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Using RSI divergence like a pro

Readers who have been following my weekly outlook for a while, know that I often talk about RSI divergence. It is one of the tools in my trading toolbox. But what exactly is a divergence and how do you correctly identify it? How do you use the RSI indicator in reversal trading and how does it help you spot reversal setups?

Divergence

 

 

I get a lot of questions about the details of how to use the RSI indicator in general and RSI divergence in specific, so let’s go over everything you need to know in order to use RSI divergences like a pro.

 

What is RSI?

 

Now, to understand RSI divergences, the first step is to know what the RSI indicator actually measures. Most of you will have seen it on your trading platform, but do you really understand what it does? Let’s have a look.

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pin and drive

The pin and drive reversal entry trigger

As you might know, I’m mainly a reversal trader. I use other strategies as well, but my bread and butter setups revolve around swing trading reversals.

 

This article is about an entry trigger I often use for my reversal trades. I describe it in my trading plan as pin and drive, which basically means that if I see a pin bar followed by a drive in the opposite direction (a momentum candle, if you wish) AND some additional conditions are fulfilled, I have found that it is often a good trigger to enter a reversal.

 

But first, let’s make it clear what I mean with a chart:

 

Pin and drive reversal trigger examples

 

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XAUUSD

Weekly forex outlook: January 28

Hi traders! How was your trading week? I’m quite early with my weekly forex outlook this weekend. One of the things I’ve started to make a habit of (thanks to this book), is to get up early. It’s incredible what you can get done if you get up a couple hours earlier, it feels to me like I almost have an extra half day available to me!

 

The past week was relatively quiet. However, it still gave us excellent conditions for a couple of trade setups I was describing in last week’s outlook (see the past week trade review section below!).

 

The dollar initially moved lower but regained some of its losses in the second part of the week, ending pretty much where it started. As predicted in our previous outlook, gold saw a sell-off to below-1200 levels. Finally, oil crept up a bit higher but stayed mostly in the range it’s currently in.

 

Macro weekly outlook

 

 

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