Trading with RSI Divergence

[new-to-markets]

Its more of a exit signal than a entry signal. When we have a strong trend in place you'll get plenty of divergence signals and you'll end fighting the market whole day.

Probably this is what Linkon was saying...(look at picture of icici bank today)

Entry half way of bullish candle at 85.15 with SL at 80.80...technically SL is not yet hit(low so far is 81)...let us see what happens next...

but price has come back to the entry level...is it giving a exit option here or is it going to the target

 

[mangup]

Divergence is more clear when we use a line chart and a higher period on rsi. Idea here is we are looking a change in momentum when a new pivot is formed with lesser momentum that the previous pivot. Most people forget that we are comparing pivots on price with corresponding momentum measurement on rsi not the other way round. If we see a lower peak on rsi and see price making a higher peak, we assume its a divergence. Price pivot has to be valid. Most occasions we dont even have a lower pivot on price and people assume we have a divergence in place.

Its more of a exit signal than a entry signal. When we have a strong trend in place you'll get plenty of divergence signals and you'll end fighting the market whole day.

along with divergence on rsi we look for lower volumes as that is a good signal of a maturing trend. Most of the time a pause is mistaken for a reversal on price and if you dont gain early entry, then chances are your stop loss will hit...!

Dear Linkon7,

If prices make two new highes pivot high with two lower pivot high in RSI --> Its -ve divergence. But i have observed that RSI keep on making new lower pivot highs & price keep on making new higher pivot highs. Is this case when to take entry? Also i have not understood your point on when to take entry & when to take exit as per divergence.

Pl guide.

mangup

 

[hawaisanjay]

RSI is calculated on close values.Is it correct to draw a line from lows of the candles and say that there is divergence?

 

[mohan.sic]

:clapping:

 

[mohan.sic]

Dear Mangup,

Linkon7 was saying that divergence signal can be used better as a EXIT signal than for entry.

A divergence denotes decrease in momentum. Momentum comming down does not mean thats momentum in the trend is over, It can pick up again any point of time. By leaving accelarator of the vehicle one can slow down the speed( momentum) but cant stop the vehicle immediately from motion unless a brake is used. It travels in the direction to some distance till the momentum is completely exhausted.The same way a divergence in RSi or any other indicator with price does not mean that the trend is over, it only indicates the momentum in the direction has come down but still the price can continue in the trend for some time and that is when we see double and triple divergences.

And we never know if those momentum triggers are really exhausted.
Because i never know why ones slowed down the accelarator. may be you dont have enough fuel to go ahead or may be you wan you see a charming lady passing by. If its the second cause, you will speed up the next moment.
I can only confirm if you took a u turn. And may be thats the reason we see in every article that "Divergence has to be confirmed".

Like linkon7 sir said when divergence coupled with any other factor like low volumes will increase the odds. but trading divergence as only factor is not at all a good idea. In trending markets you can see most of the moves comming after good divergence signals. Divergences cant beat the trend. A valid divergence may only halt the movement for sometime. This applies for any time frame.


regards