the rsi divergence is literally
like the keystone of all trading
strategies
it should be in your tool belt and i use
it
like literally all the time so in this
video
we're gonna discuss an rsi divergence
[Music]
welcome back to the channel everybody my
name is artie and this
is the moving average the show where we
discuss everything day trading to keep
you
profitable on a consistent basis first
off let me say my vacation
was awesome my tan feels great on my
skin
but i am glad to be back here making
videos for you guys
i seriously seriously needed a break
like
being on the beach all day was ah okay
so
let's just get into the charts because
there's a lot with the rsi
divergence that you guys need to know so
that you don't get
stopped out so that you don't get in too
early like
it's kind of a very delicate thing but
to be
able to spot it correctly and use it oh
man it's serious it's so clutch okay so
first i'm gonna help you guys
set up your screen to look like mine
what you're gonna wanna do
is first put up three moving averages i
like smoothed moving averages those are
different than
simple or exponential smoothed ready
you go to the indicator tab up at the
top here
and you type in smoothed it's in the
built-ins click that three times and
it'll give you three
smoothed moving averages then just
adjust the settings
by changing the inputs to the first one
21 the next 150 the next one 200.
that's going to give you these three
lines here you can make them whatever
color you want the next thing you're
going to want to do is
add an rsi so just type in rsi and it's
again a built-in relative strength index
add that onto your chart keep the input
as 14
source close and style i like to do
this one thing which is going to help
you use the rsi
properly instead of overbought and
oversold which is the wrong way to look
at it
you need to change the upper band and
the lower band to
50 and if you want to keep up with the
color scheme of the channel change the
rsi
line to yellow that way your rsi is
going to look like
this usually there's a line here at the
70 level and a line here at the
30 level signifying overbought and
oversold markets but it's the wrong way
to trade
the rsi because usually when it's
overbought it'll continue
down because there's momentum in that
direction so we're using the rsi
properly
as a momentum indicator showing us
levels below the 50
as down and levels above the 50 as up so
buying and selling okay so once you have
this up let's get you onto a 15 minute
chart that is a
nice middle of the range time frame to
look at
one minute is too noisy and four hour is
just like you're waiting days for a
trade to go through
okay so basically we're looking at the
top
of the markets right here the tops and
the bottoms of the markets
usually when these things happen there
is an
rsi divergence associated with this
so let's just start from right now and
work our way back to a few
examples so what we're looking at at the
top
of the range of the price is higher
highs being formed
while on the rsi lower lows are being
formed
thus creating the divergence showing
that the price might go in the opposite
direction
you can see that clearly here we had a
high and a lower high whereas here we
had
a high and a higher high the issue is
that most people get into
a rsi divergence far too early
they're not waiting for the momentum to
change hands
for example right here we had a high
and a lower high and that happened right
here
and yet the price continued up stick
with me for a little bit i'm gonna
explain
why this is and how to avoid this in
just a few minutes
but i want to get to a few more examples
even on the downside we had
our low and our lower low when on the
rsi we had a low
and a higher low this literally happens
almost every single time that the price
reverses
and again right here like it's
consistent
higher highs right and then right here
we're having lower highs
so how do you avoid getting in right
here and then getting
stopped out right here it's a one-word
answer
wait i'm kidding but patience is very
important when waiting for an rsi
divergence
basically what you're doing is if you
get in too
early you are fighting the momentum
you're like trying to hold back
a river with your bare hands it's not
gonna happen and it's gonna burn you
nine times out of ten
this is probably our best example so
that i can show you
we had this massive bullish momentum
correct like
the rsi went from an 18 up to an
89 in one big swoop
that's momentum when price action is
going
that hard in a direction for you to try
to catch the reverse
is completely stupid at this point your
best bet is going along with it because
it's
so strong in that direction so basically
you're just gonna see this
you're to see it reject and then
continue up and you're just going to
wait
wait for a higher high to be formed and
a lower high to be formed on the rsi
but remember that that momentum is very
very strong
so you have to wait even longer just to
avoid the trap that is probably being
laid for 90
of traders now most people like to think
that once the price action breaks
through a moving average
then it's for sure gonna go down and
continue down and they're safe which is
incorrect because as you can see
right here if i zoom this in the price
broke through the moving average so this
entire candle was red at one point
and then this one started forming and it
was completely red
right here below this moving average and
everyone's like cool it's now rejecting
because we have an rsi divergence
and then what happened it completely
shot up and hit everybody's stop loss
above this high making a higher high and
then
once it had all of its liquidity and was
happy with what it could do
the price tanked after that this thing
is going to help you out
