What does the RSI actually measure?

The Relative Strength Index was introduced by J. Welles Wilder Jr. in 1978. It compares the average size of up closes with the average size of down closes over a set number of bars, using Wilder's own slow smoothing, and scales the result from 0 to 100. The default length is 14 bars, and that is what most traders use.

A rising RSI means recent up moves are bigger than recent down moves. A falling RSI means the opposite. The classic 70 and 30 lines mark overbought and oversold, but in a strong trend RSI can stay above 70 or below 30 for a long time. That is why divergence needs care: RSI measures the speed of a move, and speed can slow while price keeps going.

Regular vs hidden divergence: the four types

Regular divergence is the common kind. It shows up near the end of a move and hints at a possible reversal. Hidden divergence is the mirror image: it shows up during pullbacks inside a trend and hints that the trend may continue.

Hidden divergence only makes sense when the trend is clear. On a choppy chart with no higher highs or lower lows there is no trend to continue, so check the bigger timeframe first. The method is in our guide to multi-timeframe analysis.

  • Regular bullish divergence: price makes a lower low, RSI makes a higher low. Sellers pushed price to a new low, but with less force than last time.
  • Regular bearish divergence: price makes a higher high, RSI makes a lower high. Buyers made a new high, but with less momentum behind it.
  • Hidden bullish divergence: price makes a higher low, RSI makes a lower low. The uptrend is intact, and the pullback pushed RSI down further than it pushed price. It can mark the end of the pullback.
  • Hidden bearish divergence: price makes a lower high, RSI makes a higher high. The downtrend is intact, and the bounce looks stronger on RSI than it does on the chart.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn 2×2 grid: columns bullish and bearish, rows regular and hidden. Each cell shows a small price line above a purple RSI line, with colored lines joining the two swings: regular bullish, price lower low and RSI higher low; regular bearish, price higher high and RSI lower high; hidden bullish, price higher low and RSI lower low; hidden bearish, price lower high and RSI higher high.

How to draw RSI divergence correctly

Most bad divergence signals come from bad drawing. The key rule is to wait for confirmed swings, and that rule has a cost: if you need three bars on each side to confirm a low, you only learn about the divergence three bars after it. That delay is the price of a signal that does not change after the fact. An unconfirmed divergence is a guess.

Follow the same steps every time:

  1. Use confirmed swing points: a low counts only once a few bars on each side have printed higher lows. Before that it can still be taken out.
  2. Compare like with like: lows with lows for bullish divergence, highs with highs for bearish. Use the candle wick on price and the RSI value on that same bar.
  3. Pick two neighbouring swings and skip tiny wiggles. A common rule of thumb on intraday charts is 5 to 60 bars between them. Swings closer than that are noise, and swings much further apart are unrelated.
  4. Draw a line between the two RSI swings. No RSI value between them should cross that line. If RSI dipped below the line between two lows, you picked the wrong pair and the divergence is not valid.
  5. Check the slopes. For regular divergence the price line and the RSI line point in opposite directions. If both point the same way, there is no divergence.

Turn your phone sideways to read the drawing. Tap to close.

Two hand-drawn panels: price makes a lower low at the top, a line joins the two RSI lows below, and dotted guides link each price low to the RSI value on the same bar. Left, valid: no RSI value between the two lows crosses the line. Right, not valid: RSI dips below the line between the lows (circled in red), so the wrong pair of lows was picked.

Why RSI divergence alone gives false signals

Divergence measures slowing momentum, and in a strong trend momentum can slow many times while price keeps moving. A stock grinding higher can print a bearish divergence, then another, then a third, and still close the week at a new high. Anyone who shorted the first one was early, and early usually means stopped out.

RSI also has a built-in reason to diverge. It is capped at 100, so after a sharp first leg it often reads lower on the next leg even when the trend is healthy. On very low timeframes divergences appear all the time, most of them inside ranges where they carry no information.

So treat divergence as a reason to pay attention. The trade itself needs two more things: a location that matters and a trigger that shows buyers or sellers have taken control.

How to trade RSI divergence: level plus trigger

A divergence becomes a trade only when three other pieces line up. Check them in this order, and skip the trade if any one is missing.

  1. Location: the divergence forms at a level you marked before price got there, such as the prior day's low, a well-tested support zone or a weekly level. Our support and resistance strategy guide shows how to mark them.
  2. Divergence: the second low is lower on price and higher on RSI, the swing is confirmed, and the line between the RSI lows is clean.
  3. Trigger: a candle closes back in your direction, for example above the high of the bar that made the low. Wait for the close. A candle that pokes above and falls back is not a trigger.
  4. Plan: stop below the swing low with a small buffer, target at the nearest opposing level, and skip the trade if that level is too close to justify the risk.

Worked example: entry, stop and target

The numbers here are hypothetical. On a 15-minute chart, a stock sells off to $48.20 with RSI at 27. It bounces to $49.50, then drops again to $47.60, right into the prior day's low zone at $47.50 to $47.70. This time RSI only reaches 35: a lower low on price, a higher low on RSI, at a level you marked in advance.

Two bars later the low is confirmed, and a candle closes at $48.10, above the high of the low bar. You enter at the next bar's open, around $48.10, with a stop at $47.40, just under the zone. That is $0.70 of risk per share. The bounce high at $49.50 is the nearest resistance, so the target offers $1.40, twice the risk.

If you risk $100 on the trade, that is about 142 shares. If price closes back below $47.40, the idea was wrong and you are out. Trading is risky and any setup can fail, so size the position from the stop, never from how convincing the divergence looks.

How to find RSI divergence on TradingView

You do not need a paid tool to start. Add the built-in Relative Strength Index from the Indicators menu, open its settings and tick Calculate Divergence. TradingView then marks bullish and bearish divergences on the RSI panel, and you can set alerts on them. The divergence alerts only fire while that setting is turned on.

TradingView also lists a separate built-in called RSI Divergence Indicator, which can plot hidden divergences as well. Tools like these confirm a swing by waiting for bars to its right, so the mark appears a few bars after the actual low. That is normal. Be wary of a script that labels the low bar itself in real time; it is probably redrawing as new bars arrive.

For a wider look at which free indicators are worth keeping on a chart, see the best TradingView indicators.

How UpTickFlow handles divergence

UpTickFlow is our own invite-only TradingView indicator, so read this as a description of how we built it. It looks for RSI divergence on confirmed swings only, and it rejects a divergence if any bar between the two swings breaks the line joining them.

A valid divergence raises the momentum part of a setup's score, which carries 10 of the 100 points. It never fires a trade on its own. A signal still needs one of the three setups, such as a reversal at a support or resistance zone, plus the trend and volume checks. You can also set divergence alerts if you prefer to judge them yourself. Above the 1-hour chart there are no signals: 2-hour and 4-hour charts show only levels and divergences, and daily and weekly charts show the three gates of the UpTickFlow Strategy. Details are on the pricing page.