RSI Divergence can be a great way to spot potential trading opportunties.
But it can also be easy to miss these opportunties because you're working or just busy with everyday life.
It can also be hard to spot these opportunties on the chart, if you're distracted.
So I'll show you how TradingView makes it super easy to spot these opportunties with their free built-in indicator.
TradingView is a fantastic trading and charting platform and you can find out more about why I switched to TradingView here.
What is RSI Divergence?
Divergence is a term that refers to when the Relative Strength Index (RSI) indicator has a reading that's different (divergent) from price action.
Here's an example where the second and third price highs are higher than the first high, but the highs on RSI are lower.
This is a bearish signal, as shown on the bottom of the chart.
As you can see, this trade ended up working out well.
Sometimes it can be difficult to spot these divergences, even if you know what to look for. That's where an indicator can help a lot.
Before I get into the indicator, to learn all of the details about RSI Divergence and see more examples, read this guide.
How to Add the Indicator to Your Chart
Adding the indicator to your chart is easy.
Simply click on the Indicators button at the top of the screen in TradingView. Then in the search box, type in: “rsi divergence“.
This will bring up a list of indicators and trading strategies that help with RSI Divergence.
Select the first indicator on the list.
This is the official indicator developed by TradingView.
Once you click on the link, the indicator will be added to your chart.
How to Set Up the Indicator
The indicator has simple settings that you can use to fine tune your signals.
I like when there are only a few settings.
Many times, developers nerd out and create dozens of settings that aren't necessary.
To change the settings, right-click on the indicator and select Settings.
The next window will allow you to change the settings. The first 2 settings are the standard RSI settings.
Change those settings according what you use.
The settings that may be a little confusing are explained here:
- Pivot lookback right: The number of candles to look to the right for a pivot (peak or valley), from a pivot, to be used as a point for divergence. I guess that would technically be a look forward, not a back.
- Pivot lookback left: The number of candles to look to the left for a pivot (peak or valley), from a pivot, to be used as a point for divergence
- Max of lookback range: The maximum number of candles to include in a divergence
- Min of lookback range: The minimum number of candles to include in a divergence
From there, you can select which divergences you want to see on your chart.
Click the OK button when you're done.
Add a RSI Divergence Alert to Get Notifications on Your Phone
Another fantastic thing about TradingView is that you can setup alerts on most indicators.
That means you can get notifications on the mobile app, or via email.
To setup alerts on the indicator, right-click anywhere on the indicator. Then select Add alert…
At the top of the alert window, select the type of divergence you want to get alerts for.
In this example, I'm setting up alerts for Regular Bearish Divergence.
Create a separate alert for each type of divergence you want to be notified about.
Other RSI Divergence Tools in TradingView
The great thing about TradingView is that you can use free indicators and trading strategies that other people on the platform have developed.
This can help you improve your strategy or test out new ideas.
To see all of the available RSI Divergence indicators and strategies, go through the same steps above to add the RSI Divergence indicator to your chart.
But instead of adding the default indicator under Technicals, look below that in the Community Scripts section.
This is where you can try out other indicators and trading strategies.
In many cases, the user-created scripts aren't great. Just like in the MetaTrader Code Base, most are half-baked.
But once in awhile, you'll find an awesome one that's super useful.
You can also quickly backtest the trading strategies in the Strategy Tester, which gives you instant feedback on how good the strategy is.
So even if you don't see something useful right now, keep checking back because the community is adding new scripts all the time.
Does RSI Divergence Actually Work?
There are different ways to trade RSI Divergence.
You can learn many RSI Divergence trading methods on blogs or on YouTube.
I've posted some of my backtesting results here. My test was profitable, but it needs some optimization.
It's a good starting point though, and you can test out some optimizations for yourself.
The most important thing to understand if you want to be successful with RSI Divergence, is that you have to develop a trading strategy that works for YOU.
That means that you have to backtest your RSI trading strategy. You can get started with this tutorial.
If you want to learn the complete process, then take my StrategyEVO Backtesting Course.
Conclusion
So if you like TradingView for charting like I do, then this indicator makes it super easy to see divergence and get an alert when it happens.
The best part is that this handy indicator comes with TradingView and you don't have to pay anything extra.
To get a free trial of TradingView, go here.
