RSI Divergences & Reversals


Bearish Divergence
A bearish divergence occurs when prices continue to form higher highs (typical in a bull market) while your oscillator (f.e. RSI) is forming significantly lower highs (indicating weakness in the trend.)

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Before getting too excited about divergences as great trading signals, it must be noted that divergences are misleading in a strong trend.

Positive Reversal
A positive reversal forms when RSI forges a lower low and the security forms a higher low. This lower low is not at oversold levels, but usually somewhere between 30 and 50.

Negative Reversal
A negative reversal is the opposite of a positive reversal. RSI forms a higher high, but the security forms a lower high. Again, the higher high is usually just below overbought levels in the 50-70 area.