How to Use Divergence

Hey traders!
RSI divergence, a key concept in technical analysis, occurs when the relative strength index (RSI) of an asset shows different patterns compared to its price movements.

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Bullish Divergence:

In a bullish divergence, the RSI indicates the asset is oversold, forming higher lows, while the price action forms lower lows. This signifies a shift from selling pressure to buying interest. The sellers' last attempt to control the market is met with increasing buying volume.

Bearish Divergence:

Conversely, in a bearish divergence, the price achieves higher highs, reflecting the final push from buyers, while the RSI forms lower highs. This classic overbought scenario signals potential reversal as buyers lose momentum.

These divergence patterns provide reversal signals, whether in trending or ranging markets. It's essential to note that relying on a single strategy is not sufficient for consistent profits, however combining various strategies and setups enhances your win rate. Always trade with a risk level that aligns with your financial capacity.


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Comment:

Here is good example of Bearish Divergence on Ethereum: