RSI Divergence V5

The RSI Divergence V5 indicator provides an objective method for identifying regular and hidden divergences by comparing price action fractals against Relative Strength Index (RSI) levels.

Usage

The Usage section focuses on identifying potential trend reversals or continuations through the relationship between price and the dual RSI lines.

• Regular Bullish Divergence: Occurs when price makes a lower low while the RSI makes a higher low, suggesting a potential upward reversal.
• Regular Bearish Divergence: Occurs when price makes a higher high while the RSI makes a lower high, suggesting a potential downward reversal.
• Hidden Divergence: Used to identify trend continuation; for example, hidden bullish divergence occurs when price makes a higher low but the RSI makes a lower low.
• Volatility Analysis: Users can observe the expansion or contraction between the RSI High and RSI Low lines to gauge market volatility. Narrowing lines suggest decreasing volatility, while widening lines indicate increasing momentum.

Details

The script utilizes a dual-RSI approach, calculating one RSI based on the bar's high and another based on the bar's low. It identifies peaks and troughs (fractals) within these RSI values to establish objective points for comparison. By measuring the price at these specific fractal points against the corresponding RSI values, the script automatically detects and labels four types of divergence: Regular Bearish, Hidden Bearish, Regular Bullish, and Hidden Bullish. This version includes offset-corrected plotting to ensure labels align accurately with the historical fractal points.

Settings

• Length: Determines the lookback period used for the RSI calculations. A smaller length increases sensitivity to short-term price fluctuations, while a larger length provides a smoother, longer-term view of momentum.

FAQ

How do I use the RSI Divergence V5?

The tool automatically labels "Regular" or "Hidden" divergences on your chart. You can use these labels as signals for potential trend changes or trend continuations in conjunction with your existing trading strategy.

What is the significance of the two gray lines?

The two lines represent the RSI of the Highs and the RSI of the Lows. The space between them can be used to visualize volatility and provide a more comprehensive view of momentum than a single RSI line.

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.