RSI Indicator Divergence Setups - Bullish Divergence RSI and Bearish Divergence RSI

Forex Divergence is one of the trade setups used by traders. It involves looking at a chart & one more technical indicator. For our example we shall use the RSI indicator.

To spot this divergence setup find 2 chart points at which price makes a new swing high or a new swing low but the RSI indicator does not, indicating a divergence between price and momentum.

RSI Forex Divergence Example:

In the chart below we identify 2 chart points, point A and point B (swing highs)

Then using RSI technical indicator we check the highs made by the RSI technical indicator, these are the highs that are directly below the Chart points A & B.

We then draw one line on the chart & another line on the RSI indicator.

RSI Divergence Trading Setup - Forex Divergence Trading using RSI Indicator - Bullish Divergence RSI and Bearish Divergence RSI

How to spot divergence

In order to identify this divergence setup we look for the following:

HH = Higher High - two highs but the last one is higher

LH = Lower High - two highs but the last one is lower

HL = Higher Low - two lows but the last one is higher

LL = Lower Low - two lows but the last one is lower

First let us look at the illustrations of these terms

Divergence Trading Terms - RSI Bullish Divergence vs RSI Bearish Divergence

Forex Divergence Trading Terms Definition Examples - Bullish Divergence and Bearish Divergence RSI

There are 2 types of divergence setups:

1. Classic Trading Divergence
2. Hidden Divergence