Detecting RSI Divergences with Price Reversals and Alert Bands

Summary

This document describes an indicator that compares the Relative Strength Index with an average of the bar’s open, high, low, and close to flag possible reversals. A bullish setup pairs a lower price low with a higher RSI low near the oversold threshold; a bearish setup pairs a higher price high with a lower RSI high near the overbought threshold. The indicator marks qualifying conditions with colored bands and changes the RSI line color.

The described implementation uses adjustable short and long lookbacks, a minimum price reversal percentage, RSI period, and alert duration. The document suggests tuning lookbacks by timeframe and using signals near support or resistance, alongside trend or volume confirmation. It gives no performance tests or evidence of predictive success, and explicitly cautions against trading divergence signals alone; confirmation from price action or other signals is advised.

Key ideas

• Bullish divergence is defined as a lower price low paired with a higher RSI low.
• Bearish divergence is defined as a higher price high paired with a lower RSI high.
• The detector uses lookback windows, RSI thresholds, and a reversal percentage to filter candidate patterns.
• Colored bands and RSI line colors provide visual signals, while alert duration controls how long bands remain highlighted.
• The document recommends confirming divergences with price action or other indicators because signals are not reliable in isolation.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.