RSI is one of the most popular momentum oscillators. Despite being developed over 40 years ago, it remains an extremely useful tool in helping to understand the state of a market.

Oscillating between 0 and 100, traditionally when RSI is above 70 the asset is considered overbought while a read below 30 is considered oversold. However, this simple metric is usually insufficient in timing a reversal. If you’ve been trading for more than a week, you will have noticed that an asset can remain overbought or oversold for far longer than anyone expects.

While utilizing RSI for a simple understanding of potentially overbought and oversold conditions can be useful, far more powerful is spotting RSI Divergences. There are four types of RSI Divergences:

Bullish and bearish divergences can be a sign of a reversal in price. Many a crypto top has been foreseen by bearish divergence on the higher time frames. Similarly, bottoms are often put in after multiple drives of bullish divergence.

Hidden bullish and hidden bearish divergence can often signal the continuation of a trend. Price may be pumping and bulls may be aggressively adding to their longs, but in the context of a downtrend the appearance of hidden bearish divergence indicates that the prevailing macro trend will likely continue. The same holds true of hidden bullish divergence in an uptrend where one might expect a downward move in PA to be unsustained, with bulls stepping in to buy the dip.

Remember, the higher the time frame the more meaningful the divergence.