RSI Divergence Trading

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RSI divergence is fairly reliable, especially when used alongside other technical indicators for confirmation. However, like all technical tools, it's not foolproof and should be used as part of a broader strategy that includes risk management.

A bullish divergence occurs when the price of a security is moving downwards along with making lower lows while the RSI indicator is making higher lows. These movements indicate an increasing bullish momentum where traders can enter a long position when the security shows signs of upward reversal.

Examples of bullish RSI divergence: Example 1: Stock price falls to a new low, but RSI forms a higher low. Example 2: Forex pair decreases in value, but RSI shows increasing troughs. Example 3: Cryptocurrency drops, but RSI indicates an upward momentum shift