Convergence / divergence of the market with the RSI: determine the beginning of the correction and earn

Convergence / divergence of the market with the RSI: determine the beginning of the correction and earn

ArTrading.club

1) Trader Level - Medium


2) Strategy type - Trend


3) Timeframe - 1m - 5m


4) Assets for trading - Any


RSI (Relative strength index), or relative strength index, shows the strength of the trend and the likelihood of its change. You can use RSI in any market condition: an uptrend, a downtrend, a flat.


And on the RSI, you can find one of the strongest signals of a correction or trend change: market convergence / divergence. Now you will learn how to do this.


Preparing the template

For trading, select currency pairs: EUR / USD, GBP / USD, AUD / USD, USD / CHF, EUR / GBP. Why these? Because the pairs with USD and EUR are the most popular on the market, the most transactions are carried out with them. And this affects the volatility and “pliability” of strategies.


The recommended time frame is 15s to 1m.


How to set up RSI

In the lower left corner in the "Indicators" tab, select RSI and set the following settings:


Period 8

Overbought 70

Oversold 30

How to make deals UP

We expect the RSI to drop below level 30 and form 2 lows there, and the second should be above the first:

2. In the "Tools" tab, select "Beam" and draw the beam from left to right straight through the lows on the RSI. We get an uptrend line.


3. On the graph, draw the beam through the corresponding minima in the same way. It also turns out to be a trend, but ... a downtrend:

4. Look at the screenshot above: the top ray is directed downward and the bottom ray is directed upward. Draw in your imagination the continuation of the rays, and they will intersect. This is called convergence or convergence and indicates an imminent reversal.


5. We conclude a deal UP for 1-5 minutes.


Important! If both beams are directed upwards, this is not convergence! We do not conclude a deal!

How to make deals DOWN

Expect the RSI to rise above the 70 level and form 2 highs, with the second one being below the first.

2. In the "Tools" tab, select "Beam" and draw the beam from left to right through the highs on the RSI. We get the downtrend line.


3. On the graph, in the same way, we pass the beam through the corresponding maxima. It turns out an uptrend:

4. Look at the screenshot above: the upper ray is directed upwards and the lower ray is directed downwards. Draw in your imagination the continuation of the rays, and they will disperse. This is called a divergence or divergence and indicates an imminent reversal.


5. We conclude a deal DOWN for 1-5 minutes.


Important! If both beams are directed downward, this is not a divergence! We do not conclude a deal!


P.S. With experience, you will make more profitable trades, because you will learn to identify subtle market convergence / divergence, which usually indicate sharper, stronger and more prolonged corrections and reversals.