RSI Divergences: What They Are & How They Work
A simple signal that can help you spot trend reversals before they happen.
Introduction to RSI
The Relative Strength Index (RSI) is a momentum indicator that measures how strong or weak price action is.
RSI ranges from 0 to 100.
Above 70 → market may be overbought.
Below 30 → market may be oversold.
What is Divergence?
Divergence happens when the price of an asset and the RSI move in opposite directions.
This signals that momentum is shifting.
Divergences often warn of potential reversals before they happen.
Types of RSI Divergence
Bullish Divergence
Price makes a lower low.
RSI makes a higher low.
Suggests selling pressure is weakening → potential upside ahead.
Bearish Divergence
Price makes a higher high.
RSI makes a lower high.
Suggests buying momentum is fading → potential downside ahead.
Why It Matters
Early Warning Signal: Divergences often appear before reversals.
Momentum Insight: Shows when the market’s strength doesn’t match its price.
Better Entries & Exits: Helps refine your timing in trades.
Risks & Limitations
Not 100% Reliable: Divergences can fail or take time to play out.
Works Best with Other Tools: Use with support/resistance, moving averages, or volume.
False Signals in Strong Trends: Markets can keep trending despite divergences.
Discipline = never rely on one indicator.
FAQs
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A: 1D and 4H are most reliable, but shorter timeframes (1H, 15m) can also be used with caution.
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A: No. It increases probability, but trends can continue.
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A: No. Combine them with DCA, cycles, and risk management.
RSI divergences give you signals, discipline turns them into results.
Inside the C3 Vault, you’ll learn how to pair divergences with cycles, exits, and DCA for a complete strategy.