Market convergence/divergence with the RSI

The RSI (Relative Strength Index) shows the strength of the trend and the probability of changes in it. You can use the RSI in any market situation: a growing trend, a falling trend, or a flat.

And on the RSI you can find one of the strongest signals for correction or trend change: market convergence/divergence. Now let’s learn how to do it.

Preparing the template

Choose currency pairs for trading: EUR/USD, GBP/USD, AUD/USD, USD/CHF, EUR/GBP. Why these? Because pairs with USD and EUR are the most popular on the market and most transactions are conducted with them. And this affects volatility and the “workability” of strategies.

The recommended time frame is from 15s to 1m.

How to configure the RSI

In the lower left-hand corner in the “Indicators” tab, select the RSI and configure the following settings:

• Period 8
• Overbought 70
• Oversold 30

How to conclude transactions UP

1. We wait for the RSI to fall below the level of 30 and form there 2 minima, and the second must be higher than the first:

2. In the “Tools” tab, select “Beam” and conduct a beam from left to right directly through the minima on the RSI. This gives us the line of the uptrend.

3. On the chart, we put a beam through the corresponding minima in the same way. We also get a trend, but a downward one:

4. Look at the screenshot above: the upper beam is pointing downwards, and the lower one is pointing upwards. Draw imaginary lines continuing the beams and they will intersect. This is called convergence and it speaks to an immintent reversal.

5. We conclude a transaction UP for 1-5 minutes.

Important! If both beams are pointing upwards this is not convergence! We do not conclude a transaction!

How to conclude transactions DOWN

1. We wait for the RSI to rise above the level of 70 and form there 2 maxima, and the second must be lower than the first.

2. In the “Tools” tab, select “Beam” and conduct a beam from left to right directly through the maxima on the RSI. This gives us the line of the downtrend.

3. On the chart, we put a beam through the corresponding maxima in the same way. We get a downtrend:

4. Look at the screenshot above: the upper beam is pointing upwards, and the lower one is pointing downwards. Draw imaginary lines continuing the beams and they will disperse. This is called divergence and it speaks to an immintent reversal.

5. We conclude a transaction DOWN for 1-5 minutes.

Important! If both beams are pointing downwards this is not divergence! We do not conclude a transaction!

P.S. With experience you will be able to conclude more profitable trades, as you will learn to identify inconspicuous, at first glance, market convergence/divergence, which usually indicates sharper, stronger and longer corrections and reversals.

Here is an example of strong convergence:

And here is strong divergence: