RSI Divergence Trading: How to Spot Reversals Before They Happen
When price and momentum disagree, change is coming. Learn to read RSI divergences to spot reversals and trend continuations before they become obvious.
- RSI divergence occurs when price and RSI move in opposite directions—momentum is not confirming price.
- Regular divergence signals reversal; hidden divergence signals trend continuation. Both are powerful when confirmed.
- Thrive scans for RSI divergences across your watchlist and alerts you to high-probability setups.
Explore Divergence Types
Click through different divergence patterns to understand how they form and what they signal:
Price Action
Lower Low
RSI Action
Higher Low
Price made a new low, but RSI made a higher low—momentum is not confirming the new price low. This suggests selling pressure is weakening despite price continuing down. Smart money may be accumulating. Classic reversal signal.
Wait for price confirmation (break above recent swing high). Enter long with stop below the divergence low. This is a counter-trend trade—use tighter sizing. Best when RSI is in oversold territory (<30).
Understanding RSI
RSI (Relative Strength Index) measures momentum on a 0-100 scale. It shows how strongly price is moving, not which direction. High RSI means strong bullish momentum. Low RSI means strong bearish momentum.
RSI Zones
- 70+ (Overbought): Strong bullish momentum. In trends, can stay elevated. At extremes, watch for reversal.
- 30-70 (Neutral): Normal range. No extreme readings.
- Below 30 (Oversold): Strong bearish momentum. In downtrends, can stay depressed. At extremes, watch for bounce.
Overbought doesn't mean "sell immediately"—it means momentum is strong. Oversold doesn't mean "buy immediately"—it means selling pressure is strong. Context matters.
Regular Divergence (Reversal Signal)
Regular divergence signals a potential reversal. Price is moving one direction, but momentum (RSI) is moving the opposite direction. This mismatch often precedes reversals.
Bullish Regular Divergence
Price makes a lower low. RSI makes a higher low. Translation: price is falling, but selling momentum is weakening. Buyers are stepping in. Potential bottom forming.
Bearish Regular Divergence
Price makes a higher high. RSI makes a lower high. Translation: price is rising, but buying momentum is weakening. Sellers are stepping in. Potential top forming.
Regular divergence works best at extremes—when RSI is oversold (bullish divergence) or overbought (bearish divergence).
| Divergence Type | Price Action | RSI Action | Signal |
|---|---|---|---|
| Bullish Regular | Lower Low | Higher Low | Potential reversal up |
| Bearish Regular | Higher High | Lower High | Potential reversal down |
| Bullish Hidden | Higher Low | Lower Low | Uptrend continuation |
| Bearish Hidden | Lower High | Higher High | Downtrend continuation |
Hidden Divergence (Continuation Signal)
Hidden divergence signals trend continuation. Less intuitive than regular divergence, but equally powerful.
Bullish Hidden Divergence
In an uptrend: price makes a higher low (trend intact), but RSI makes a lower low. The pullback was sharp in momentum terms, but price held structure. The trend is absorbing selling—continuation signal.
Bearish Hidden Divergence
In a downtrend: price makes a lower high (trend intact), but RSI makes a higher high. The bounce had momentum, but price still respected resistance. The trend is absorbing buying—continuation signal.
Hidden divergence confirms trend strength. Use it for adding to positions or entering after pullbacks.
Trading RSI Divergence
Step 1: Spot the Divergence
Compare price swings to RSI swings. Look for the mismatch—price making one pattern while RSI makes the opposite.
Step 2: Wait for Confirmation
Divergence alone is not a trade signal. Wait for:
- Break of structure (BOS) in direction divergence suggests
- Rejection candle (hammer, engulfing) at the divergence point
- RSI crossing key level (above 30 for bullish, below 70 for bearish)
Step 3: Enter with Defined Risk
Entry: on confirmation signal. Stop: beyond the divergence extreme (the low for bullish, high for bearish). Target: at least 2R, or trail as move develops.
Step 4: Manage the Trade
If the divergence plays out, price should move in your direction. If it doesn't—if price makes a new extreme against you—the divergence failed. Cut the loss.
Combining Divergence with Other Tools
Divergence is powerful when combined with confluence:
- Divergence at support/resistance: Much higher probability. Level + divergence = strong signal.
- Divergence with CVD divergence: Price, RSI, and order flow all diverging = very strong signal.
- Divergence at volume profile POC: Divergence at high-volume level = meaningful.
- Multi-timeframe divergence: Daily divergence + 4H divergence = very reliable.
Related reading: CVD Divergence Trading and Support & Resistance Trading
Common RSI Divergence Mistakes
- Trading without confirmation: Divergence can extend. Always wait for price confirmation.
- Ignoring the trend: Bullish divergence in a strong downtrend often fails. Trade with HTF trend when possible.
- Too many signals: On low timeframes, divergences are everywhere and mostly noise. Focus on 4H+.
- Overbought = sell: In strong trends, RSI stays overbought. Don't short just because RSI is high.
- Missing hidden divergence: Hidden divergence is underutilized. It's great for trend continuation entries.
Frequently Asked Questions
What is RSI in trading?
RSI (Relative Strength Index) is a momentum oscillator that measures the speed and change of price movements on a 0-100 scale. RSI above 70 is overbought (potential selloff), below 30 is oversold (potential bounce). It shows momentum, not direction.
What is RSI divergence?
RSI divergence occurs when price and RSI move in opposite directions. This mismatch between price and momentum often precedes reversals. Bullish divergence: price lower low + RSI higher low. Bearish divergence: price higher high + RSI lower high.
What is regular vs hidden divergence?
Regular divergence signals potential reversal: price trending one way, momentum diverging. Hidden divergence signals trend continuation: price makes higher low (uptrend) but RSI makes lower low—the trend is absorbing selling and will continue.
How reliable is RSI divergence?
RSI divergence is a warning, not a signal. It shows momentum is weakening but doesn't guarantee reversal. Always wait for price confirmation. Divergences can extend before resolving. Best used with other analysis and at key levels.
What RSI settings should I use?
Default 14 period works well for most timeframes. Lower periods (7-9) are more sensitive with more signals but more noise. Higher periods (21-25) are smoother with fewer but more reliable signals. Stick with 14 unless you have reason to change.
Is overbought always bearish?
No. In strong uptrends, RSI can stay overbought (>70) for extended periods. Overbought means momentum is strong—not that price must fall. Only look for shorts on overbought readings when combined with bearish divergence or rejection.
How do I trade RSI divergence?
Spot divergence → wait for price confirmation (break of structure, rejection candle) → enter in direction divergence suggests → stop beyond the divergence extreme → target at least 1:2 R:R. Never trade divergence alone without confirmation.
On which timeframe does divergence work best?
Higher timeframes (4H, daily) produce more reliable divergences. Lower timeframes have more noise and false signals. Check for divergence on higher timeframes for bias, use lower timeframes for entry timing.