🧠 Catch Market Reversals Early: Master RSI Divergence (With Visual Walkthrough)-Xau/Usd Strategy

In forex trading, you don’t need to guess when the market will flip -you just need to watch momentum. One of the best ways to do this is by mastering RSI divergence. Before we dive into divergence setups, let’s understand the foundation: overbought and oversold.

⚖️ RSI 14: Overbought vs. Oversold Basics

RSI (Relative Strength Index) is a momentum indicator that ranges from 0 to 100.

• When RSI is above 70 → the market is considered overbought (price may be too high, reversal possible).

• When RSI is below 30 → the market is oversold (price may be too low, bounce or reversal likely).

The standard RSI setting is 14 periods, which balances accuracy and responsiveness.

But what happens when RSI doesn’t agree with price? That’s where divergence comes in.

📈 1. Bearish Divergence in an Uptrend (Price Rising, RSI Falling)

What it looks like:

• Price makes higher highs
• RSI makes lower highs
• Buyers are pushing price up, but momentum is fading

What it means: A potential reversal or deep pullback is near. This is a bearish divergence-a classic signal that the uptrend may be running out of steam.

How to trade it:

1. Identify higher highs on price, lower highs on RSI

2. Wait for confirmation (e.g., bearish candlestick or trendline break)

3. Enter short position

4. Stop-loss above recent high, target next support zone

📉 2. Bullish Divergence in a Downtrend (Price Falling, RSI Rising)

What it looks like:

• Price makes lower lows
• RSI makes higher lows
• Sellers are dragging the market down, but momentum is weakening

What it means: The downtrend may be losing strength-this is bullish divergence, a setup for a potential reversal or bounce up.

How to trade it:

1. Spot divergence: lower lows in price, higher lows in RSI

2. Wait for bullish signal (e.g., bullish engulfing candle)

3. Enter long position

4. Stop-loss below recent low, target next resistance

🎥 Want to See It on a Real Chart?

We've created a quick visual walkthrough showing:

• Divergence lines
• Chart example
• Entry, stop-loss, and target placement

👉 Watch the full guide here:

🚀 Ready to Practice RSI Divergence?

Start with a demo account or trade live using a trusted forex broker like Deriv.

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Whether you're scalping on the 15-minute chart or swing trading daily candles, RSI divergence helps you stay one step ahead of the market.