2. Regular vs Hidden RSI Divergences: Trend Reversal vs Continuation
Part of Chapter 07: Oscillators, Indicators & Quantitative Divergences
- Regular Bearish Divergence: Price Higher High + RSI Lower High (Reversal)
- Regular Bullish Divergence: Price Lower Low + RSI Higher Low (Reversal)
- Hidden Bullish Divergence: Price Higher Low + RSI Lower Low (Continuation)
Divergences between price action and momentum oscillators provide some of the highest-probability trading signals in technical analysis.
A Regular Divergence signals a Trend Reversal: If price prints a Higher High but RSI prints a Lower High, the velocity of the buying momentum is decaying even though price crept higher. This warns that buyers are exhausted and a reversal is imminent.
Conversely, Hidden Divergences signal Trend Continuation: If price prints a Higher Low (respecting trend structure) while RSI prints a Lower Low, it proves that the oscillator completely reset its momentum while price barely gave up any ground. This indicates immense underlying strength and signals immediate trend resumption.
Hidden Bullish Divergence in an established uptrend is far more profitable than trying to pick tops with regular bearish divergences. Always align your divergence trades with the dominant macro trend.
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All Lessons in Chapter 07
Oscillators, Indicators & Quantitative Divergences (10 Lessons)