RSI Divergence Entries Filtered by a Long-Term EMA

Summary

This strategy pairs RSI divergence with a long-term EMA trend filter. It identifies bearish divergence when price forms a higher pivot high while RSI forms a lower reading, and bullish divergence when price makes a lower pivot low while RSI makes a higher reading. The default RSI period is 14, the pivot lookback is 5 bars, and the trend filter is a 200-period EMA. Long and short entries require price to be on the corresponding side of that EMA, a confirmed bar, and no existing position.

The script uses ATR-based stop and target distances, with multipliers of 1.5 and 3.0, and marks signals on the chart. Pivot detection relies on bars on both sides of a candidate pivot, so the signal is confirmed after that lookback rather than at the pivot itself. The provided text explains the divergence concept but gives no backtest settings or performance evidence. Results may depend on market, timeframe, execution assumptions, and the sensitivity of the pivot and risk parameters.

Key ideas

• Bullish divergence is defined as a lower price pivot low paired with a higher RSI reading; bearish divergence uses a higher price pivot high and lower RSI reading.
• A 200-period EMA filters entries by requiring price to be above it for longs and below it for shorts.
• The default RSI length is 14 and the pivot lookback is 5 bars.
• ATR multiples set stop and target distances, while entries are limited to confirmed bars and flat positions.
• Pivot confirmation requires subsequent bars, which delays recognition of the pivot.

Tags

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