RSI Divergence Strategy | When to Buy & Sell Indicator | Reversal Trade Forex /Crypto/Stock Market

Summary

This video introduces a unique RSI divergence strategy for traders, focusing on 5 or 15-minute timeframes to identify buy/sell signals. The presenter emphasizes the importance of confirming signals with candlestick patterns and provides a step-by-step guide on setting entry points, stop losses, and targets. The strategy aims to improve trading accuracy with dual confirmation and offers insights into using technical targets for maximizing profits.

Takeaways

• 📈 The video introduces a unique RSI (Relative Strength Index) strategy involving 'RSI divergence', not the standard RSI indicator.
• 🕒 It recommends using either a 5-minute or 15-minute timeframe for the strategy, avoiding 30-minute charts due to market timing issues.
• 📊 RSI divergence indicator automatically shows bullish or bearish signals, eliminating the need for manual divergence detection.
• 📝 The importance of the closing price in trading strategies is emphasized, as most indicators are based on it.
• 🟢 A bullish signal is confirmed when a green candle closes above a previously drawn line on a red candle that showed divergence.
• 🔴 A bearish signal is identified when a red candle closes below a line drawn on a green candle that indicated divergence.
• 📉 The strategy includes a specific method for setting stop loss levels and determining profit targets using the '1 is to 2' rule and technical analysis.
• 📌 The script mentions a 'low break' confirmation for a stronger reversal trend signal, adding a layer of validation to the trading signals.
• 📚 The video encourages note-taking and paper trading for better understanding and practice of the strategy.
• 🔗 It suggests that viewers can open a Demat account for free and learn more about the stock market through provided links and channels.
• 🔔 The video ends with a call to action for viewers to subscribe, hit the notification bell, and share the video to spread awareness of the strategy.

Q & A

What is the main focus of the video script?

The video script focuses on teaching a new strategy using the RSI (Relative Strength Index) indicator, specifically the RSI divergence, for trading in financial markets.

What is unique about the RSI strategy discussed in the video?

The unique aspect of the RSI strategy discussed is the use of RSI divergence, which automatically indicates bullish or bearish divergence without the need to manually search for it.

Why does the video recommend using either a 5-minute or 15-minute timeframe for the RSI strategy?

The video recommends using a 5-minute or 15-minute timeframe to maintain a stable and uniform market timing, avoiding the challenges associated with a 30-minute timeframe that may not align with market open times.

What is the significance of the closing price in the RSI strategy presented?

The closing price is significant because the RSI divergence indicator is plotted based on the closing price, which is considered the most important component of a candlestick among open, high, low, and close.

How does the video script guide viewers to identify a buy signal using the RSI divergence indicator?

The script instructs viewers to look for a bullish signal on a red candle, then to plot a horizontal line on the closing price of that candle. A buy signal is confirmed when a green candle closes above this line after the red candle with divergence.

What is the '1 is to 2' method mentioned for setting targets in the RSI strategy?

The '1 is to 2' method is a simple way to set targets for trades, where the target price is twice the distance from the entry point to the stop loss, offering a 1:2 risk-to-reward ratio.

How can a trader find an additional target beyond the '1 is to 2' ratio?

Traders can find an additional target by identifying the high point where the trend began to decline, using this as a technical target to cover the entire swing of the market.

What is the importance of the 'low break' concept in confirming a sell signal?

The 'low break' concept is important as it confirms a good reversal trend. A sell signal is stronger when the red candle closes below the line marked and also breaks the low set by the previous green candle.

Why is it recommended to not act immediately on the RSI divergence indicator's buy or sell signals?

It is recommended not to act immediately because half knowledge of the strategy can be dangerous. Traders should wait for additional confirmations, such as a candle closing above or below the marked line, to ensure a more accurate trade entry.

What is the dual confirmation strategy mentioned in the script, and why is it important?

The dual confirmation strategy involves getting a signal from the RSI divergence indicator and then waiting for the price to retest and confirm the signal by closing above or below the marked line. This approach increases the accuracy of the trade and reduces the risk of false signals.

How does the script suggest traders protect their trades with spreads?

The script suggests using debit or credit spreads as a way to protect trades, as spreads can limit risk and provide a sense of security against market fluctuations.

What additional resources does the video script offer for those interested in learning more about the stock market?

The script offers free resources such as Demat account opening links, playlists for step-by-step learning, and channel links for further educational content, all available in the video description and comment box.

