Thread by @prodigal_trader

1/5

How does momentum divergence occur?

RSI is an oscillator set to oscillate between 0 and 100.
It measures the “ratio of average gain/average loss” based on closing price.
Here gain = closed abv previous close
Loss = closed below previous close

2/5

Simply putting rsi will increase if price has higher close.
Bt here its “average” gain/loss.
That simply means there is a time factor at the denominator.
Putting it simply, if price going up after a correction, yet price goes up only slowly,

3/5

means price closing abv previous close in decreasing percentage, this “average gain” will decrease.
RSI will get only lesser value even though price has made a higher high.

4/5

Difference was second rally was slow and it took more time.
“Rate of gain” was lesser compared to last rally showing falling momentum.
Its divergence

5/5

NB: made a serious write up after a long time.
it was inspired from a quiz i condiucted.
It was very scary to see that majority of the exponents of RSI has no idea what leads to divergence.

study deep dear friends
ur money is at stake here