RSI divergence indicator with alert for NinjaTrader 8.

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Divergence is very common and useful in technical analysis. It indicates possible reversal signals when there are discrepancies between rsi and price movement.

RSI divergence is one of the most trusted tools in technical trading because it reveals hidden momentum shifts that often precede price reversals. Here’s why it’s powerful, how to use it, and its edge over other indicators:

Why RSI Divergence Matters: Core Strengths

1. Flags Exhaustion in Trends
   RSI divergence signals when a trend is losing momentum despite price pushing to new extremes. This often occurs at market tops/bottoms.

   • Bearish Divergence: Price ↑ (higher high), RSI ↓ (lower high) → Selling pressure builds.

   • Bullish Divergence: Price ↓ (lower low), RSI ↑ (higher low) → Buying pressure builds.

2. Works at Key Overbought/Oversold Zones
   RSI divergence near RSI > 70 (overbought) or RSI < 30 (oversold) amplifies reversal odds:

   • Bearish divergence + RSI > 70 = High-probability sell signal.

   • Bullish divergence + RSI < 30 = High-probability buy signal.

3. Fewer False Signals Than Price Action
   Unlike support/resistance breaks (which can fake out), RSI divergence reflects internal momentum decay – a more reliable reversal predictor.

4. Identifies Continuations (Hidden Divergence)

   • Hidden Bullish Divergence: Price ↑ (higher low), RSI ↓ (lower low) → Uptrend likely to resume.

   • Hidden Bearish Divergence: Price ↓ (lower high), RSI ↑ (higher high) → Downtrend likely to resume.

Real Trading Applications & Examples

Scenario 1: Reversing a Downtrend (Bullish Divergence)

• Price: Makes a new low (LL2).

• RSI: Forms a higher low (HL) > 30 (oversold).

• Action:

  1. Watch for a bullish candle (e.g., hammer) at LL2.

  2. Enter long with stop-loss below LL2.

  3. Target: Nearest resistance level.
     → Signals exhaustion of sellers, impending bounce.

Scenario 2: Topping an Uptrend (Bearish Divergence)

• Price: Makes a new high (HH2).

• RSI: Forms a lower high (LH) < 70 (overbought).

• Action:

  1. Short on confirmation (e.g., bearish engulfing candle).

  2. Stop-loss above HH2.

  3. Target: Support or 1.5x risk.
     → Signals fading buyers, reversal imminent.

Scenario 3: Trend Continuation (Hidden Divergence)

• Uptrend Pullback: Price ↑ (higher low), RSI ↓ (lower low).

• Action: Buy the dip → Confirms trend strength.

Why RSI Divergence Beats Other Indicators

Limitations & Risk Management

1. Not Standalone: Always pair with:

   • Price structure (support/resistance, trendlines).

   • Volume surges (confirms momentum shift).

   • Candlestick patterns (e.g., doji at divergence point).

2. False Signals in Strong Trends:

   • In parabolic moves, RSI can diverge early → Wait for price confirmation (e.g., break of trendline).

3. Timeframe Sensitivity:

   • Daily/weekly divergence > hourly > 5-min.

4. RSI Settings:

   • Default: 14 periods. Shorten (e.g., 9) for day trading; lengthen (e.g., 21) for swing trades.

Tactical Edge: How Pros Use It

• Swing Traders: Spot reversals at key S/R with 4H/daily RSI divergence.

• Day Traders: Combine 15-min RSI divergence with VWAP and volume profiles.

• Crypto Traders: Use RSI divergence to fade extreme FOMO pumps/dumps.

Classic Example:
NASDAQ 100 (2020 COVID crash):

• Price made lower lows in March.

• RSI printed higher lows (bullish divergence) → Preceded a 70% rally.

Key Takeaway

RSI divergence works because it:
✅ Exposes momentum decay before price reverses.
✅ Adds conviction to overbought/oversold readings.
✅ Fits multiple strategies (reversal, continuation).

Always wait for confirmation – divergence alone isn’t a trigger. When aligned with price action and volume, it becomes a high-probability weapon in your trading arsenal.

The definition of divergence is when price and indicator move in different directions

for instance, when price is in uptrend and reaches a higher high where the indicator is in downtrend.

Features and inputs:

1. Instant signal on current (last) bar, no repaint.
2. Three range mode:Short, Mid and Long to check divergence.
3. Four plots can be used from other NinjaScript: Bullish Regular Signal, Bearish Regular Signal, Bullish Hidden Signal and Bearish Hidden Signal
4. Alert when a signal appears.
5. Select different sound alert files.
6. Enable to show lines between Highs and Lows.
7. Market Analyzer with alert. You can add new sound files to your NT8\sounds directory.
8. Wait 1 bar: enable this new feature will display the signal 1 bar later in order to check the trend direction of both price and related indicator, otherwise, it will display the signal on current bar. We consider this feature as a 1 bar confirmation for divergence signals.

There will be a 'H' drawn under a hidden divergence.