RSI Divergence Indicator

The RSI Divergence Indicator tool identifies and highlights normal and hidden divergences between price action and the Relative Strength Index (RSI) directly on the price chart. This script aims to provide traders with visual cues for potential trend reversals and continuations by detecting discrepancies in momentum.

Usage

The indicator can be used to spot four distinct types of price-momentum discrepancies:

• Normal Bullish Divergence (N Bull Div): Occurs when the price makes a lower low but the RSI makes a higher low, suggesting a potential upward reversal.
• Hidden Bullish Divergence (H Bull Div): Occurs when the price makes a higher low while the RSI makes a lower low, often signaling trend continuation.
• Normal Bearish Divergence (N Bear Div): Detected when the price makes a higher high but the RSI makes a lower high, indicating a possible downward reversal.
• Hidden Bearish Divergence (H Bear Div): Detected when the price makes a lower high but the RSI makes a higher high, typically suggesting a continuation of a downtrend.

Signals are plotted as triangles above or below the price bars to allow for easy identification without needing to constantly monitor a separate oscillator pane.

Details

The script calculates the standard RSI based on a user-defined length. It then monitors local price extremes (highs and lows) and compares them to the corresponding RSI values at those specific points in time.

• Normal Divergence: Represents a loss of momentum in the current trend, often preceding a reversal.
• Hidden Divergence: Suggests that despite a stronger pull in the oscillator, price failed to create a new extreme against the trend, often indicating that the prevailing trend remains intact.

Settings

• RSI Length: Determines the lookback period used for the Relative Strength Index calculation. A shorter length makes the oscillator more sensitive, while a longer length provides smoother results.

FAQ

How do I use the signals for entries?

Normal divergences are typically used to identify exhaustion in a trend, while hidden divergences are often used by trend followers to find entries in the direction of the existing trend.

Can I change the sensitivity of the detections?

Yes, by adjusting the "RSI Length" in the settings, you can filter for more significant momentum shifts or capture more frequent, shorter-term divergences.

How do I access RSI Divergence Indicator?

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