RSI and divergence

What it is

The RSI (relative strength index, usually over 14 candles) compares the size of recent up-moves with recent down-moves on a scale of 0 to 100. Above 70 is called overbought and below 30 oversold.

Divergence is when price and RSI disagree: price makes a higher high but RSI makes a lower high (bearish divergence), or price makes a lower low while RSI makes a higher low (bullish). It shows momentum fading.

How to spot it

• Compare two price highs (or lows) with the RSI readings at the same candles.
• Overbought and oversold mean little in a strong trend, where RSI can stay extreme for a long time.

How to use it

• Use divergence at a key level as a warning that the move is tiring, then wait for structure to shift.
• In trends, use RSI pulling back to around 40–50 (uptrend) or 50–60 (downtrend) as a pullback gauge.

Common mistakes

• Selling just because RSI is above 70.
• Trading divergence on its own with no level and no structure change.

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