The RSI Divergence Scalping Strategy Explained in 5 Minutes — Transcript

Full transcript

1. 0:00The trend is your friend is the most
2. 0:02common phrase heard in day trading. And
3. 0:04in this video, I'm going to show you how
4. 0:06to identify the tops and bottoms of
5. 0:09these trends using RSI divergences on a
6. 0:13lower time frame, like the 1 minute or
7. 0:15the 5-minut. Because there's one thing
8. 0:17that most people don't look at or don't
9. 0:19understand when they're identifying
10. 0:21their trends. If you missed yesterday's
11. 0:23video, we covered breakouts of
12. 0:26consolidation zones. And now we're going
13. 0:28to discuss how to identify bullish and
14. 0:31bearish trends. Now the simplest way to
15. 0:33do this is using your brush tool. You
16. 0:36will draw zigzag lines on the highs and
17. 0:40lows of price based on what you see, the
18. 0:43highs and lows of these swing
19. 0:46structures. This is going to help you
20. 0:48clearly identify where price is going
21. 0:51without getting so caught up in each
22. 0:54individual candlestick. Because once
23. 0:56you've drawn your zigzag line, you can
24. 0:59actually remove the candles from your
25. 1:00chart. All you got to do is click hide.
26. 1:02And now you have a clear view of what
27. 1:05market structure is. If price is going
28. 1:07down or if price is going up. Now
29. 1:10hopefully you can see this more clearly,
30. 1:12but we have price going down and we have
31. 1:15price going up. Now identifying higher
32. 1:17highs and higher lows, this is crucial
33. 1:20because if we break a higher high in an
34. 1:22uptrend, that's a break of structure. If
35. 1:25we break a lower low in a bearish trend,
36. 1:29that's also a breakup structure. And the
37. 1:31easiest way to do this is again using
38. 1:34the brush tool. You're going to mark out
39. 1:36a low and a high. If price continues
40. 1:39down to break this previous lower low,
41. 1:42closing below that previous structure
42. 1:45and then retracing, these are your
43. 1:47higher highs and higher lows, not these.
44. 1:51As price fails to create a new lower
45. 1:54low, the trend is most likely over. This
46. 1:57low did not go lower than this low. So,
47. 2:00this is now a higher low. And then we
48. 2:02have an additional higher low. And we
49. 2:05have an additional higher high. Now,
50. 2:07what I want you to do is practice
51. 2:09drawing these zigzag lines on all of the
52. 2:12market structure that you can see at any
53. 2:14time. Because what ends up happening is
54. 2:16that you no longer see the noise of the
55. 2:19candles, but you're able to see more
56. 2:22clearly the trend and stop focusing on
57. 2:24these individual green or red candles or
58. 2:27yellow and white like I have. I just
59. 2:30want you to find the pivot points and be
60. 2:32able to identify them better because if
61. 2:34you can clearly identify bearish market
62. 2:36structure, you'll be able to more
63. 2:38clearly see when that trend is starting
64. 2:41to die off. For example, we have our
65. 2:44bearish market structure, lower lows and
66. 2:46lower highs. Something happened here
67. 2:48that caused price to spike up. Now, if
68. 2:51we look at a momentum indicator like the
69. 2:54RSI, you can see that on the RSI,
70. 2:57anything that is around the 30 range
71. 3:00means that the momentum is extremely
72. 3:02bearish. Not that it's going to reverse
73. 3:04at that point, but that the sellers are
74. 3:06in power. And as you can clearly see,
75. 3:08the RSI can stay oversold for a very
76. 3:11long time. and continue that downtrend
77. 3:13with a lot of momentum. That is why I
78. 3:15like the RSI because it shows me what
79. 3:18direction the momentum is. But now, if
80. 3:20you look at the market structure and
81. 3:21find that lower low and the last lower
82. 3:24low, you can then look at the RSI and
83. 3:27you can determine that the momentum is
84. 3:29beginning to die off. Momentum dying off
85. 3:33in bearish market structure means that
86. 3:35the sellers are no longer interested in
87. 3:38selling. They've run their leg of the
88. 3:40race. They're extremely tired and
89. 3:42they're done with selling. Once sellers
90. 3:44are done with selling, who's going to
91. 3:47take over? The buyers. They've been
92. 3:49waiting for seller exhaustion so that
93. 3:51they can take the price in their
94. 3:53direction. Being able to identify these
95. 3:55RSI divergences if you are trading with
96. 3:58the trend is going to get you out of
97. 4:01your bearish trend trade the whole time
98. 4:04and let you know that the opposite
99. 4:06direction is more than likely to take
100. 4:08effect. So at this point once you see
101. 4:10these divergences you can take long
102. 4:13positions and keep your stop loss at
103. 4:15that previous structure because you know
104. 4:17if price makes a lower low then that
105. 4:21bearish market structure is going to
106. 4:23continue and again targeting a 1 to 1.5
107. 4:26you can actually anticipate these small
108. 4:28pullbacks in price because this is a
109. 4:30lower time frame. We're not actually
110. 4:32looking for these gigantic swing trades.
111. 4:34We are simply trying to take a piece of
112. 4:36the market when there is clear signs of
113. 4:39exhaustion of the trend. Failure to
114. 4:41continue market structure, failure to
115. 4:44break the structure. A loss of momentum
116. 4:46is your greatest indication to know to
117. 4:49get out of a trade and or enter the
118. 4:51opposite trade. So just to add a little
119. 4:54bit more spice and seasoning to this
120. 4:56strategy because I know some of you are
121. 4:59identifying this lower low. This is a
122. 5:01part of my secret sauce that when I
123. 5:04trade divergences, I'm looking for a
124. 5:07very specific setup. Not any divergence,
125. 5:10but I want two diverging points where
126. 5:13the first divergence is outside of the
127. 5:187030 range, the standard range of
128. 5:21overbought and oversold. And then I want
129. 5:23the next point to be within that 7030
130. 5:28range. That is my highest indication
131. 5:31that price has already lost its momentum
132. 5:34to the sell side for this regular
133. 5:36bullish divergence and I can comfortably
134. 5:39take a trade based on the first bullish
135. 5:42candle. And if you do that, your
136. 5:44risk-to-reward is much better, but
137. 5:47getting your 1 to 1.5 is a much easier
138. 5:50trade. Now, in tomorrow's video, I'm
139. 5:53going to show you how you can actually
140. 5:55trend trade better by using Fibonacci
141. 5:57retracements and actually trade with the
142. 6:00trend and enter in on the best points of
143. 6:03those trend pullbacks. So hopefully you
144. 6:06now understand why momentum and the
145. 6:09dying off of momentum is so crucial to
146. 6:12understand when you're looking at market
147. 6:14structure because you don't know just
148. 6:17based on price how much further that
149. 6:20trend is going to continue. But if you
150. 6:22have a momentum indicator like the RSI,
151. 6:25you can see when there is a loss of
152. 6:27momentum and that is your first warning
153. 6:29sign that trend might be over. Thank you
154. 6:32so much for watching. Make sure you come
155. 6:34back tomorrow for the Fibonacci
156. 6:36retracement trend trading