Outlines

00:00

📈 Introduction to RSI Divergence Strategy

This paragraph introduces a unique RSI (Relative Strength Index) strategy that the speaker claims is not commonly found online. The speaker emphasizes the value of the free content provided and encourages viewers to share it. The strategy involves using the RSI divergence indicator on 5 or 15-minute timeframes to identify market opportunities. The speaker also explains why these specific timeframes are chosen and sets the stage for a more in-depth explanation of the strategy in the following paragraphs.

05:02

📊 RSI Divergence Indicator and Entry Strategy

The speaker provides a step-by-step guide on how to apply the RSI divergence indicator on trading charts and identifies the importance of the closing price in trading strategies. The paragraph explains how to interpret bullish and bearish signals from the RSI divergence indicator and introduces a specific technique for confirming these signals by drawing a horizontal line at the closing price of the candlestick that provides the initial signal. The speaker also discusses the importance of not acting on half-knowledge and promises a full explanation of the strategy in the video.

10:04

🚀 Executing Trades with RSI Divergence Signals

This paragraph delves into the execution of trades based on RSI divergence signals. The speaker outlines the process of confirming a buy or sell signal by waiting for a candle to close above or below the previously drawn horizontal line. The paragraph also introduces a 'low break' condition that must be met for a valid signal and discusses setting stop-loss levels and determining profit targets using a 1:2 ratio. Additionally, the speaker suggests using technical analysis to set secondary targets and emphasizes the importance of understanding the strategy fully before applying it in real trading.

15:06

📚 Advanced RSI Divergence Trading Techniques

The final paragraph discusses advanced techniques for using the RSI divergence strategy, including the use of dual confirmation to increase the accuracy of trades. The speaker provides an example from the Bank Nifty chart to illustrate the application of the strategy and explains how to handle different market scenarios. The paragraph also touches on the concept of using spreads to manage risk and concludes with advice on learning and practicing the strategy, as well as the importance of watching the video multiple times for better understanding.

Keywords

💡RSI Indicator

The RSI, or Relative Strength Index, is a momentum oscillator that measures the speed and change of price movements. It is a popular technical analysis tool used to identify overbought or oversold conditions in the market. In the video, the RSI indicator is the central focus, with a new strategy being introduced that leverages the RSI in a unique way, specifically through the concept of 'divergence'.

💡RSI Divergence

RSI Divergence refers to a situation where the price of a security makes a new high or low, but the RSI does not, signaling a potential reversal in the trend. In the script, the presenter emphasizes that they are not using the standard RSI indicator but an RSI divergence indicator, which automatically highlights bullish or bearish divergences without the need for manual detection.

💡Time Frame

In technical analysis, the time frame refers to the period covered by a price chart. The script mentions using either a 5-minute or 15-minute time frame for the RSI strategy, noting that these intervals provide a stable and uniform market representation, which is crucial for the strategy's execution.

💡Bullish Divergence

Bullish divergence occurs when the price of an asset is making lower lows, but the RSI is making higher lows, suggesting that the downward momentum is weakening and a potential upward price movement may follow. The script describes how to identify and act on bullish divergence signals using the RSI divergence indicator.

💡Bearish Divergence

Bearish divergence is the opposite of bullish divergence, where the price makes higher highs while the RSI makes lower highs, indicating weakening upward momentum and a potential price decline. The video script explains how to spot and trade based on bearish divergence signals.

💡Candlestick

A candlestick is a graphical representation of an asset's price range over a specified time period, typically used in financial charts. The script uses the term 'candle' to refer to individual price movements on the chart, which are crucial for identifying divergence and making trading decisions.

💡Stop Loss (SL)

A stop loss is an order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a position. In the context of the video, the presenter explains how to set a stop loss based on the price action following an RSI divergence signal to manage risk effectively.

💡Target

In trading, a target is the price level at which an investor expects a security to be traded, at which point they would take profit. The script discusses setting targets based on the '1 is to 2' principle and also using technical analysis to determine additional targets, which helps in profit maximization.

💡Technical Target

A technical target is a price level identified through the analysis of historical price patterns and trends. The video script explains using technical targets to set profit-taking levels after achieving the initial '1 is to 2' target, providing a method to capture more significant price movements.

💡Spreads

In finance, a spread refers to the difference between two prices, often used in options trading. The script mentions the use of debit and credit spreads as a risk management strategy, allowing traders to protect themselves against market fluctuations while still participating in potential price movements.

💡Dual Confirmation

Dual confirmation in trading means receiving two separate signals that point to the same trading decision, increasing the likelihood of its success. The video script emphasizes the importance of dual confirmation in the RSI divergence strategy, where a signal from the indicator is confirmed by the price action, enhancing the strategy's reliability.

