I've posted about this topic before in my blog, but I failed to notice this very interesting divergence pattern.
I call this pattern the Itty-Bitty-Tiny-Little-Winnie RSI Divergence.
This RSI Divergence pattern comes when the price makes a new High/Low, but the bar displayed is a down bar (if new High is made) or a up bar (if a new Low is made), and RSI is showing a decrease (if a new High is made) or a increase (if a new Low is made).
This might sound a little confusing, so I made you a picture (blue lines show the Itty-Bitty-Tiny-Little-Winnie RSI Divergence):
You can see from the picture that it can get most of the major tops and bottoms, which is wonderful for the everyday swing trader. I should also attach some rules to this pattern:
- If you make an entry using this pattern, then enter at the High/Low of the Diverging Bar
(the bar that displays the pattern).
- The Diverging Bar should be the opposite colour of the previous bar
- This Divergence pattern should only occur between two bars (which is why I call it the
Itty-Bitty-Tiny-Little-Winnie RSI Divergence)
So, if the Diverging Bar is displaying a downward reversal, then the entry point would be the Low of that Diverging Bar (opposite if the Diverging Bar is displaying a upward reversal).
I've seen this pattern on all timeframes and all markets, so if you want to include this pattern in your RSI Divergence armory then it could give you that nice reversal confirmation. I will also tell you that this pattern does not work 100% of the time (like all things that deal with markets). There are false signals, so cover your ass with a stoploss.
P.S. I may not have marked EVERY Itty-Bitty-Tiny-Little-Winnie RSI Divergence Pattern on the chart displayed, so if you see one don't think I'm ignoring it, I just didn't see it is all.
