Trading Momentum Divergences

Divergences between price and momentum indicators such as the Relative Strength Index (RSI) can be useful in signaling potential points of trend reversal. When price is closing at higher highs, but RSI is closing at lower highs, this shows weakening bullish momentum and thus a potential bearish reversal from a swing high. Conversely, when price is closing at lower lows while RSI is making higher lows, this shows weakening bearish momentum and thus a potential bullish reversal from a swing low. The SOL/USD chart below from March-April 2024 provides examples of these bearish (blue) and bullish (purple) divergences.

Momentum divergence theory is best used in combination with price action theory which identifies key historical levels. This video excerpt by @Coldbloodedshiller is an excellent reference point for further study.