RSI Divergence Strategy

The RSI Divergence Strategy indicator identifies high-probability trading opportunities by combining Relative Strength Index (RSI) levels with bullish and bearish divergence signals.

Usage

The script is designed to automate or signal entries and exits based on the convergence of momentum oscillators and price action.

• Long Trades: A long entry is triggered when a bullish divergence is identified (price making lower lows while RSI makes higher lows) and the RSI value is below the user-defined "Long Entry RSI" level.
• Short Trades: A short entry is triggered when a bearish divergence is identified (price making higher highs while RSI makes lower highs) and the RSI value is above the "Short Entry RSI" level.
• Exits: Positions are closed when the RSI reaches the designated "Long Exit" or "Short Exit" levels, regardless of divergence.

The tool includes visual aids such as divergence labels (BULL/BEAR), dotted lines connecting RSI pivots, and background coloring to indicate overbought (red), oversold (green), and neutral (gray) zones.

Details

This strategy utilizes pivot-based divergence detection. It looks back over a specific window (defined by lookback constants in the code) to compare price pivots with RSI pivots. By requiring the RSI to be at specific extreme levels when a divergence occurs, the script filters out weak signals that might appear in the middle of a range. The logic ensures that trades are only initiated when momentum shows a clear exhaustion pattern at key exhaustion levels.

Settings

RSI Settings

• RSI Length: Determines the lookback period for the RSI calculation (default is 14).
• Source: The price data used to calculate the RSI (typically "close").
• Calculate Divergence: Enables or disables the divergence detection logic and visual markers.

RSI Levels

• Long Entry RSI: The maximum RSI value allowed for a long entry to trigger alongside a bullish divergence.
• Short Entry RSI: The minimum RSI value allowed for a short entry to trigger alongside a bearish divergence.
• Long Exit RSI: The RSI level at which a long position will be closed.
• Short Exit RSI: The RSI level at which a short position will be closed.

FAQ

How do I access RSI Divergence Strategy?

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

Can I use this strategy on any timeframe?

Yes, the strategy is functional on all timeframes. However, users should adjust the RSI Entry/Exit levels based on the specific volatility and behavior of the asset on that timeframe.

Does this indicator support automated trading?

Yes, the strategy includes built-in alert conditions for divergences and entry signals, which can be connected to webhook-compatible platforms for automation.