RSI Divergence Indicator Guide for MT4/MT5
RSI divergence MT5 indicator is an oscillator that shows the divergence between the price and the relative strength indicator. Divergence is a discrepancy between two different elements. Moreover, the RSI divergence indicator MT4 is among the basic group of technical analysis tools to forecast eventual future events. In this course, we will define firstly the Relative strength index indicator and the RSI divergence strategy. Then we will explain in detail how to use the Tradingview RSI divergence indicator.
RSI Divergence FAQ
What is RSI divergence indicator?
RSI divergence indicates divergences between prices and the RSI oscillator on the price chart. The relative strength index divergence tool is an oscillating indicator utilized in technical analysis to calculate the magnitude of current price modifications compared to this oscillator. Thus, to assess overbought or oversold situations in the price of a stock, commodity, or forex couple. This indicator is presented as oscillations in the chart. Therefore, an oscillator is an indicator that fluctuates between two extremes (extreme high and extreme low). And it is very effective to identify overbought and oversold market conditions in the forex exchange. RSI is known as a leading indicator, which measures the magnitude of fluctuations and price movements.
Using the classic 14-period you will have these signals:
- If the RSI level is above 50, it represents an upward movement signal.
- RSI level is below 50, this represents a downward movement.
- When it reaches the 70 level, denotes an overbought zone.
- And when it falls to the 30 level, signifies an oversold area.
[0,30]: Represents the oversold zone, which means that there are a lot of sellers in the forex market.
(30,70): Shows the neutral area, this doesn’t mean a particular thing.
{70,100}: It represents the overbought zone, which indicates that there are a lot of buyers in the forex market.
The problem that faces you when using RSI is the lack of signals. It rarely reaches overbought and oversold zones. To solve this problem you need to add divergence with this oscillator.
Example
RSI divergence MT4 indicator is a technical indicator that can be used in many useful ways. In fact, the RSI divergence strategy exposes the divergence between the price activity and the MT5 indicator. This is means that they are no longer showing the same direction (A market situation when the RSI moves in an opposite direction compared to the stock price). In addition, when the price moves the RSI will anticipate in advance if there is a change in the direction and will tell you via Tradingview chart.
How to trade with it ?
An RSI divergence happens when the indicator stops breaking out to higher highs in an upward direction and breaks down to lower lows in a downward direction.
Divergence means that the current direction lost traction, so the oscillator does not agree with the price action. You can remark this, in your chart, when the lower lows or higher highs of the price chart are opposite to the peaks and troughs of the MT4 RSI indicator.
Therefore, you need to identify these mismatches correctly to determine when the price will start to drop and when it is likely to grow.
There are two types of RSI divergence strategy:
- Bullish divergence: Defined as a buy signal, happens when the price makes a new low, while the RSI value does not. To clarify more, the bullish divergence appears in the chart when the RSI indicator is oversold accompanied by a higher low that corresponds to a lower low in the price movement.
- Bearish divergence: Forms when a currency price registration is a higher high and RSI a lower high. To clarify more, the bearish divergence appears in the chart when the RSI Tradingview indicator is overbought accompanied by a lower high that corresponds to higher highs in the price movement.
How to read it ?
The MT4 RSI divergence indicator draws the divergences in form of lines, combining pairs of price and indicator peaks. Moreover, to entry arrows that show the suggested direction of trade in MT5. In fact, the green arrows are signs of buying (long) trades, and the red arrows are signs of selling (short) trades. Bullish divergence and bearish divergence are drawn in the Tradingview chart in two different colors respectively green and red. However, it exposes two types of divergence: classic and hidden. Classic divergence is drawn with a continuous line, while, we draw the hidden divergence with a dashed line.
Classic divergence and hidden divergence
The standard (or classic) divergence: is the one that will be found most often and which is characterized by the contradiction of movements, one will turn bullish when the other turns bearish and vice versa.
- Classic bullish divergence: if the price forms lower lows, and, the oscillator forms higher lows.
- Standard bearish divergence: the price forms higher highs, while the RSI forms lower highs.
Hidden Divergence: this one is more subtle: it describes similar movements in terms of a general trend (bullish or bearish), but in this case, the RSI and the asset price will not reach the same values.
- Bullish hidden divergence: if the price forms higher lows, and the oscillator forms lower lows.
- Bearish hidden divergence: when the price forms lower highs, while the oscillator forms higher highs.
In fact, we use the classical divergence strategy to determine the trend reversals. On contrary, we use the hidden divergence strategy to define the trend continuation.
Buy and sell signals
To obtain buy or sell signs, you have to identify bullish and bearish divergences. Therefore bearish divergence gives sell signals, and bullish divergence gives buy signals.
- Buy signals: if you enter the chart and find an upward direction, you enter the trade when the indicator presents lower highs with an oversold condition which proves a bullish divergence.
You can either wait for the confirmation candle or take a place once the RSI reaches the oversold zone. You can set a SL close to the recent low and exit the trade when the RSI Divergence begins to downturn. - Sell signals: If you enter the chart and find an upward direction, you enter the trade when the RSI divergence Tradingview indicator presents higher lows with an overbought condition, which proves a bearish divergence.
Download RSI divergence indicator for MT4
RSI divergence indicator for MT4 identifies the disagreement between the direction of the Metatrader 4 RSI indicator and the direction of the price. It catches classic and hidden divergences and presents setting alerts and a dashboard, which shows the detected divergences for all timeframes and assets defined by the forex trader.
Download RSI divergence indicator for MT5
RSI divergence indicator for MT5 helps to identify various characteristics and patterns in price dynamics that are invisible to the naked eye of Metatrader 5. Based on this data, forex traders can assume more price movements and adjust their techniques accordingly. This tool is one of the best MT5 indicators that display in a separate window below the main trading chart as shown in the MT5 graph below. The red lines indicate a divergence between RSI and price in MetaTrader 5!
Conclusion
RSI divergence indicator in MT5 measures the price action connecting with another oscillator. Moreover, you can use it with any kind of oscillator. Therefore, we use the RSI divergence indicator in MT4 to tell you ahead of time if the tendency will continue or disappear.
Key takeaways
- The RSI is a oscillator MT4 indicator that measures the magnitude of recent price changes to estimate overbought or oversold situations.
- Relative strength index indicator hardly ever reaches overbought and oversold zones, so forex traders will find problems with finding signals.
- Using divergence with the MT5 RSI indicator will solve the problem of lack signals.
- RSI divergence Tradingview indicator exposes the divergences between price action and the oscillator indicator.
- There are two principal types of divergences: bullish and bearish, in addition to classical and hidden divergences.
bullish divergences are drawn in the chart in green lines. While bearish divergences are drawn in red lines.