RSI Divergence Trading Signal - Complete User Guide

Complete User Guide - Master Reversal Detection

Table of Contents

  1. What is RSI Divergence?
  2. Signal Types
  3. Configuration Settings
  4. Optimized Settings by Trading Strategy
  5. Quick Reference Table
  6. Pro Tips & Best Practices
  7. Advanced Configuration Examples
  8. Notification Examples
  9. Troubleshooting
  10. Learning Resources
  11. Quick Start Guide
  12. Support & Questions

What is RSI Divergence?

RSI Divergence is a powerful reversal signal that occurs when price movement and RSI momentum indicator move in opposite directions. This creates a potential trading opportunity as it suggests the current trend may be losing strength and ready to reverse.

Key Insight: Divergence shows hidden strength or weakness in the market that price alone doesn't reveal.

Signal Types

Bullish Divergence (DIVERGENCE_BUY)

When it triggers:
  • Price makes a lower low (declining)
  • RSI makes a higher low (improving momentum)
  • Interpretation: Despite price falling, momentum is strengthening → Potential upward reversal
Price: $100 → $95 → $90 (Lower lows - bearish)
RSI: 32 → 28 → 35 (Higher lows - bullish momentum)

Signal: DIVERGENCE_BUY

Best used when:

  • Price is in oversold territory (RSI < 40)
  • Multiple timeframe confirmation
  • Volume is increasing on the bounce
  • Support level nearby

Bearish Divergence (DIVERGENCE_SELL)

When it triggers:
  • Price makes a higher high (rising)
  • RSI makes a lower high (weakening momentum)
  • Interpretation: Despite price rising, momentum is weakening → Potential downward reversal
Price: $100 → $105 → $110 (Higher highs - bullish)
RSI: 68 → 72 → 65 (Lower highs - bearish momentum)

Signal: DIVERGENCE_SELL

Best used when:

  • Price is in overbought territory (RSI > 60)
  • Multiple timeframe confirmation
  • Volume is decreasing on the rally
  • Resistance level nearby

Configuration Settings

Core Settings

# Enable/Disable RSI Divergence signals
enable_rsi_divergence_signal: true    # Enable RSI divergence detection

# Divergence Detection Settings
rsi_divergence_lookback: 3            # Lookback periods for divergence (default: 3)
rsi_divergence_min_strength: 1.0     # Minimum price/RSI difference for valid divergence (%)

Broadcast Configuration

supported_volatility_action:
  - "BUY"
  - "SELL"
  - "DIVERGENCE_BUY"      # Add for bullish divergence alerts
  - "DIVERGENCE_SELL"     # Add for bearish divergence alerts

supported_volatility_action_broadcast:
  - "DIVERGENCE_BUY"      # Broadcast bullish divergence to Discord/Telegram/WhatsApp
  - "DIVERGENCE_SELL"     # Broadcast bearish divergence to Discord/Telegram/WhatsApp

Optimized Settings by Trading Strategy

SCALPING (1m - 5m intervals)

Goal: Quick reversals, high frequency trades

# Scalping Settings (1m, 3m, 5m)
enable_rsi_divergence_signal: true
rsi_divergence_lookback: 2           # Faster detection (2 candles)
rsi_divergence_min_strength: 0.5     # Lower threshold for quick moves

# Recommended Kline Intervals
kline_intervals: ["1m", "3m", "5m"]

# RSI Settings (if configurable)
rsi_period: 9                         # Faster RSI for scalping
rsi_oversold: 25                      # More extreme levels
rsi_overbought: 75

Why these settings:

  • Lookback: 2 → Catches rapid momentum shifts
  • Min Strength: 0.5% → Sensitive to small divergences
  • Faster RSI (9) → More responsive

Best for: High volatility assets (BTC, ETH, SOL)

Warnings: Higher false signals • Requires quick execution • Not for illiquid pairs

DAY TRADING (15m - 1h intervals)

Goal: Intraday reversals, moderate frequency

# Day Trading Settings (15m, 30m, 1h)
enable_rsi_divergence_signal: true
rsi_divergence_lookback: 3           # Balanced detection (default)
rsi_divergence_min_strength: 1.0     # Standard threshold

# Recommended Kline Intervals
kline_intervals: ["15m", "30m", "1h"]

# RSI Settings
rsi_period: 14                        # Standard RSI
rsi_oversold: 30
rsi_overbought: 70

Why these settings:

  • Lookback: 3 → Good balance
  • Min Strength: 1.0% → Filters noise
  • Standard RSI (14) → Industry standard

Best for: Most traders (beginners to intermediate)

Recommended: Combine with S/R • Use 1h for confirmation • Stop-loss at swing

SWING TRADING (4h - 1d intervals)

Goal: Multi-day positions, high reliability

# Swing Trading Settings (4h, 8h, 1d)
enable_rsi_divergence_signal: true
rsi_divergence_lookback: 5           # Deeper analysis (5 candles)
rsi_divergence_min_strength: 1.5     # Higher threshold for quality

# Recommended Kline Intervals
kline_intervals: ["4h", "8h", "1d"]

# RSI Settings
rsi_period: 14                        # Standard RSI
rsi_oversold: 35                      # Less extreme
rsi_overbought: 65

Why these settings:

  • Lookback: 5 → Stronger divergences
  • Min Strength: 1.5% → High-quality only

Best for: Position traders (3-14 days)

