RSI Divergence Entries Filtered by the Long-Term EMA Trend

Summary

This strategy detects bearish divergence when price forms a higher swing high while RSI forms a lower high, and bullish divergence when price makes a lower swing low while RSI makes a higher low. It uses pivot points with a configurable lookback and admits long signals only above a long-term EMA, and short signals only below it. Entries are limited to confirmed bars and are placed only when no position is open. Stops are set beyond the pivot that defined the signal using an ATR adjustment, with an ATR-based profit target.

The accompanying explanation frames divergence as weakening momentum rather than a reliable reversal forecast and recommends evaluating behavior across market regimes, including comparisons with the trend filter disabled. It provides no backtest results. There is also a parameter inconsistency: the prose describes a target at two times ATR, while the supplied settings specify a target multiplier of three. Pivot lookback and timeframe affect signal frequency and noise, and the strategy’s stated rules do not establish expected performance.

Key ideas

• Bearish and bullish divergence compare successive price pivots with RSI readings at those pivots.
• The EMA filter allows trades only when price aligns with the selected trend direction.
• ATR multiples set stop and target distances around divergence entries.
• Divergence can persist without a reversal, so the signal is not a guarantee.
• The prose and source disagree on the take-profit ATR multiple.

Tags

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