Can someone tell me why divergence is significant? From my point of view, RSI is a relative measure of momentum, which is bound by some sliding window of time, so it will always converge to a set group of values. Saying something is diverging is like saying that the absolute value of the ticker is going either up or down, while the relative value is moving within its range based on the sliding window. You're just explaining that math is math, and it's doing what it's supposed to.
Like the large drop in RSI in October is because the for most of that relative period before the drop, the average was high, so that sudden drop changed the momentum. Now that we've been trading much lower, the average price is low, and the current price in relation to the moving average is not as drastic, so the RSI is higher than the original drop, even though the absolute price is lower.
Maybe I'm wrong but it certainly seems that "divergence" is just a signal for people who don't understand math.
Princessgirl
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I think it will just reverse for the next week, then go back down for the week before Christmas.
Like the large drop in RSI in October is because the for most of that relative period before the drop, the average was high, so that sudden drop changed the momentum. Now that we've been trading much lower, the average price is low, and the current price in relation to the moving average is not as drastic, so the RSI is higher than the original drop, even though the absolute price is lower.
Maybe I'm wrong but it certainly seems that "divergence" is just a signal for people who don't understand math.