LONG-TERM INVESTING (1d - 1w intervals)

Goal: Major trend reversals, portfolio entries/exits

# Long-Term Settings (1d, 3d, 1w)
enable_rsi_divergence_signal: true
rsi_divergence_lookback: 7           # Long-term pattern (7 periods)
rsi_divergence_min_strength: 2.0     # Premium quality signals only

# Recommended Kline Intervals
kline_intervals: ["1d", "3d", "1w"]

# RSI Settings
rsi_period: 21                        # Longer RSI for smoothing
rsi_oversold: 40                      # Earlier detection
rsi_overbought: 60

Why these settings:

  • Lookback: 7 → Major structural divergences
  • Min Strength: 2.0% → Only turning points

Best for: HODLers • Accumulation phases

Quick Reference Table

Strategy Timeframes Lookback Min Strength Win Rate Risk Level
Scalping 1m-5m 2 0.5% ~60% High
Day Trading 15m-1h 3 1.0% ~65% Medium
Swing Trading 4h-1d 5 1.5% ~70% Low-Med
Long-Term 1d-1w 7 2.0% ~75% Low

Pro Tips & Best Practices

DO's

  1. Multi-Timeframe Confirmation
    Example: 15m DIVERGENCE_BUY confirmed by 1h RSI oversold
  2. Combine with Support/Resistance
    • Bullish divergence at support = Strong buy
  3. Volume Confirmation
    • Divergence + Volume spike = Higher probability
  4. Use Stop-Losses
    • Scalping: 0.5-1% • Day: 1-2% • Swing: 3-5%
  5. Position Sizing
    • Scale in: 50% on signal, 50% on confirmation

DON'Ts

  1. Don't Trade Against Strong Trends
    • Divergences can fail in powerful trends
  2. Don't Ignore Market Context
    • Major news events can invalidate signals
  3. Don't Overtrade
    • Quality > Quantity
  4. Don't Use Alone
    • Combine with other indicators
  5. Don't Chase
    • Wait for pullback

Advanced Configuration Examples

Aggressive Scalper Setup

enable_rsi_divergence_signal: true
rsi_divergence_lookback: 2
rsi_divergence_min_strength: 0.3
kline_intervals: ["1m", "3m"]

# Combine with momentum
enable_momentum_signal: true
momentum_strong_buy: 1.5
momentum_strong_sell: -1.5

Conservative Swing Trader Setup

enable_rsi_divergence_signal: true
rsi_divergence_lookback: 5
rsi_divergence_min_strength: 2.0
kline_intervals: ["4h", "1d"]

# Require combined confirmation
enable_combined_signals: true
minimum_indicators_for_confirmation: 3

Balanced Day Trader Setup (Recommended)

enable_rsi_divergence_signal: true
rsi_divergence_lookback: 3
rsi_divergence_min_strength: 1.0
kline_intervals: ["15m", "30m", "1h"]

# With volume confirmation
enable_volume_signal: true
volume_spike_buy: 2.0
volume_spike_sell: 2.0

Notification Examples

DIVERGENCE_BUY Signal Detected!
━━━━━━━━━━━━━━━━━━━━━━
Symbol: BTCUSDT
Price: $42,150.00
Timeframe: 1h

Signal Details:
• Price: Down 2.3% (lower low)
• RSI: Up 4.2 points (higher low)
• Confidence: 82.5%
• RSI Level: 34 (Oversold)

Action: Potential BUY opportunity
Context: Bullish reversal expected
━━━━━━━━━━━━━━━━━━━━━━

Troubleshooting

"Too Many False Signals"

Solution: Increase thresholds

rsi_divergence_lookback: 5  # From 3
rsi_divergence_min_strength: 1.5  # From 1.0

"Missing Good Opportunities"

Solution: Decrease for sensitivity

rsi_divergence_lookback: 2  # From 3
rsi_divergence_min_strength: 0.8  # From 1.0

"Signals Not Broadcasting"

Check:

supported_volatility_action_broadcast:
  - "DIVERGENCE_BUY"   # Must be included
  - "DIVERGENCE_SELL"  # Must be included

Learning Resources

Understanding Divergences:

  1. Regular Divergence = Trend reversal signal
  2. Hidden Divergence = Trend continuation (not implemented yet)
  3. Class A/B/C Divergences (advanced - based on RSI levels)

Recommended Reading Order:

  1. Start with Day Trading settings
  2. Paper trade for 2 weeks
  3. Graduate to Swing Trading
  4. Advanced traders: explore Scalping

Quick Start Guide

For Beginners (Start Here!)

enable_rsi_divergence_signal: true
rsi_divergence_lookback: 3
rsi_divergence_min_strength: 1.0
kline_intervals: ["1h"]  # Start with 1 timeframe

# Enable notifications
supported_volatility_action_broadcast:
  - "DIVERGENCE_BUY"
  - "DIVERGENCE_SELL"

Then:

  1. Monitor for 1 week without trading
  2. Note signal quality
  3. Adjust settings based on observations
  4. Start with small positions

Support & Questions

  • Signal not triggering? Check enable_rsi_divergence_signal: true
  • False signals? Increase lookback and min_strength
  • Missing signals? Decrease thresholds
  • Need help? Check logs for "RSI Divergence" entries

Remember: RSI Divergence is most powerful when combined with other indicators and proper risk management!

📎 Related Topics