Highlights

Introduction to a new RSI strategy that hasn't been seen online before.

Encouragement to share the free educational content with others for mutual benefit.

Explanation of the RSI divergence indicator and its unique features.

Importance of using a 5 or 15-minute time frame for the RSI strategy.

The significance of the closing price in RSI divergence and its impact on trading signals.

How to identify and utilize bullish divergence for trading opportunities.

The concept of plotting a line on the closing price of a candlestick for entry signals.

The importance of waiting for confirmation with the next candle closing above the line.

A special trick for setting stop loss that is not commonly found online.

How to determine the target using a 1:2 ratio for potential profit.

The use of technical targets to maximize potential gains beyond the 1:2 ratio.

Identification of bearish signals and the strategy for selling based on RSI divergence.

The dual confirmation method for increasing the accuracy of trading signals.

The practical application of the RSI divergence strategy on a real-world chart example.

How to handle situations where the market scares traders with ASL getting eaten.

The potential for big moves in the market using the RSI divergence strategy.

The importance of making notes and practicing paper trading to grasp the strategy.

The value of divergence in RSI trading and how it differs from traditional RSI value-based strategies.

Advice on using spreads to protect risk and manage market fluctuations.

Encouragement to subscribe and engage with the channel for more educational content.

Transcripts

You've probably heard about the RSI indicator a lot, but in

this video, you'll learn a new RSI strategy that you've

never seen online before.

A strategy that you will feel that why don't I know this

thing before.

Today, we're diving right into a strategy that you've

probably heard of before - the RSI indicator. But in this

video, you'll learn a new approach to using it that you've

never seen on the internet. You'll discover a strategy that

will make you wonder why you didn't know about it sooner.

One thing that may bother you is that the content on this

channel is generally not something you would learn step by

step if you paid for it.

We want you to not only keep these videos to yourself, but

also share them with others so that more and more people

can benefit from them.

Otherwise, it's very simple for us to package these

strategies and ask people to pay for them, but when the

same information is available for free, people don't

appreciate it.

So this is a small annoyance, so you people share it if you

like the strategies, content and we get motivation from it

that we keep making good content for you and you keep

getting maximum knowledge for free.

So help us in this initiative.

Let's start with today's video.

Definitely, so without wasting time let's start here.

So let's talk about the strategy of RSI.

First of all we have to put an indicator whose name is RSI

divergence.

How to put it?

I am going to tell you on the charts.

Along with that, which time frame we will use here?

Either 5 minutes or 15 minutes.

Remember, if you go beyond 15 minutes, you'll be jumping

straight to a daily timeframe.

You will not jump above 1 hour and 30 minutes.

What is the reason for this?

Our market timing starts at 9.15.

If we use a 30-minute chart, it will show data from 9:45 to

10:15, and sometimes it can be challenging to use such time

frames in these strategies.

So we always need a stable time frame.

If we take 5 minutes then candle will be made in every 5

minutes and if we take 15 minutes then it will be made in

every 15 minutes which is a uniform time for the market.

Now here one thing is important.

We are talking about RSI, Relative Strength Index.

But we are not going to use normal RSI indicator.

Indicator is different.

So first thing to note here is that this strategy is RSI

strategy.

But the indicator used here is RSI divergence.

Not RSI, point number 1.

Point number 2, time frame is either 5 minutes or 15

minutes.

So they have told you the logic why not to take 30 minutes.

Let's continue.

Alright, let's head straight to the screen and learn the

strategy there.

And first of all, we will learn how to use RSI indicator.

Okay guys, so now we are on the charts.

First things first, head over to the indicator section and

search for RSI divergence.

So here you will see RSI divergence indicator in technicals.

You have to click on it once and this indicator will appear

below.

So, the special thing about this indicator is that you

don't need to manually search for divergence.

This indicator will show you directly whether there is

bullish or bearish divergence.

So as you can see what is written here.

Bull is written here.

So here we have seen bullish divergence.

And this will come at the closing of the candle.

So after the candle closes, it will say that you can buy

from here.

But this is an indicator.

Let me give you a heads up because some people might get

too excited thinking this is a buy signal.

Let's buy here, let's sell here.

So now this is half knowledge.

So half knowledge is very dangerous.

So watch the whole video.

Just applying this indicator is not enough to get the job

done.

So what is the strategy, that is important.

So he said it right that here you can see buy and sell

signals continuously.

So as sir told you that you don't have to hurry.

You have to listen to everything first.

So as sir told you that it is plotted on close.

