RSI divergence
Price makes a new high or low, but RSI does not make a new high or low with it.
What it shows
A divergence is a disagreement between price and the indicator. In a regular divergence at highs, price makes a higher high while RSI makes a lower high. At lows, price makes a lower low while RSI makes a higher low.
It shows that the size of the latest push was smaller than the one before. It does not say how long the gap will last.
How we find it
The same code that draws it on your chart follows these steps, with the same result every time.
- Find two consecutive swing highs (or lows) in price.
- Read RSI at each of those two points.
- Mark a divergence if price went one way and RSI went the other.
- Draw a line between each pair.
Starting values: RSI length 14; Swing 5 bars each side. These are proposed and will be tuned on real price data before launch.
How to read it
- Top line: price highs rising.
- Bottom line: RSI highs falling.
- The two lines point in different directions.
Status labels you may see
| Label | What it means |
|---|---|
| Divergence at highs | Price high is higher, RSI high is lower. |
| Divergence at lows | Price low is lower, RSI low is higher. |
| None | No divergence in the last 40 bars. |
What cancels it
Divergence is cancelled when RSI makes a new high (or low) matching price.
What traders check next
- How many swings the divergence covers.
- Whether price then followed the gap.
- The size of the gap.
Limits
- Divergences can persist for a long time while price keeps going.
- Swing choice changes what is found.
- Many divergences appear in noisy data.
Try it in forecastviz
- Open any ticker and choose Momentum oscillators → RSI divergence in the left menu.
- Switch between 3M, 6M, 1Y to see how the picture changes.
- Compare with Relative strength index and MACD divergence on the same chart.
Questions
Is divergence a reversal signal?
No claim. It is a fact about two swings.
Can it be seen with other indicators?
Yes. MACD and others are compared the same way.
Related trends
Further reading
- Wilder, New Concepts in Technical Trading Systems
- Appel, Technical Analysis: Power Tools for Active Investors
- Murphy, Technical Analysis of the Financial Markets
- Kaufman, Trading Systems and Methods
Educational only. Not financial advice, and not a price forecast. Charts are drawn by code from past price data, which may be delayed.