Every week, in our email we share a chart pattern which gives you huge R:R when traded correctly.
One such pattern is RSI divergence.
Let’s first understand what an RSI divergence is.
RSI divergence occurs when price moves in one direction and RSI indicator moves in another direction.
As shown below
If you can see in the image, Price was making higher high BUT RSI was making Lowe high.
In these scenario market moves in the direction of RSI and as you can see price tanked.
In trading parlance it is called divergence.
Some things to note while trading the divergence.
- RSI must be above or below 70 or 30 level.
- Price must break the previous high or low.
- Use the standard setting while plotting the RSI.
- Higher the time frame better the result.
- Let the candle close, while making the decisions.
- Stop loss can be high or low of the candle which forms divergence
- Trail your target.
This strategy works in all time frames and all instruments.
If you have traded this setup in the past please share your experience below.