RSI Divergence

The RSI Divergence indicator automates the identification of momentum shifts by comparing the linear regression slopes of price action and the Relative Strength Index (RSI).

Usage

The indicator can be used to identify potential trend reversals or Exhaustion points. When a divergence is detected, the script draws visual lines on both the RSI pane and the main chart to highlight the discrepancy between price movement and momentum.

• Positive Divergence: Occurs when the price linear regression slope is downward while the RSI linear regression slope is upward. This suggests weakening bearish momentum and is marked with a green line and label.
• Negative Divergence: Occurs when the price linear regression slope is upward while the RSI linear regression slope is downward. This suggests weakening bullish momentum and is marked with a red line and label.

Details

This tool utilizes the least squares method to calculate linear regression for both the source price and the RSI values over a specific lookback window. Divergence is defined as a state where the signs of these linear regression slopes are opposite.

To filter out insignificant movements, the script applies specific thresholds:

• For negative divergence, the price must show a clear downward trend relative to the average volatility, while the RSI must show a significant positive slope.
• For positive divergence, the price must show a clear upward trend, while the RSI must show a significant negative slope.

Settings

• RSI Length: Determines the lookback period used for the RSI calculation.
• Source: Specifies the price data used for the RSI calculation (e.g., Close, Open, HL2).
• RSI Divergence Length: Sets the number of bars used to calculate the linear regression slopes for both price and RSI.

FAQ

How do I access RSI Divergence?

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

What is the difference between this and standard divergence indicators?

This indicator uses linear regression slopes rather than comparing isolated peaks and troughs, providing a mathematical approach to identifying trend-momentum discrepancies over a fixed window.

Can I set alerts for these signals?

Yes, the indicator includes built-in alert conditions for both Positive and Negative Divergence detections, which can be configured to trigger at the close of a bar.