RSI Divergence Liquidity

The RSI Divergence Liquidity indicator identifies high-probability reversal zones by combining liquidity sweep detection with Relative Strength Index (RSI) divergence filtering.

Usage

The script is primarily used to identify potential market reversals where price has exhausted its current momentum and swept a significant structural level.

• Bullish Reversals: Look for an upward triangle appearing at or near a Buy Side Liquidity (SSL) level. This occurs when the price sweeps below a prior swing low, but the RSI maintains a higher value than it did at the original swing, indicating waning bearish momentum.
• Bearish Reversals: Look for a downward triangle appearing at or near a Sell Side Liquidity (BSL) level. This suggests price has swept a swing high while the RSI shows lower momentum compared to the peak.
• Risk Management: Traders often place stop losses below the sweep wick for bullish signals or above the sweep wick for bearish signals. Targets can be set at the nearest supply/demand zones or based on a fixed risk-to-reward ratio.

Details

The script automates the identification of Buy Side Liquidity (BSL) and Sell Side Liquidity (SSL) using pivot points. It maps these levels as horizontal lines that remain active until they are "swept" or "broken" by price action.

The core logic requires several conditions to be met simultaneously to trigger a signal:

1. Liquidity Sweep: Price must interact with a recent structural high or low.
2. Candle Confirmation: For a bullish signal, the script looks for a bullish candle following a bearish candle at the level.
3. RSI Divergence: The RSI at the time of the sweep must be higher (for bullish) or lower (for bearish) than the RSI recorded at the original pivot point.
4. Threshold Filter: To ensure the reversal happens at extreme levels, the original pivot must have occurred while the RSI was in an oversold (typically < 30) or overbought (typically > 70) state.

Settings

General

• Swing Strength: Determines the lookback period for identifying pivot highs and lows. Larger values result in more significant but fewer structural levels.

Signal

• Bullish RSI Divergence: Toggles the detection and plotting of bullish reversal signals.
• Bearish RSI Divergence: Toggles the detection and plotting of bearish reversal signals.
• RSI Length: Adjusts the period used for the RSI calculation.
• Levels to check (latest N): Controls how many historical liquidity levels the script monitors simultaneously for potential sweeps.

FAQ

How do I access RSI Divergence Liquidity?

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

Which timeframes are best for this tool?

While the script works on all timeframes, it is particularly effective on M5 to H1 charts where liquidity sweeps are a common part of intraday price delivery.

Does this indicator repaint?

The historical liquidity levels are identified based on pivot points (which require a right-side confirmation), but the signals (triangles) are triggered upon the close of the confirming candle and do not repaint once the bar is closed.