Hey folks,
I've been diving deep into Relative Strength Index (RSI) divergence lately, and it's been a real eye-opener for refining my entry and exit strategies. While many of us know about the standard bullish and bearish divergences, I wanted to discuss hidden divergence and how I've been using it to catch moves before they become obvious.
For those who might be less familiar, standard divergence occurs when the price makes a new high/low, but the RSI fails to do so, signaling a potential reversal. Hidden divergence is a bit more nuanced. It occurs when the price makes a *lower high* during an uptrend (bullish hidden divergence) or a *higher low* during a downtrend (bearish hidden divergence).
Bullish Hidden Divergence: Price makes a higher low, but the RSI makes a lower low. This suggests the underlying momentum is weakening despite the price higher low, indicating a potential continuation of the uptrend after a pullback.
Bearish Hidden Divergence: Price makes a lower high, but the RSI makes a higher high. This signals that upward momentum is fading, potentially leading to a breakdown from the current trend.
I find hidden divergence particularly useful for confirming trend continuations after a correction. For example, on the 4-hour chart for $ADA, I spotted bullish hidden divergence after a significant pullback. The price had made a higher low, but the RSI had made a lower low. This gave me the confidence to enter a long position, anticipating the trend to resume. It worked out quite well.
What are your experiences with hidden RSI divergence? Do you use it in conjunction with other indicators like MACD or Volume Profile? Any specific timeframes or altcoins where you find it most reliable? Let's discuss!