Many of you have been commenting and messaging me regarding RSI Divergences and how they work. I'm seeing a ton of confusion and misunderstanding so I cut away all of the fat from this Bitcoin Daily chart in order to present the CLEAREST example I could find.
During the first half of this year, Bitcoin had an insanely powerful rise in price over the span of just a few months. I remember the financial news media going on and on about their bullish price targets.
When Bitcoin climbed into the $60,000 area back in April, several frenzied traders in the crypto community were speculating that BTC would break through the $100,000 level within weeks...
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However, while all of this bullish hype was going on, I was quietly looking to open a large short position on Bitcoin.
The people I know personally were all telling me I was crazy to short Bitcoin and that it could only go higher in the weeks to come...
LITTLE DID THEY KNOW: I had recently noticed that the Daily Timeframe was giving off a HUGE RED FLAG for the Bulls.
What is this "red flag" you may ask?
- The red flag I speak of is called a BEARISH DIVERGENCE. This type of divergence exists between the Price and the RSI indicator. (Which means they look completely OPPOSITE to each other)
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*IMPORTANT!* ~ IF YOU WANT TO LEARN HOW DIVERGENCES WORK, THEN YOU MUST ACCEPT 2 RULES AS BEING TRUE IN ALL CIRCUMSTANCES:
1. IF A DIVERGENCE EXISTS ON A CHART, the RSI always tells you the TRUTH.
2. IF A DIVERGENCE EXISTS ON A CHART, the PRICE always tells you a LIE.
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Now that you know the 2 facts listed above, you must understand something else: There are 2 types of RSI Divergences.
- Bullish Divergence
- Bearish Divergence
The critical difference between how you learn to recognize these in a chart is this:
- Bullish Divergence: ONLY THE LOWS OF THE PRICE AND THE LOWS OF THE RSI MATTER.
- Bearish Divergence: ONLY THE HIGHS OF THE PRICE AND THE HIGHS OF THE RSI MATTER.
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HOW TO LOCATE A BEARISH DIVERGENCE:
Take a look at my Bitcoin chart, look at the PRICE first. Ask yourself: what are the PEAKS doing over time? The answer in this case is that each PEAK is higher than the previous PEAK. The lows of the PRICE do not matter.
Take a look at my Bitcoin chart again, this time look at the RSI. Ask yourself: what are the PEAKS doing over time? The answer in this case is that each PEAK is lower than the previous PEAK. The lows of the RSI do not matter.
Now remember the 2 rules we went over earlier? (if a divergence is present)
- The RSI always tells the TRUTH.
- The PRICE always LIES.
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QUESTION: IF YOU ACCEPT THESE 2 RULES AS FACTS, THEN WHAT IS THE RSI TELLING YOU?
ANSWER: THE RSI IS TELLING YOU THAT THE PRICE IS GOING TO HEAD MUCH LOWER EVEN THOUGH THE PRICE HASN'T ACTUALLY GONE LOWER YET.
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This invaluable information has the potential to save you / make you so much money!
EXAMPLE:
- If you are considering going Long on a stock or crypto, but happen to notice a huge Bearish Divergence on the Daily Chart: DO NOT BUY IT.
- If you notice a huge Bearish Divergence on a Daily Chart and are comfortable with shorting: GET AHEAD OF THE HERD AND OPEN A SHORT POSITION.
----------------------------------------
FINAL THOUGHTS TO CONSIDER:
- Divergences can be seen across all timeframes. From the 1 Minute, all the way up to the 1 Month chart!
- I recommend that all traders who are new to divergences start very slowly and use small position sizes. There is an element of skill involved in timing a divergence and you will find that Divergences play out faster or slower depending on the size of the time frame you are looking at on a chart.
----------------------------------------
I WILL BE PUBLISHING AN EXAMPLE OF A BULLISH DIVERGENCE SOMETIME THIS WEEKEND.
