RSI Divergence Indicator MT4 is undoubtedly a powerful tool designed to assist both veteran and newbie traders to cover their inadequacies especially when trading on the MetaTrader 4 platform.
The indicator boosts traders’ ability to trade with success by providing some functionality they need to excel in the Forex trading industry. It helps them to trade with classic oversold and overbought levels.
The oversold or overbought feature is a helpful guide for traders. It enables them to know the right time trade means reversion strategies or when they should enter the trade on reversals. This is because such markets are the best conditions under which reversals happen.
This is in addition to helping them to find the hidden and classic divergences between indicator and price, a useful piece of information for new traders.
It isn’t restricted by time frame as it can be effectively used for any time frame, although traders tend to get more reliable signals from the divergence when they use it over a longer period.
What is Divergence?
Divergence refers to the disagreement that occurs between an oscillating indicator and price chart. You can easily notice this when the depth of height of the troughs and peaks on a price chart differ with the troughs and peaks on the indicator.
Divergence usually occurs before a thrust or sharp reversal. This is one of the several reasons while divergence trading is a recipe for entering on reversals.
Characteristics of RSI Divergence
The RSI Divergence Indicator for MT4 has a good number of characteristics that make it a must-have tool for Forex traders. Some of these attributes include:
- Trading Time: The trading tool can also be used to trade at any time of the day. However, you must pay attention to some economic indicators and announcements during the day to enable you maximize trading opportunities.
- Currency Pairs: This feature enables you to use the tool to trade any form of currency pair. You have a long list of options to choose from. However, you should limit its use to major currency pairs such as GBP/USD, EUR/USD, or USD/JPY.
This doesn’t imply that the tool is limited to currency pairs only. It can also be used on indices and commodities.
- Time Frame: As an effective trading tool, RSI Divergent Indicator for MT4 can be used in a wide range of time frames. Nevertheless, it is most recommended for D1 and H4. Such markets are preferable because they are less “noisy.” The price patterns for such markets are very reliable and clearly displayed for all to see.
- Trading Platform: While some divergent indicators are multiplatform and can work across many platforms, RSI Divergent Indicator is specifically created for the MetaTrader 4 platform.
It functions primarily by tracing trend lines price chart. This enables it to give traders information about the market, majorly its direction. It also shows bearish and bullish arrows that traders can use to detect trading divergences. This is pretty easy to use. A simple glance at the graph provides them with every piece of information they need.
Notice some important facts that can help you to maximize the potential of the RSI Divergence Indicator for MT4:
When the chart price line and the RSI Divergence Indicator are moving in the same direction, which implies that the price trend has lower chances of changing. Divergence occurs when the price chart line and the RSI line slope from each other.
Another important factor is the nature of the change occasioned by the RSI Divergence Indicator. It the change below the 30% of the RSI’s area or forms a peak above the RSI’s 70% level, the indications of divergence formed are reliable.
Divergence signals confirm an entry in the bearish or bullish trend. This is advantageous for traders who can use the provided information to get out of a weak trend. Although the signals don’t occur every time there is a change, they nevertheless give a powerful evidence of a change in trend when it eventually occurs.
When there is a divergence between the price and RSI indicator, it is an indication that the current trend is gradually moving towards its end.
Some divergence signals are specific. They may show the exact time that a trend is expected to change. Sometimes, though, some signals will give a couple of hours, days, or weeks before the actual change in the trend.
Thus, technical traders depend on information received from the RSI Divergence Indicator as a warning of the impending end to a trend and help them to prepare for such an end.
RSI Divergence Indicator for MT4 also enables you to buy long trade or sell short trade. However, you must abide by some trade rules that include entry, stop loss, and take profit.
Buy Trade Rules
Under the buy trade rules, the following are important:
Before you make the entry move, the following conditions must hold true:
- You should observe a bullish divergence.
- The RSI should have a trough that visits the oversold area below 30%.
- You should also observe a bullish price pattern or candlestick pattern.
- Stop Loss
- Set the stop loss below the entry candle at the swing low.
- Take Profit
There are two options of taking profit.
- Set the take profit at twice (2x) the risk.
- At a swing high, set the target take profit.
Sell Trade Setup
- You should observe a bearish divergence easily.
- You should observe a price pattern or a bearish candlestick pattern.
- The RSI’s peak should have visited the overbought area above 70%.
- Set loss
- At the swing above the entry candle, set the stop loss.
- Take Profit
- One of the two conditions for taking profit is either you set the take profit at twice (2x) the risk or when trade is at a recent swing low, you set the target profit.
Paying attention to such signals or other related pieces of information will make a huge difference between making a wrong and right investment decision.
Conclusion RSI Divergence Indicator MT4
The RSI Divergence Indicator for MT4 is apparently a great trading tool for all categories of traders. It allows you to trade efficiently by leveraging the information provided by the tool. If the RSI Divergence indicator is in our list off Best Metatrader Indicators you can find out here on this link.