Trading RSI Price Divergences with Fractal Confirmation

Summary

This reversal strategy compares price swings with RSI swings. A price high that is not matched by a higher RSI high is treated as bearish divergence; a price low without a corresponding lower RSI low is treated as bullish divergence. Fractal-style local highs and lows help confirm the swing points, while a sensitivity setting controls how many candles are used to identify them. The source also describes long and short entries, reversals, and percentage-based stop-loss and take-profit levels.

The document lists configurable RSI thresholds, divergence margins, sensitivity, and exit percentages, but gives no published backtest settings or performance evidence. It cautions that divergence can be unreliable in strong trends, that confirming swing patterns can delay entries, and that volatile markets may create false signals. The source's sensitivity setting also explicitly involves a trade-off between lag and repainting. Trend filters and volatility-based parameter adjustments are suggested as future refinements, not established results.

Key ideas

• Bearish and bullish divergence signals arise when price extremes are not confirmed by RSI extremes.
• Fractal-style swing detection provides an additional confirmation step, with sensitivity affecting lag and repainting risk.
• Percentage-based stops and targets define trade exits, while signals may close or reverse positions.
• The document reports no backtest results and warns that trends, noise, and delayed confirmation can weaken signals.

Tags

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