How to analyse Divergences using RSI for BTCUSD
This tutorial on RSI Divergences is the second part of a RSI Masterclass series.
We have already discussed how to make use of the basic RSI indicator in our previous masterclass tutorial. We will understand the use of Divergence oscillators in short timeframes for BTCUSD.
How to use Divergence in trading
*A divergence is often seen as a sign that the current market action is losing its momentum and weakening, meaning it could soon change direction.
*there is a significant chance of a price retracement
Bullish Divergence
*A bullish divergence is the pattern that occurs when the price falls to lower lows, while the technical indicator reaches higher lows.
*After a bullish divergence pattern, it is common to see a rapid price increase.
Bearish Divergence
*A bearish divergence is the pattern that occurs when the price reaches higher highs, while the technical indicator makes lower highs.
*There is a likelihood of a rapid decline in price following the divergence
Please note:
*One of the most common problems with divergences is ‘false positives’, which is when the divergence occurs but there is no reversal.
*The technique does not give a set price point at which to open or close a trade, just an indication of the strength or weakness of the underlying market sentiment.
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- Mudrex
We have already discussed how to make use of the basic RSI indicator in our previous masterclass tutorial. We will understand the use of Divergence oscillators in short timeframes for BTCUSD.
- A divergence happens when the price of an asset (BTC in this case) moves in the opposite direction to a momentum indicator or oscillator.
- It is the opposite of a confirmation signal, which is when the indicator and price are moving in the same direction.
How to use Divergence in trading
*A divergence is often seen as a sign that the current market action is losing its momentum and weakening, meaning it could soon change direction.
*there is a significant chance of a price retracement
Bullish Divergence
*A bullish divergence is the pattern that occurs when the price falls to lower lows, while the technical indicator reaches higher lows.
*After a bullish divergence pattern, it is common to see a rapid price increase.
Bearish Divergence
*A bearish divergence is the pattern that occurs when the price reaches higher highs, while the technical indicator makes lower highs.
*There is a likelihood of a rapid decline in price following the divergence
Please note:
*One of the most common problems with divergences is ‘false positives’, which is when the divergence occurs but there is no reversal.
*The technique does not give a set price point at which to open or close a trade, just an indication of the strength or weakness of the underlying market sentiment.
-------------------------------------------------------------------------------------------------------------------------------------------------------------------
If you find the analysis useful, please like and share our ideas with the community as well as follow to stay updated with new ideas!
- Mudrex
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