What is a bearish divergence?

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. In a bullish divergence situation, there must be an oversold condition on the RSI, followed by a higher low on the RSI graph.

How does divergence work and when does it stop working?

Using divergence is a popular way to identify potential trading opportunities. But how does it work and when does it stop working? 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.

What is RSI divergence?

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 bullish divergence?

In a bullish divergence situation, there must be an oversold condition on the RSI, followed by a higher low on the RSI graph. Simultaneously, price must form a lower low on the second peak. Now let's take a closer look at some examples of RSI divergence and how you can use it to identify potentially profitable trading opportunties.