The Relative Strength Index (RSI) is a powerful tool, but most traders only use it to check for overbought (>70) or oversold (<30) conditions. The real magic, however, lies in 'Divergence'.
Bullish Divergence occurs when the price of an asset makes a new lower low, but the RSI indicator makes a higher low. This indicates that while sellers are still pushing the price down, their momentum is weakening. It is often a sign that the bears are exhausted and a reversal is imminent.
Conversely, Bearish Divergence happens when price hits a higher high, but RSI makes a lower high. This signals weakening buying pressure despite rising pricesโa classic trap for late bulls. Combining RSI divergence with the Market Scream Index can significantly increase your win rate.
๐ก Key Takeaway
Use the Market Scream Index to identify emotional extremes in the market. When everyone is panicking, it's often the best time to be greedy.
Disclaimer: The content provided on this website is for informational purposes only and does not constitute financial advice. Trading stocks and options involves significant risk. Always perform your own due diligence before making investment decisions.