What is RSI divergence?

What is RSI?

RSI (Relative Strength Index) compares gains and losses over a set period (14 candles) and expresses the result as a value from 0 to 100. BuyOrNot calculates RSI the same way exchange charts do. A high value is considered overbought and a low value oversold.

What is divergence?

Divergence is when price and RSI point in different directions.

• Bearish divergence: in the overbought zone, price makes a higher high while RSI makes a lower high. It is seen as a sign that upward momentum is weakening.
• Bullish divergence: in the oversold zone, price makes a lower low while RSI makes a higher low. It is seen as a sign that downward momentum is weakening.

Reading it on the BuyOrNot chart

• P1 (circle): the first RSI extreme in the overbought or oversold zone.
• White square: a point after P1 where price went further but RSI did not reach P1 — a divergence.
• White horizontal line: the price of the divergence that is currently active.
• If RSI goes more extreme than P1 again, that divergence is cancelled.
• When RSI crosses the midline (50), the label changes to “Downtrend” or “Uptrend”.
• Signals are judged on closed candles only. An extreme is confirmed when the next candle closes, so markers appear one candle later.
• Signals are judged and shown for the timeframe you are viewing: 1m, 5m or 15m.

Keep in mind

Divergence does not mean the trend will reverse right away. In a strong trend, price can keep moving in the same direction even after several divergences. Use it only as a reference indicator calculated from past prices.