Types of RSI Divergences -- with David Moadel
hello friends and welcome to looking at the markets with David Modell today I
will be discussing the types of RSI divergences and I have more basic videos
on RSI and on RSI divergences a more basic video kind of an introduction to
get you started so if you need something more basic go down to the description
below this video and you can click on those basic videos and then you can come
back and watch this one if you want to and if you need more help I do offer
coaching for trading or investing and I can help you to put together a plan for
your trading or investing because you really want to have a plan so you know
what you're doing and if you want the coaching for that you can email me at
David Modell at gmail.com so let's get into it
now the one that a lot of people talk about is when the candlesticks make
higher highs while the RSI makes lower highs or vice-versa
like the candlesticks making lower highs and the RSI line is making higher highs
okay that's the one that everybody talks about and yeah sure that's a divergence
okay if you've got the candlesticks going in one direction and the RSI is
going the other all right so let's say you have a higher high with the
candlesticks and a lower high with RSI that's the divergence if you have a
lower high with the candlesticks or a higher high with the RSI with the RSI
line then that would also be a divergence okay that's a more obvious
one and that's pretty significant if you're a technical trader the assumption
is that the RSI is telling the truth and should be relied on more than the
direction of the candlesticks so if the candlesticks are showing higher highs
but meanwhile the RSI is showing lower highs and therefore a downward trend
then a technician who believes in RSI divergences might have a tendency to not
believe the direction of the candlesticks and might believe the
direction of the RSI line more and might either sell their long position or even
take a short position and the same is true for the opposite they might see the
candles candlesticks making lower highs but meanwhile at the same time the RSI
line is making higher highs and they might tend to believe the RSI more than
the Kant more than the direction of the candlesticks and therefore they might
take a long position they might buy in other words but then there's another
type that I think a lot of people tend to ignore or they don't talk about as
much but I believe it's also significant for people who are into RSI divergences
and it's the type where one meaning that either the candlesticks are the RSI one
makes higher or lower highs while the other one just chops sideways all right
in other words the next high is neither higher nor lower than the previous high
so for example you might have the candlesticks just going sideways but the
RSI line is showing lower highs or higher highs right and then or on the
other hand it might be the other way around you might have the candlesticks
showing higher highs or lower highs but then the RSI line has neither higher nor
lower highs and just chopped sideways that's also possible and again the
assumption is that the RSI line is the one that's telling the truth the one
that you might want to rely on more than what you see in the candlesticks alright
so for example here you might see the price action going sideways but then if
the RSI has lower highs you might tend to think bearishly or higher highs in
the RSI you might think bullish Lee okay and conversely if the price action is
going one way or the other but the RSI is just chopping sideways
you might not want to believe what the candlesticks say and you might not want
to take any action at all and here's an example okay actually two examples on
one chart so here we have an example of the candlesticks and you have really
just sideways action it's it's neither higher highs nor lower highs it's just
hitting once twice three times and just sticking there to this trend line here
this resistance line alright but meanwhile we might believe that the RSI
line is telling the truth with the higher highs here and so you could
actually have taken a long position there and you would have done okay you
would have done well with these big green candles okay
and then here's another example where you've got the candlesticks showing
higher highs but meanwhile at the same time you've got the RSI line showing at
the same time lower highs yeah and so that could be viewed as bearish and so
you could have taken a short position here or sold whatever you had owned and
you would have done well with that because then you had some big green
candles after that all right so that's just a basic examples of the types that
you might see and you really want to watch out for that you have to watch
both at the same time and look for those especially on the RSI line the higher
highs and lower highs they're usually pretty subtle they're probably going to
be not always but often times more pronounced on the candlesticks than on
the RSI line it's a very subtle angle very subtle incline or decline it's more
pronounced here but I see this a lot I see it's just a very gentle slope and so
you have to have a good eye for those things so I hope this was helpful to you
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appreciate it and I'll talk to you again soon
you