3. Taxonomy of Divergence (4 Core Types) Traders must distinguish between two primary categories, each with a bullish and bearish variant. 3.1 Regular Divergence (Reversal Signal) Indicates the current trend is likely to reverse.
This report posits that RSI Divergence is the single most reliable leading indicator for trend exhaustion and reversal. By analyzing the geometric relationship between price highs/lows and RSI peaks/troughs, a trader can anticipate institutional distribution before it appears on the price chart.
A Comprehensive Analysis of RSI Divergence for Tactical Trading Author: [Your Name/Analyst] Date: [Current Date] Version: 1.0 (Advanced Technical Analysis) 1. Executive Summary The Relative Strength Index (RSI), developed by Welles Wilder, is traditionally used to identify overbought and oversold conditions. However, its most powerful application lies not in absolute levels, but in divergence —a misalignment between price action and oscillator momentum.
| Timeframe Role | Action | Divergence Type | | :--- | :--- | :--- | | | Determine Bias | Hidden (Continuation) only | | Execution (15m / 1H) | Find Entry | Regular (Reversal) |
| Filter | Bullish Divergence | Bearish Divergence | | :--- | :--- | :--- | | | Price below 200 EMA (Counter-trend bounce) | Price above 200 EMA (Counter-trend drop) | | RSI Slope | RSI slope must turn up before price breaks structure | RSI slope must turn down before price breaks structure | | Volume | Declining volume on price lows (selling exhaustion) | Spiking volume on price highs (buying climax) | | Time Symmetry | The duration of the divergence should be >10 bars | Same |