Trading RSI Divergences with Intervening Price Break Levels

Summary

This indicator identifies possible divergences between price and a 14-period relative strength index by comparing successive local turning points. A bullish setup occurs when price makes a lower low while RSI makes a higher low; a bearish setup occurs when price makes a higher high while RSI makes a lower high. For each setup, it marks the intervening extreme: the highest level between the lows for a bullish divergence, or the lowest level between the highs for a bearish divergence. The author describes entering long or short only after the closing price crosses that level. Segments can be displayed on the price chart, the RSI pane, or both.

The document provides indicator logic but no performance results, risk controls, or validation across markets and timeframes. The turning-point conditions rely on neighboring bars, so signals require confirmation and may arrive after the pivot. The author also notes that the charting platform limits line styling, which can make the plotted levels difficult to see.

Key ideas

• The indicator compares consecutive price and RSI pivots to flag bullish or bearish divergence.
• A bullish setup pairs a lower price low with a higher RSI low, while a bearish setup pairs a higher price high with a lower RSI high.
• It marks the intervening price extreme as a potential breakout level for entry.
• The document gives no backtest or evidence that these entries are profitable.

Tags

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