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Great question! **RSI Divergence** is one of the most powerful signals in technical analysis. Here's how it works:

What is it?

Divergence occurs when the price chart and the RSI indicator move in opposite directions — they "diverge" from each other.

Two types:

🔴 **Bearish Divergence** — Price makes a higher high, but RSI makes a lower high. This means buying momentum is weakening even as price rises. It often signals an upcoming reversal to the downside.

🟢 **Bullish Divergence** — Price makes a lower low, but RSI makes a higher low. Selling pressure is weakening even as price falls. This often signals a potential bounce or reversal upward.

Real example: In early 2022, SPY made a new high in January while the RSI formed a lower high — a classic bearish divergence that preceded a significant market decline.

Important: Divergence is a warning signal, not a guaranteed reversal. Always confirm with other indicators like volume or a candlestick reversal pattern before acting.

Not necessarily — and this is where many beginners make mistakes. Here's how to think about it:

Divergence is a caution signal, not a sell trigger. Here's a checklist before acting:

1. **Confirm the timeframe** — Divergence on a 1-hour chart is less significant than on a daily or weekly chart. Higher timeframe divergence carries more weight.

2. **Look for confluence** — Does divergence align with a key resistance level? Is there a bearish candlestick pattern forming (like a shooting star or bearish engulfing)?

3. **Check volume** — Is volume declining on the recent price highs? Declining volume during an uptrend + RSI divergence = stronger warning.

4. **Consider your risk management** — Rather than selling immediately, you might tighten your stop-loss to protect gains, or reduce position size.

My recommendation for beginners: Use divergence as a reason to become more defensive — tighten stops, take partial profits — rather than a hard exit signal.

Would you like me to walk through a specific example with a real stock chart pattern?