RSI Divergence Indicator on a Live Gold Chart

What it shows

The blue line is RSI, with flat lines at 70, 50 and 30. A green line joins two RSI lows of a bullish divergence and a red line two RSI highs of a bearish one, each with a small label at the second pivot. Hidden divergences are off by default.

How Pravex works it out

1. Work out RSI over the RSI period on the source: average up moves against average down moves, on a 0 to 100 scale.
2. Find the RSI pivots: a low counts when the lookback-right candles after it and the lookback-left candles before it are all higher (a high: all lower).
3. Compare each new pivot with the previous one of its kind, but only when that one sits between the minimum and maximum of the lookback range, counted in candles.
4. Regular bullish: price made a lower low at the two pivots and RSI a higher low. Regular bearish: price a higher high and RSI a lower high. Hidden bullish and bearish are the mirror cases, a higher low in price with a lower low in RSI, and a lower high in price with a higher high in RSI.

Settings

Setting	Default	What changing it does
RSI Period	14	How many candles the RSI averages. Shorter swings more and finds more pivots.
RSI Source	close	Which price the RSI reads.
Pivot Lookback Right	5	Candles after a pivot that must be higher (or lower) before it counts. This is also how many candles late each mark appears.
Pivot Lookback Left	5	Candles before a pivot that must be higher (or lower). A larger value keeps only bigger swings.
Max of Lookback Range	60	The furthest back, in candles, the previous pivot may be and still be compared.
Min of Lookback Range	5	The closest the previous pivot may be. Two lows right next to each other are not compared.
Plot Bullish	On	Marks regular bullish divergences.
Plot Hidden Bullish	Off	Marks hidden bullish divergences.
Plot Bearish	On	Marks regular bearish divergences.
Plot Hidden Bearish	Off	Marks hidden bearish divergences.

How traders read it

RSI measures how strong the recent closes were. When price pushes to a new low but RSI does not, the selling behind that low was weaker than the last time. That is all a divergence says: the push lost strength.

Traders usually wait for price to confirm, for example a break of the last swing high after a bullish divergence. Several divergences in a row are common in a strong trend before anything turns.

Hidden divergence is read the other way round: a pullback in price that RSI made look deeper, taken as the trend still in charge.

When it misleads

A pivot only counts once the lookback-right candles after it have closed, so every mark arrives that many candles after the low or high. Any tool that marks divergences sooner is guessing at a pivot that may not hold. And a divergence can simply fade while the trend carries on.

Questions and answers

Is RSI divergence reliable?

It tells you a move lost strength, not that it will reverse. Strong trends can show several divergences in a row and keep going.

Why does the divergence appear a few candles late?

A low is only a pivot once the candles after it are higher, 5 of them by default. The mark appears when that is known, and it stays.

Does the divergence indicator repaint?

A mark appears once its pivot is confirmed and does not move after that. What can change is the forming candle’s RSI, as with any indicator on a live candle.

What is the difference between regular and hidden divergence?

Regular divergence compares a new extreme in price with a weaker one in RSI. Hidden divergence compares a pullback in price with a deeper one in RSI. Both are in the settings; hidden ones start switched off.

Related: Relative Strength Index, Stochastic RSI, Moving Average Convergence Divergence, every indicator.