In a simple word, RSI (Relative strength index) divergence used to show the divergence between the share price and RSI indicator line.
RSI Divergence Indicator Setting
- Period: the 14 period is the default number of this indicator. this means the indicator will take a 14-period price for calculation.
- Lookback: the default value of look-back is 5.
- Min Length: 5 is the min length default value.
- Source: source is set as an ‘open’ price.
- Type: Regular.
- URef: This is the overbought zone. 80 is the default value of the overbought zone.
- LRef: This is the oversold zone. the default value is 20 of the oversold zone.
- Channel Fill?: The Channel fill means the gap between the overbought and oversold zone will fill by the color.
- RSI: This is the RSI indicator line color. you can check the color.
- URef: this is the overbought zone color.
- LRef: this is the oversold zone color.
- Bull: This is the bullish signal line. when the share price is touching lower low and the RSI indicator touching lower high. then this is the bullish divergence signal. and then the bull line is drawn. this is the color of the bullish divergence line. by default color is green.
- Bear: this is the bearish signal line. when the stock price is hitting the higher high and the RSI line is touching higher low. this is the bearish divergence signal. and then the bear line is drawn. this is the color of the bear divergence line. by default color is RED.
What Relative strength index indicator tells you
Mainly this indicator used to show the relative strength index indicator divergence.
Divergence means when the share price and the indicator moving direction are opposite to each other this is the divergence.
If the Stock price moving direction and the RSI indicator line direction is opposite to each other this is called divergence.in the trading chart, you cannot identify the minimum divergence but this indicator will draw a divergence line so that you can see the minimum divergence of the RSI and share price.
Divergence is two types: bullish and bearish.
- If the stock price is rising and the RSI line falling or in other words if the stock price is touching higher high price and the RSI line is not touching higher high. this is the bullish divergence.
- if the stock price is falling and the Indicator line is rising, this is the bearish divergence.
RSI Divergence indicator Trading Strategy
- The strategy is very simple when this indicator will draw a green line which indicates a bullish divergence, so you can take a buying position . because the bullish divergence means share price can rise soon. divergence show you earlier signal or the price trend.
- if the RED line is drawn in this indicator which indicates the bearish divergence. this means share price can fall soon. so that you can take a short-selling position.
This is the Supplementary indicator of the relative strength index. this will show RSI line with the divergence of the indicator and the share price. very useful to identify the divergence.
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