There are 4 components of price, open, high, low, close.

Among them, close is the most important.

As you may have noticed, all the indicators we use are

plotted based on the closing price.

If you want to see how it's plotted on the close, you can

check it out here.

You can see on my screen, close is written after 14.

So the most important thing is close price, where it is

closing.

So let's learn the strategy here.

So, once you apply this indicator, your task is to find a

signal.

As I can see a bullish signal here.

Now here you see this red candle.

I have got this bullish signal on it.

This red candle has given us divergence.

So now what we will do is this red candle.

After this, you can see that the green candle has closed

above its previous close.

So the candle that has given you divergence, you will plot

a line above its close.

So how will you plot the line here?

I drew a horizontal line from this point and placed it on

the closing point of the red candle.

So I will darken it a little so that you can see it clearly.

I hope you can see the line clearly here.

So now what we have to do is we have to wait here.

Our line is made.

So now we just need to wait for the next candle to close

below this line.

So as you can see here, this red candle has closed below

this line.

Now we just need to wait for the first green candle to

close above this line after the red candle.

We will see to buy there.

It is very simple.

And tell me the SLB.

I will tell you the SLB.

There is a small trick here.

I will tell you the trick.

You will not be able to see this trick anywhere on the

internet.

And no one must have revealed it till date.

So see here, this was our first marking point from where we

marked.

Now you see, is this red candle having a low break?

Here you find, is the red candle having a low break?

Yes, it is.

So when this red candle closes below the line I marked, it

should also break the low before closing above it.

As you can see, this red candle has also broken below the

low set by the green candle.

So when the red candle below this line closes with a low

break, as marked here, it confirms a good reversal trend

for me.

So I hope it is clear to you that what is my strategy here.

So now I will try to buy at this point.

So I will mark the buying point for you here.

So this candle closed above our line.

So I will just mark it here.

Here I will try to buy it.

What will be your SL?

See, here I am marking your SL from the horizontal line.

No changes needed as the translation accurately conveys the

meaning of the sentence in a modern and contextual way.

So I'll just mark it here on the red line so you can

clearly see where to set your SL.

Okay, so now you know where to buy and what will be your SL.

So now let's look at the target.

So to find the target, the simplest way is to take 1 is to

2.

The simplest way is 1 is to 2.

So here I will mark 1 is to 2.

So here our buying entry is being made at this point and

here is our SL.

So here I will take the target of 1 is to 2.

See guys, 1 is to 2 has been achieved very easily here.

But there are many people who don't have enough in 1 is to

2.

We need more targets, just like I need more targets.

So I will use technical targets here.

Hey guys, to determine the technical target here, take a

look at where this trend began to decline.

So, from this point, when the price started to drop, it

gave us a divergence signal.

So what we're gonna do is, we can make this high point our

main target.

So this is going to be our major target.

So I guess here you got stop loss and your target.

If setting a target from point 1 to point 2 is not

sufficient, we can aim for a technical target that covers

the entire swing.

So you must have heard that people say that there are some

levels in the market.

So those levels work like this.

Right.

Similarly, as we have seen here, there is a buying signal

here.

So here you can see the sign of bull.

Similarly, let's see how you will get the indication of

selling here.

Okay guys, so now we have seen the bullish signal.

Now we will see the bearish signal here.

So first of all, you find which candle you got the bear

signal on.

Alright, now you can see that the indicator has given a

bearish signal on this green candle.

Now we're going to do what I said earlier and draw a line

on the closing price.

So now I'll take a horizontal line and place it on the

close price as I mentioned earlier.

Now, I'll wait for a green candle to appear and close on

this price level.

As you can see, a green candle has closed on this price

level.

So, all we need to do now is wait for a red candle to

appear and close below this line.

That will be the sell signal for us.

So as you can see, this red candle has come and closed

below this line.

We can go for the sale at the closing of this red candle.

Now where will you put your stop loss here?

As I mentioned earlier, to set a stop loss, place it

slightly above the highest point.

You can take 0.1% buffer here.

So I will make this line red so that it is easy for you to

see.

So now what will I take as my target here?

As I told you, we will take the first target 1 is to 2.

Let's mark 1 is to 2 here and see if we got it or not.

Oh, I can see the firecrackers there.

I can see everything there.

Let's go and light the candle.

So let's put a risk to reward here and show that easily we

have got 1st to 2st

So as you know that in 1st to 2st our stomach doesn't get

full, so here we have to take technical target

So to take technical target we will see from where this

trend came up

So as you can see from this point this price started coming

up

So we can target this low as our technical target

So I hope you've got the hang of when to buy and when to

sell.

