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6Grade 6: Indicator Lab
Technical Analysis + Price Action · RSI Done Right

Regular bullish and bearish divergence

Identify regular bullish and bearish RSI divergence on a chart.

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Technical Analysis + Price Action

RSI Done Right

Lesson 24 of 9625%
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Lesson 24 of 96Technical Analysis + Price ActionRSI Done Right

Today's tiny win: make one idea click.

Identify regular bullish and bearish RSI divergence on a chart.

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When price and RSI disagree

Divergence is the most useful single concept in RSI, and the easiest to misread. The basic idea is small: price and RSI are normally aligned. New high in price, new high in RSI. New low in price, new low in RSI. They agree. When they stop agreeing, the indicator is telling you the move has lost some of its juice. That disagreement is divergence.

Wick thinks about price printing a lower low while RSI prints a higher low, teaching regular bullish divergence as a sign that sellers are running out of fuel.Price: lower low.RSI: higher low.Sellers tiring??
Wick saysWhen price makes a lower low but RSI makes a higher low, selling may be weakening.

Two flavors of regular divergence matter. Regular bullish divergence: price makes a lower low than the previous low, but RSI makes a higher low than its previous low. Translation: the second leg down looked uglier on price, but momentum behind that drop was weaker. Sellers are running out of fuel. Regular bearish divergence: price makes a higher high than the previous high, but RSI makes a lower high. Translation: price squeezed out one more peak, but momentum behind that push was weaker. Buyers are tiring.

Spotting divergence cleanly requires two clear pivot points to compare. On price, that means two visible swing lows (for bullish) or two visible swing highs (for bearish). On RSI, those same two points need to be visible peaks or troughs on the oscillator line. If either pair is vague, the divergence is vague. Force it and you will see divergence everywhere, which means it stops being useful.

Wick holds a clipboard with two clear price pivots and two clear RSI pivots checked and vague forced swings crossed out, teaching how to spot divergence honestly.Real divergence?Two clear price pivotsTwo clear RSI pivotsVague, forced swings
Wick saysOnly count divergence when both price and RSI show two clear pivots.

Confirmation usually comes from a break of recent counter-trend structure. After bullish divergence at a price low, look for price to break the most recent swing high inside the downtrend. After bearish divergence at a price high, look for price to break the most recent swing low inside the uptrend. The divergence sets the alert. The break is the trigger. Acting on divergence alone gets you in early on the trades that work, and also gets you in repeatedly on the ones that do not.

Wick climbs four steps: spot divergence, set an alert, wait for a structure break, then decide, teaching that divergence is a clue, not a trade.1Spotdivergence2Set analert3Wait fora break4Thendecide
Wick saysDivergence sets the alert, and a break of structure is the trigger.

Recap: bullish divergence = price LL, RSI HL. Bearish divergence = price HH, RSI LH. Two clear pivots on each side. Treat divergence as a heads-up, wait for a structure break to act.

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1. Price prints a lower low than two weeks ago. RSI prints a higher low than at that previous price low. What is this?

2. You spot a clean regular bearish divergence after a long uptrend. What is the most disciplined next step?

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