RSI and Stochastic RSI Divergence Signals with Swing Filters

Summary

This strategy looks for regular and hidden divergences between price and RSI or Stochastic RSI. Regular bullish and bearish divergences compare new price lows or highs with weaker indicator extremes; hidden divergences are presented as continuation signals. The described setup uses a lookback to find swing points and minimum price movement thresholds to filter small fluctuations. It plots divergence markers and generates long or short entries. A 200-period EMA is included for trend context, though the document says it is not used to filter trades.

The document gives no performance results or validation evidence. It warns that divergences can be false or late, parameters can change signal frequency, and momentum indicators may be unreliable in strong trends or volatile conditions. It also notes that the implementation lacks explicit stop-loss rules. The visible code fragment includes entry logic for regular and hidden signals, but its swing detection and thresholds are simple, and the indicators trigger when either RSI or Stochastic RSI diverges. The proposed safeguards—such as trend alignment, confirmation, volatility-aware settings, and risk controls—are suggestions rather than tested features.

Key ideas

• Regular divergence compares price extremes with momentum-indicator extremes and may signal a reversal.
• Hidden divergence is framed as a possible continuation signal within the prevailing trend.
• Lookback and minimum movement thresholds are intended to filter minor swing fluctuations.
• The EMA supplies trend context but is not used as an entry filter in the described implementation.
• The document reports no measured performance and identifies lag, false signals, parameter sensitivity, and missing stop-loss logic as limitations.

Tags

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