RSI - a misunderstanding in the public
From the books: "RSI - the complete guide by John Hayden" and "RSI. Logic Signals & Time Frame Correlation" by Walter Baeyens
Price/RSI divergence provides another source of confusion. Many mainstream publications about the RSI tell you that this kind of divergence signals the end of the current trend. Some even list divergence as buy and sell signals! Divergence occurs frequently and it does not have any special significance. The RSI divergence is just a part of its mathematical constraint, which is why Constance Brown made her own indicator with no upper and lower limitation
I realize that the published trading literature states that a bullish divergence is an indication that prices are about to rally. The implication is that a bullish divergence is an indication that an uptrend is about to commence. As you are now realizing, a bullish divergence only appears when the existing trend is down. If the trend is clearly down, why are we even thinking of buying? Wouldn't it be more prudent to be looking for a place to get short?
A bullish divergence signifies that the existing trend is down and the Bears are exhausted. We should be expecting a rally to sell into. If we have short positions, then we should exit some or all of the shorts, but not reverse to become long! Prices should rally or reverse to some degree before falling to new lows.
Inversely, when we see a bearish divergence, the trend is up and we should probably expect a retracement to lower prices because the Bulls are exhausted. It is time that we should begin looking for a reason to buy.
A simple divergence means that prices have encountered enough resistance that they need time to consolidate their previous move. Once this has occurred.prices will resume their downward or upward march.
For these reasons I see bearish divergences as a chance to get long when the trend line in the RSI is broken and vice versa with a bullish divergence. Mostly I pay attention to "Hidden" or DD- DD+ signals which are seen in corrective waves
Price/RSI divergence provides another source of confusion. Many mainstream publications about the RSI tell you that this kind of divergence signals the end of the current trend. Some even list divergence as buy and sell signals! Divergence occurs frequently and it does not have any special significance. The RSI divergence is just a part of its mathematical constraint, which is why Constance Brown made her own indicator with no upper and lower limitation
I realize that the published trading literature states that a bullish divergence is an indication that prices are about to rally. The implication is that a bullish divergence is an indication that an uptrend is about to commence. As you are now realizing, a bullish divergence only appears when the existing trend is down. If the trend is clearly down, why are we even thinking of buying? Wouldn't it be more prudent to be looking for a place to get short?
A bullish divergence signifies that the existing trend is down and the Bears are exhausted. We should be expecting a rally to sell into. If we have short positions, then we should exit some or all of the shorts, but not reverse to become long! Prices should rally or reverse to some degree before falling to new lows.
Inversely, when we see a bearish divergence, the trend is up and we should probably expect a retracement to lower prices because the Bulls are exhausted. It is time that we should begin looking for a reason to buy.
A simple divergence means that prices have encountered enough resistance that they need time to consolidate their previous move. Once this has occurred.prices will resume their downward or upward march.
For these reasons I see bearish divergences as a chance to get long when the trend line in the RSI is broken and vice versa with a bullish divergence. Mostly I pay attention to "Hidden" or DD- DD+ signals which are seen in corrective waves