Price might be making new highs, but the **momentum (RSI)** is dropping. This is **Divergence**. It shows the **internal weakness** of a trend before it collapses.
Professional traders look at momentum (RSI) to spot the reversal before it happens. **Never trade Divergence alone.**
SVG 1: Regular Bearish Divergence (Reversal Warning)
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1. Regular vs. Hidden Divergence
**Divergence** occurs when the **Price Action** and the **Oscillator** (RSI) disagree.
- **Regular Divergence (Reversal):** Spots the **End of a Trend**. (e.g., Price HH, RSI LH = Bearish Reversal).
- **Hidden Divergence (Continuation):** Spots the **Continuation of the Trend**. This is often safer to trade as it aligns with the macro trend. (e.g., Bullish Hidden: Price HL, RSI LL = Buy the Dip).
SVG 2: Divergence Cheat Sheet (Signal & Direction)
2. Managing Counter-Trend Risk (The 3-Step Setup)
**WARNING:** Never trade Divergence alone. You will blow your account trying to pick the top against a strong trend. **Risk management requires confirmation.**
SVG 3: 3-Step Confluence Setup (Safe Entry Flow)
3. Final Thoughts and Risk Integration
RSI Divergence is like an **X-Ray machine** for the market. It shows you the internal weakness of a trend before it collapses.
- **Fakeout Identification:** If price breaks a Resistance level, but the RSI is significantly lower than the previous peak, it signals a high probability of a **Liquidity Grab (Fakeout)**.
- **Risk Rule:** Always wait for **Price Action (CHOCH)** to confirm the reversal first, after spotting divergence. This discipline is essential for mitigating **counter-trend risk**.
Monitor the structural flow of the market via the Realtime Market Dashboard.
