This document discusses different types of divergences that can occur between price and the Relative Strength Index (RSI) indicator. It defines simple, hidden, and multiple divergences and provides "cheat sheets" to identify them. Simple divergences occur when price and RSI make higher highs/lower lows that do not confirm each other. Hidden divergences occur when RSI makes higher highs/lower lows than price. Multiple divergences involve a series of non-confirming highs or lows between price and RSI. The document provides guidelines on when each type of divergence is most reliable based on RSI values and other technical patterns.

1. Trading Divergences

2. Topics:
 RSI
 RSI Math's
 Internal Characteristics
 Ratio Analysis
 Trend Determination
 Range Shift
 Various patterns n their Reliability.
 Math Error/Divergence
 Classification of Divergence.
 Simple Divergence
 Calculation of Divergence.
 Cheat sheet of Simple Divergence
 Hidden Divergence
 Cheat Sheet of Hidden Divergence
 Multiple Divergence
 Cheat Sheet of multiple Divergence
 Conclusion

3. Relative Strength Index(RSI)
 In June 1978, Welles Wilder introduced the Relative Strength
Index.
 It represents a ratio of the average 'gains' to the average 'losses'
calculated over a number of time periods.
 It is a formula based indicator which is usually assume to test the
strength and movement in the market.
 It is a range bound Oscillator which has upper boundary at 100 &
lower boundary at 0.
 RSI is considered overbought when above 70 and oversold when
below 30.
 Signals can also be generated by looking for divergences, failure
swings and centerline crossovers.
 RSI can also be used to identify the general trend.

4. RSI MATHS
 RSI Formula can be defined as
RSI = 100 - 100
(1+RS)
RS is defined as ratio between average gain to average loss over a
certain period of time
Average Gain over “n” period of times
Average Loss over “n” period of times
Where n can be defined by user
Generally it is used as 14 days of period.

5. Internal Characteristics Of RSI

6. Ratio Analysis
 The RSI behaves like a logarithmic curve.
 Anytime the ratio exceeds 10: 1 , the market has been experiencing
a very strong move up.
 Anytime the ratio exceeds 1 : 10, the market has been experiencing
a very strong down move.
 The largest increase or decrease in the RSI value occurs when the
ratio changes from 1 : 1 to the next whole number (2: 1 or 1 :2).
 The RSI value experiences its largest changes in value as it
oscillates between the index values of 40 and 60.
 In other words the RSI is most sensitive to price change when the
RSI is oscillating between 40 and 60.
 When the ratio is 20: 1 , The RSI value at this time is only
95.24/4.76. This is a market condition that almost never occurs
when the look back period is 14 bars.

8. Determination Of Trend
 In a Bull market RSI value tends to travel in between 40-80 zones.
 In a Bear Market RSI value tends to travel in Between 60-20 zones.
 In Sideways market RSI Value tends to travel in between 40-65
zones.
 In extreme or very strong Bull market RSI bound in 60-90 levels.
 In extreme or very strong Bear market RSI bound in 40-10 levels.
 Value above 95 and below 5 are very rare. As above or below this
this level RSI behave logarithmically means change in RS is very
minute to notice .
 Above levels are applicable in any timeframe.

16. Range Shift
 Range Shift simply means when a security changes its trend .
1. From uptrend to downtrend.
2. From Downtrend to uptrend.
3. From Sideways to uptrend/downtrend.
4. From Uptrend/Downtrend to Sideways.

22. Various Patterns n Their Reliability
 M pattern
 W pattern
 V pattern
 Double Top/Bottom
 Head n Shoulder
 Flag
 Triangles
 Spring
 Wedges

30. Math's Error or Divergence
 It can be define as whenever there is a misunderstanding b/w price n
indicator they used to get divert from each other and moved in opposite
direction to each other.

31. Classification Of Divergence
Divergence
Simple or
Classic
Bullish Bearish
Multiple Bullish
& Bearish
Simple / Hidden
Hidden
Bullish Bearish

32. Simple or Classic Divergence
 Whenever price makes a higher high n RSI makes lower high then it
is said to be Simple Bearish Divergence.
 Whenever price makes a lower low n RSI makes higher low then it
is said to be Simple Bullish Divergence.
 Simple Bullish Divergence occur in bear market, commonly known
as short covering.
 Simple Bearish Divergence occur in bull market, commonly known
as retracement or correction.

34. Calculation of Divergence
For Bullish Divergence:
D=(P–T)
DT=(P+D)
Where ,
P =Value of peak in b/w 2
troughs,
T=Lowest value of trough,
D = Difference of P & T,
DT = Divergence Target.
For Bearish Divergence:
D=(P–T)
DT=(T-D)
Where ,
P=Highest Value of Peak,
T=Value of valley in b/w 2
peaks,
D = Difference of P & T ,
DT = Divergence Target.

41. Key Points For Simple Divergence
 A simple bullish divergence is more reliable when RSI value lies
between 40 to 10 .
 A simple bearish divergence is more reliable when RSI value lies
between 80 to 65 .
 Lesser the no. of candles between 2 troughs or peaks more
powerful will be reversal in terms of price n time both.

42. Hidden Divergence
 Whenever RSI makes a Higher high & price makes a lower high
then it is said to be Bearish Hidden Divergence.
 Whenever RSI makes a lower low & price makes a higher low then
it is said to be Bullish Hidden Divergence.

49. Key Points For Hidden Divergence
 Hidden divergence mostly occur between 40 to 65 level as RSI
value.
 A bullish hidden divergence is strongest when it occur near 40 level
with W or double bottom pattern.
 A bearish hidden divergence is strongest when it occur near 65
level with M or double top pattern.
 Usually highest volume is witness in reversal candle as compared
to last 5-8 candles near its resistance at 65 or support at 40 in RSI .

50. Multiple Divergence
 Whenever price makes a series of lower low n RSI makes a series
of higher low it known to be Multiple Simple Bullish Divergence.
 Whenever price makers a series of higher high n RSI makes a series
of lower high it is known to be Multiple Simple Bearish
Divergence.
 Whenever RSI makes a series of lower low n Price makes a series of
higher low it is known to be Multiple Hidden Bullish Divergence.
 Whenever RSI makes a series of Higher high n Price makes a series
of lower high it is known to be Multiple Hidden Bearish
Divergence.

57. Key Points For Multiple Divergence
 Multiple Bullish Divergence are more reliable when RSI value lies
between 40 -10 along with triple bottom , falling wedge , H &S
formation formed either in RSI or in price.
 Multiple Bearish Divergence are more reliable when RSI value lies
between 65-80 along with triple top , rising wedge, H&S formation
formed wither in RSI or in price.
 Multiple hidden divergence are more reliable when RSI value lies
between 40-65 along with spring ,triangle, flag or combination of three
is formed either in Price or RSI.
 Multiple Divergence are the strongest & most reliable trend reversal
signal .
 Valid for all timeframe.

58. Conclusion

60. THANK YOU