The Relative Strength Index (RSI) is a momentum indicator used in technical analysis. So what is a bullish divergence on a RSI and whether a bullish divergence is good or not. Let’s find out by reading the article below.
What is a bullish divergence on a RSI?
A bullish divergence occurs when the RSI shows an oversold reading followed by higher lows in price. This could indicate rising bullish momentum and a breakout of oversold territory could be used to trigger new long positions.
Is a bullish divergence good?
Divergences, whether bullish or bearish, are categorized according to their level of strength. The strongest divergences are Type A divergences; the less intense are Type B divergences, and the weakest are Type C divergences. The best trading opportunities are indicated by Type A divergences, while Type B and C divergences represent market volatility and should generally be ignored.
A Type B bullish divergence occurs when price tracks a double bottom, with oscillators tracking a higher second bottom. A Type C bullish divergence occurs when prices make new lows while the indicators track a double bottom. Type C divergences are the best indications of market stagnation bulls and bears neither get stronger nor get weaker.
I hope this article will help you to learn what is a bullish divergence on a RSI and whether a bullish divergence is good or not. Since the relative strength index is primarily used to determine whether a security is overbought or oversold, a high RSI reading could mean that the security is overbought and the price may fall. Therefore, it may be a signal to sell securities.
