isolation: combine with support/resistance or structure.