Trading RSI Divergence

Forex traders using RSI Relative Strength Index to determining Oversold and overbought. Even though oversold and overbought can help Forex trader , they often look for divergence pattern. Divergence is a powerful pattern between chart and indicator that can identify price reversals. In the following chart I have an example chart EURUSD reversing after trading bearish on EURUSD daily chart.

Usually RSI technical indicator will follow market price as the EUR price moving down so will RSI indicator too. Divergence pattern shows when indicator splits from the price and they start trading in 2 different trend directions.

To start analysis we have to compare the lows on the market chart. In a bearish trend prices should be trading lower lows and that is what the EUR trades. In the following chart , RSI technical indicator trading a series of higher low. This is the divergence pattern ! With this divergence pattern Forex traders can then plot the trading system while searching for market price to swing against the last trend and breakout to higher.