RSI Divergence Pointer

The RSI Divergence Pointer indicator identifies and highlights regular bullish and bearish RSI divergences directly on the price chart to help traders spot potential trend reversals.

Usage

The RSI Divergence Pointer is used to detect discrepancies between price action and momentum.

• Bullish Divergence: Occurs when the price makes a lower low, but the RSI makes a higher low. This suggests downward momentum is weakening and a potential upward reversal may occur. The script plots a green label below the price when this is detected.
• Bearish Divergence: Occurs when the price makes a higher high, but the RSI makes a lower high. This suggests upward momentum is fading and a potential downward reversal may occur. The script plots a red label above the price when this is detected.

Details

The indicator utilizes a fractal-based approach to identify significant peaks and troughs in the RSI. By comparing the price at these RSI fractal points to previous fractal points, the script determines if the momentum is diverging from the price trend. Specifically, it looks for:

• Regular Bearish Divergence: Price High > Previous Price High AND RSI High < Previous RSI High.
• Regular Bullish Divergence: Price Low < Previous Price Low AND RSI Low > Previous RSI Low. The signals are plotted with an offset to account for the fractal lookback period required for confirmation.

Settings

• RSI Length: Determines the lookback period used for the Relative Strength Index calculation. A shorter length makes the RSI more sensitive, while a longer length smooths out the momentum fluctuations.

FAQ

What is a regular divergence?

A regular divergence is a classic reversal pattern where the price reaches a new extreme while the oscillator fails to reach a new extreme, indicating a loss of momentum in the current trend.

Are the signals repainting?

The signals are based on fractals which require a small lookback/confirmation period (2 bars after the pivot). The script uses an offset to place the labels accurately at the time of the peak or trough.

How can I access the RSI Divergence Pointer?

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