Recently, those following the RSI indicator in the market are starting to realize how critical divergence signals can be. In my observation, most traders overlook this detail, which leads to incorrect positions.

RSI actually relies on a fairly simple mechanism. It looks at the recent closing prices of an asset and calculates a momentum measure between 0 and 100. The levels of 30 and 70 are very important here. When RSI exceeds 70, the asset enters an overbought zone, and a sharp correction is expected. The opposite is also true — when it drops below 30, we get an oversold signal.

But the interesting part begins here. There are events called RSI divergences that can truly be life-saving. For example, negative divergence occurs when the price makes a new high but RSI does not confirm it, remaining at a lower level. This indicates that the market is actually weakening, and a decline could follow.

There is also a positive side. If the price touches a new low but RSI remains high, this RSI divergence signals a potential upward move. The market might actually be strong.

Of course, I should also mention — RSI divergence alone is not enough. You need to use it together with other indicators. It should be evaluated alongside other technical tools, price formations, and market conditions. Doing so allows for more solid analysis and better decision-making. That’s been my experience.