Until then, thank you very much for checking out this informational post today and good luck on your trading guys! :)
- Please feel free to comment your thoughts, opinions and questions below! THANK YOU! :)
During the first half of this year, Bitcoin had an insanely powerful rise in price over the span of just a few months. I remember the financial news media going on and on about their bullish price targets.
When Bitcoin climbed into the $60,000 area back in April, several frenzied traders in the crypto community were speculating that BTC would break through the $100,000 level within weeks...
----------------------------------------
However, while all of this bullish hype was going on, I was quietly looking to open a large short position on Bitcoin.
The people I know personally were all telling me I was crazy to short Bitcoin and that it could only go higher in the weeks to come...
LITTLE DID THEY KNOW: I had recently noticed that the Daily Timeframe was giving off a HUGE RED FLAG for the Bulls.
What is this "red flag" you may ask?
- The red flag I speak of is called a BEARISH DIVERGENCE. This type of divergence exists between the Price and the RSI indicator. (Which means they look completely OPPOSITE to each other)
----------------------------------------
*IMPORTANT!* ~ IF YOU WANT TO LEARN HOW DIVERGENCES WORK, THEN YOU MUST ACCEPT 2 RULES AS BEING TRUE IN ALL CIRCUMSTANCES:
1. IF A DIVERGENCE EXISTS ON A CHART, the RSI always tells you the TRUTH.
2. IF A DIVERGENCE EXISTS ON A CHART, the PRICE always tells you a LIE.
----------------------------------------
Now that you know the 2 facts listed above, you must understand something else: There are 2 types of RSI Divergences.
- Bullish Divergence
- Bearish Divergence
The critical difference between how you learn to recognize these in a chart is this:
- Bullish Divergence: ONLY THE LOWS OF THE PRICE AND THE LOWS OF THE RSI MATTER.
- Bearish Divergence: ONLY THE HIGHS OF THE PRICE AND THE HIGHS OF THE RSI MATTER.
----------------------------------------
HOW TO LOCATE A BEARISH DIVERGENCE:
Take a look at my Bitcoin chart, look at the PRICE first. Ask yourself: what are the PEAKS doing over time? The answer in this case is that each PEAK is higher than the previous PEAK. The lows of the PRICE do not matter.
Take a look at my Bitcoin chart again, this time look at the RSI. Ask yourself: what are the PEAKS doing over time? The answer in this case is that each PEAK is lower than the previous PEAK. The lows of the RSI do not matter.
Now remember the 2 rules we went over earlier? (if a divergence is present)
- The RSI always tells the TRUTH.
- The PRICE always LIES.
----------------------------------------
QUESTION: IF YOU ACCEPT THESE 2 RULES AS FACTS, THEN WHAT IS THE RSI TELLING YOU?
ANSWER: THE RSI IS TELLING YOU THAT THE PRICE IS GOING TO HEAD MUCH LOWER EVEN THOUGH THE PRICE HASN'T ACTUALLY GONE LOWER YET.
----------------------------------------
This invaluable information has the potential to save you / make you so much money!
EXAMPLE:
- If you are considering going Long on a stock or crypto, but happen to notice a huge Bearish Divergence on the Daily Chart: DO NOT BUY IT.
- If you notice a huge Bearish Divergence on a Daily Chart and are comfortable with shorting: GET AHEAD OF THE HERD AND OPEN A SHORT POSITION.
----------------------------------------
FINAL THOUGHTS TO CONSIDER:
- Divergences can be seen across all timeframes. From the 1 Minute, all the way up to the 1 Month chart!
- I recommend that all traders who are new to divergences start very slowly and use small position sizes. There is an element of skill involved in timing a divergence and you will find that Divergences play out faster or slower depending on the size of the time frame you are looking at on a chart.
----------------------------------------
I WILL BE PUBLISHING AN EXAMPLE OF A BULLISH DIVERGENCE SOMETIME THIS WEEKEND.
Until then, thank you very much for checking out this informational post today and good luck on your trading guys! :)
- Please feel free to comment your thoughts, opinions and questions below! THANK YOU! :)