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RSI Divergence with BigShort: Mastering Momentum Reversals
RSI Divergence with BigShort: Mastering Momentum Reversals

Enhance your trading precision with advanced indicators and institutional insights.

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Written by Brennan White
Updated over a month ago

Introduction

RSI divergence is a powerful signal that can alert you to potential momentum reversals in the market. With BigShort, you can not only spot these divergences but also validate them using a suite of unique institutional-tracking tools — DarkPools, SmartFlow, and Net Option Flow (NOF). This guide is designed to help you become more profitable when trading RSI reversals with BigShort.

What Is RSI Divergence?

RSI divergence occurs when the Relative Strength Index (RSI) and price action diverge, suggesting that the prevailing momentum may be weakening. For example:

  1. Bullish Divergence: Price forms lower lows while the RSI forms higher lows.

  2. Bearish Divergence: Price forms higher highs while the RSI forms lower highs.


This discrepancy can indicate that the current trend is losing steam and is ripe for reversal.
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How to Identify the Setup


Detect the Divergence

Compare price action and RSI: Look for moments when price continues in one direction while the RSI tells a different story.
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Quick Tip: If prices are making new highs but the RSI is not, it’s a sign of potential bearish divergence.

Validate the Signal

Use BigShort’s advanced tools:

  1. DarkPools (Yellow ovals below) appearing above the price action indicate a coming bearish move

  2. MomoFlow: See how the RSI reversal was predicted by the Momo exhaustion (large shadow bar inside blue square) and followed by increasingly bearish indication via the red Momo line (blue arrow)

Executing the Trade: Entry, Stop Loss, and Profit Target

Entry Point

When to Enter: Initiate your trade once the price reversal is confirmed by RSI divergence and at least two BigShort signals.

Stop-Loss Placement

Managing Risk: Place your stop-loss just above (for a bearish setup) or below (for a bullish setup) the recent high or low.

Profit Target

Setting Your Target: Measure the divergence’s range to establish a profit target, then adjust based on real-time institutional signals from SmartFlow and NOF. This approach helps you maximize gains and avoid losses.


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Key points

  1. Multiple Validations: Always confirm RSI divergence using BigShort’s suite of indicators (DarkPools, MomoFlow, SmartFlow, and NOF) for the most reliable signals.

  2. Risk Management: Place stop-loss orders strategically near recent price extremes to protect your capital.

  3. Dynamic Adjustments: Use BigShort's institutional insights to fine-tune your profit targets and manage trades dynamically.

By integrating RSI divergence analysis with BigShort’s advanced indicators, you gain a clear, actionable edge in identifying momentum reversals. Use this guide as a reference to enhance your trading strategy, and consult our additional tutorials and support resources for further insights.
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Disclaimer:
​The information provided in this article is for educational and informational purposes only and should not be considered as financial advice. BigShort does not provide personalized investment recommendations or advice, and you should not make any trading or investment decisions based solely on the content of this article. Trading in the stock market involves significant risk, including the potential loss of your entire investment. Past performance of our tools, indicators, or any referenced strategies does not guarantee future results. Always do your own research and consult with a qualified financial advisor before making investment decisions. Use of our platform and its features is at your own risk.

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