RSI Divergence: 4 Types With Crypto Examples
There are four types of RSI divergence, and the split is simpler than the names suggest. Two of them - the regular ones - warn that a trend may be about to turn. The other two - the hidden ones - suggest the trend is pausing and likely to carry on. Which one you are looking at depends on the direction of the trend it appears in, so read the trend first and label the divergence second.
The four types, side by side
- Regular bullish - in a downtrend: price makes a lower low, RSI makes a higher low. A possible bottom. Ethereum sliding to a fresh low while the indicator refuses to follow is the classic picture.
- Regular bearish - in an uptrend: price makes a higher high, RSI makes a lower high. A possible top.
- Hidden bullish - during a pullback inside an uptrend: price makes a higher low, RSI makes a lower low. The dip looks worse on the indicator than on the chart, and the uptrend often resumes.
- Hidden bearish - during a bounce inside a downtrend: price makes a lower high, RSI makes a higher high. The bounce has more heat than progress.
How to tell regular from hidden
Look at which line makes the more extreme point. In a regular divergence, price goes further than the indicator - a new price low with no new RSI low. In a hidden divergence, the indicator goes further than price. Think of a dog on a long lead: regular divergence is the dog running ahead while the walker slows down, hidden divergence is the dog lagging while the walker keeps the same pace. The walker is the trend, and the trend usually wins.
Where each one actually helps
Regular divergences are used to question a move that has run a long way, not to call an exact top or bottom in Bitcoin. Hidden divergences are used the other way round - as a reason to stay with a trend through a scary-looking dip rather than to start something new. Both are much weaker on a five-minute chart than on a daily one, because short timeframes produce dozens of swing points and most of them mean nothing.
Practical note: label two or three real examples by hand before you use any of this live, and always write down which trend you decided you were in first. Next: what divergence is and why momentum fades and how to trade one and filter the false ones.