Let's take a look at another example of buying so that you

can have a better understanding and clear concepts.

Now if you learn a strategy then on first day things may

not be clear

So make notes and if it is good then do paper trade

By doing so, you will grasp the strategy and there are free

videos available on the internet that you can watch

multiple times to fully comprehend it.

But make sure you are making your notes, let's continue

Now we're looking at the Bank Nifty chart, specifically the

one from February 29th.

As you can see, there's a bullish signal here. Now, we need

to identify which candlestick pattern generated this signal.

So, if this bullish signal was generated by this red

candle, then I'll mark a line on its close like this.

As you can see, did the low of this red candle break with

the immediate next green candle, guys?

It didn't break here, so when you receive a buy signal,

make sure that the lowest low below it does not break.

This means that the way we identified divergence and

received a bullish signal.

So the next buy signal we get should follow the same

pattern, only then we'll make a purchase.

As you can see in this case, the candle closed below this

line.

So, we'll know it's time to buy when a green candle comes

up and closes above this line, just like it did here.

So this red candle that closed below this line, you can see

that its closing price is also the lowest here.

So, did any of the candles break below this line before

giving you a buy signal?

It is not happening here, so here both the signals are same

So it means here we can go for buy with confirmation

So, what's going on here is that we have a setup with dual

confirmation.

Indicator is saying to buy but we are not buying immediately

What we are saying is that come down again for retesting

So when it comes down for retesting, we can see the marked

line.

We marked the candle that gave us the signal as soon as it

closed.

The red candle opens up and goes down

The current translation is already contextual and modern.

No changes needed.

That the line should have closing below it of any red candle

So what happened here, it is dual confirmation

So, if we get confirmation here, then we're good to go.

Now, there are two possible scenarios from here - either

the price will drop or it will consolidate in this area.

It will become a demand zone from where the price can go up

So now what we will do is that after it gave signal, the

one who had to eat the ASL

No changes needed as the sentence is already contextual and

colloquial/modern.

So here the market scared all the people who had to be

scared

That the ASL also got eaten

After that what happened is that when the price started

going up again

So we waited, still we did not hesitate, we waited

We need to wait for a candle that gives us a signal and

closes on the line again.

Here, we see a green candle that opens up, goes down, and

closes on the line.

So now we know for sure that the price may go up from this

point.

You might be thinking that we missed out on this trade, but

don't worry, there are other setups you can take advantage

of.

But what is there in this setup is that you can get big

moves

Now the question is, did we get a 1:2 or 1:3 ratio? Let's

check.

So now let's see what we have got 1 is to 2 or 1 is to 3

No changes needed. The translation is already contextual

and modern.

So below this line, I have put 0.1% buffer and put ASL

Now I'll place my long position here and let's see what our

target is.

So here we were buying and here we were trying to sell

Here we were trying to put stop loss

So here 1 is to 2 came easily in this case

Now let's see how much it went up and how much target it

can give us

So that we can capture this whole trend

So as you can see what is our immediate technical target

We target the point from where it started to fall

So it started to fall from this point

If I target this as my technical target

So here it has given us the target with momentum

In which you can go for intraday or for BTSG

So if you take the trade today and the target is achieved

tomorrow, you can exit the trade.

But if someone is a very safe player then he can make debit

spreads here

Or you can make credit spreads

With spreads your risk remains protected

So I always prefer spreads rather than making any negative

trade

Because in that you will be less afraid of the fluctuations

of the market if you have spreads

So here this strategy, we are not talking about the value

of RSS

Till now whenever you have heard of RSS, you have heard of

buying below 30 and selling above 80

You must have always talked about values

Here we are talking about divergence

So very few people talk about divergence but divergence

works very well

Whoever is using RSS or promoting it will definitely praise

the divergence

But you are also catching the divergence with the dual

confirmation

So by catching this your accuracy can be better

So you can have a lot of arrows in your target

So if you want you can keep one arrow

So I hope you understood this strategy

You can share this video to spread the awareness

Make sure to subscribe to this channel and hit the

notification bell to stay updated on future videos.

You can watch this video for free on the internet

So watch it many times, may be you have some doubts which

can be cleared

If you're new to the stock market, you can open a Demat

account for free.

Links are available in the description and comment box

And if you want to learn the stock market step by step

So we have launched some playlists for you

Infact we have launched some channels

So you will get the playlist link in the I button

And the channel link is available in the description, do

check out

So see you in the next video, till the time you can like

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And we will see you very soon