RSI Divergence

RSI Divergence occurs when the price of an asset makes a new high or low, but the Relative Strength Index fails to make a corresponding new high or low. This discrepancy indicates that the momentum behind the price move is weakening, suggesting a potential reversal.

Bullish divergence happens when price makes a lower low while the RSI makes a higher low, signaling that selling pressure is decreasing. Bearish divergence occurs when price makes a higher high while the RSI makes a lower high, suggesting that buying interest is fading.

This is a critical signal for traders in options and derivatives to adjust their risk exposure. It provides a non-linear view of market strength that raw price action alone might obscure.

Identifying these patterns requires patience and a sharp eye for market structure. It is one of the most reliable methods for predicting exhaustion in a trend.

Successful interpretation allows traders to exit positions before significant price pullbacks occur.