so much because what i want you to do is
wait
wait patiently because what you're doing
is you're seeing a break
of market structure without even knowing
it i'm gonna draw so many squiggly lines
on here right now it's ridiculous so
we've had a
higher high right another higher high
and a higher low
and another higher high all of which
have an
rsi divergence attached with them so you
see this
it's higher highs and higher lows all
the way up then the price starts
cascading down
breaking through the 21 period moving
average
and retesting it and then cascading down
even more below the 50 moving average
at this point right here this is
extremely important remember what i said
about the rsi
50 level if it's above that means
it's bullish and if it's below that
means it's bearish so the rsi level
finally got below the 50 level
showing a downtrend so we have these
lower highs
on the rsi higher highs on the actual
price action
break below the moving averages with a
retest
and trading below the 50 level on the
rsi
now this is your opportunity to get in
people are getting in way too
early on an rsi divergence and they see
one
lower high and they immediately buy
without waiting for the other
confluences
so the confluences that you're looking
for is higher highs
on the price action lower highs on the
rsi
with a break below the 50 level to show
that the trend is actually reversing
and if you can get a retest on a moving
average with that downtrend i mean
you are a safe bet for this trade like
it's just going to go in that direction
so you need to wait
you need to see the structure being
broken what do i mean by that
if you don't know about market structure
please watch this video but essentially
higher highs and lower highs create a
staircase pattern up
and then once it breaks down and we
create a lower
high meaning that we fell below this one
right here that's a break in market
structure
dude this trade has so many confluences
it's ridiculous
so confluence number one right creating
higher highs on the price action
creating lower highs
on the rsi that's your divergence a
break in market structure
a retest on a moving average trading
below the 50 level
on the rsi and last but not least
my absolute favorite trading strategy to
do
a three line strike did you miss it i'm
gonna show you right here
let me get rid of all of these drawings
because it's looking
super messy right now but essentially a
three-line strike
is three subsequent candles in one
direction
and then an engulfing candle in the
opposite direction and we got that right
here
one two three bullish candles
and then a bearish engulfing right there
all of those confluences together
once this candle closes you get in right
here and you ride this sucker down
until you're satisfied with your profits
so in this one trade if you're looking
at rsi
divergence you got stopped out three
times because it kept making higher
highs but if you were patient
and you waited for your confluences you
had one two three four five
six confluences on this trade on a
15-minute chart and if you guys remember
my videos on trading off of the moving
averages
you could have actually targeted the 200
moving average on this trade
knowing that the price was either gonna
go down to it and reject
up continuing that uptrend or actually
reversing off of it and continuing
down past the 200. so taking this trade
off of the close of this three-line
strike
let's see how many pips we would have
gotten on euro usd
right there 45 pips off of a six
confluence trade like that's money in
the bank especially if your lot
sizes are huge you could have made
thousands upon
thousands of dollars off of this one
trade now your question probably is
can i use this on the one minute time
frame because all of my videos about
anything one minute are just blowing up
right now
which is why we've gone from 200 to 700
subscribers
while i was on vacation yes this does
work on a one minute but there is
more noise and more chance for you to
get screwed because you're not looking
at where the price is going on a higher
time frame so if you want to do this on
a one minute you can use the exact same
strategy everything exactly the same
just change the chart to a one minute
but be more mindful
and start your analysis on a higher time
frame like
30 minute one hour 15 minute then work
your way down to make sure you're not
going against this huge uptrend or huge
downtrend the number one thing that i
can tell you right now
is stop doing what you're doing if
you're getting stopped out on an rsi
divergence
it's because you are trying to get in at
the top or
peak or whatever so just stop and wait
and be patient and like
watch the charts it's not like you're
doing anything else just watch the
charts
wait for all the confluences to line up
then make one fantastic trade
at a higher lot size and you're done
like
you've made a ton of money that day
instead of trying to get
five dollars here and six dollars there
and 18 here
you know you could have gotten 800 off
of this one trade if instead of doing 10
small trades you just did
one nice decent sized trade so if you
guys want help with this and you're
seeing these happen on the charts but
you don't know if that's a good entry or
not
join our discord group we got a nice fat
community growing over there
we all post trade ideas we all discuss
with each other and it's just like an
open place to discuss things if
six confluences isn't enough for you and
you want somebody else's opinion on it
take a screenshot and put it on the
discord group i'm on there all the time
i'm happy to answer questions
there are other great traders on there
that are also willing to help out so if
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watching and we will see you
in the next video