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TOPIC: RSI Divergences

RSI Divergences - Broad-Rock 05 Jun 2013 14:03 #1

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Last Edit: 05 Jun 2013 14:05 by WaveSurfer.
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RSI Divergences - Broad-Rock 05 May 2013 08:12 #2

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I think the problem here is to understand it is the structure of the wave that determines whether or not the wave is corrective or motive, and has nothing to do with the direction in which it is running. Just because an instrument is making new highs, or lows, does not mean the high is on the back of a motive wave, or the low must be corrective. I think it is easier to think of the markets as going round and round as opposed to up and down. What goes around comes around if you like that analogy. Phi and the 'golden ratio' link to the formation of the universe right down to the shape of the snails shell and when one comes to think of the markets in the same light is when you begin to understand it is the structure which is important. Because Elliott demonstrated the waves going up and down in 5's and 3's doesn't mean all impulse waves go up or all corrective waves go down. I don't think it would be an exaggeration to say the majority of big drops in the market are attributable to impulse waves, which is precisely why the structure of the DOW can be a corrective wave making new highs.

I, like everyone else, am just a student trying to understand how and why this thing works. I don't claim to have all the answers. What I am sure of is there is order in the apparent chaos and the order appears to come from structure - the snails shell being a beautiful example.

For me the value in EWT has to be in appreciating where an instrument has come from in order that it can be determine where it is heading. This can only come from analyzing the structure in the weekly charts and working our way down through the daily into the four hour and beyond if necessary. I don't believe anybody trades the weekly charts but I do believe they are indispensable when studying the shorter time frames as they provide the data for the overall trend.

So many traders pick up on the phrase, 'let the trend be your friend', but few appreciate why this is so important. Let's say you are late getting into a wave 3 trade: you missed the re-test of the top of wave 1. If you are aware wave 3's will make a minimum of 1.618 of wave 1 you know the trade will come back to your side because you are trading with the trend. Now, before anyone gets the wrong idea, I'm not saying wave 3's only make 1.618 of wave 1, they very often extend and can go right on up to 6.814 of wave 1 but, I would take profit at 1.618 then reassess the structure. When the structure gets to 1.618, and there is divergence on the RSI, you can then be confident this is a wave 3 as opposed to an ABC. You are now looking for an extension to your wave 3 so look to the next level of the fibonacci percentages.

I hope this is of some help in understanding why I label my charts the way I do. I know this is not a view shared by all on this BB. That's fine. Remo has his way and Jackozy has yet another way. For me this method is all about structure. The DOW chart is now in an area I looked at many months ago as a possible target in that it is in the area of a 61.80% extension of the move from 572 up to the previous old high 14198 from the low at 6469. It is also in the 61.80 - 74.60% target zone of the extension up from W, X. So a very good place to see a retrace. Corrective waves occur in patterns of 3,7,11,15,19 and 23 swings. So far, if you check out the RSI, we see only 5 swings, therefore 6 and 7 are yet to come. Let's see what happens?
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RSI Divergences 02 May 2013 21:06 #3

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Hi Jackozy, thanks for your reply.

Re the expanded/running flat, I was hoping Diver would elaborate on how this can be a Corrective move to new highs whilst not being a B wave.

Thanks Diver for your reply, my mistake re the use of divergences, so it it only used to confirm motive waves or not?

Have started to read The Complete RSI and find it very good so far.
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RSI Divergences 02 May 2013 11:48 #4

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Thanks guys.

FWIW I think I've been pretty reasonable and balanced in my input to this thread. I totally understand that market analysis has moved on since the 30s (far from having my head stuck there) and have agreed that RSI divergences commonly DO occur at the end of motive waves.

On the other hand, I think it's misleading to tell people that they MUST occur as the pre-eminent condition of determining what can constitute a motive wave. This can lead to extremely confusing, not to say rule-breaking (if we can even use that term as relevant), counts.

I think we'd all agree that no system or method of analysis is correct 100% of the time, yet here we have diver purporting a 100% reliable requirement of a motive wave. It simply isn't so and to tell people otherwise is making a difficult subject even more so.

I'm quite happy to agree to disagree, but I don't think it's necessary to have to be subject to arrogant jibes ("You think I'm wrong but I know you are") and schoolground "pop"'s that my thinking is stuck in 1938. What sort of way is that to conduct an adult debate about a serious subject?

During this discussion, I haven't claimed that anything is categorically true 100% of the time yet I'm being told that I'm definitely wrong simply for pointing out that diver might not be 100% correct? I think a touch of humility might be in order here. Surely we can have a debate without trying to bully people into an erroneous way of thinking?

I will re-iterate my view one final time on this subject before I hope we can move on: RSI divergences do commonly occur between 3rd and 5th waves in an impulse wave but their lack of presence does not automatically rule out the possibility of such a wave. I fervently wish there were such a simple rule to help us with this difficult subject but there isn't. That's why so many find it so hard.

Now then, can we please move on to discuss RSI divergences on their own merit on this thread without reference to EWT as I suspect we'll not move on from here. I've read John Hayden's "The Complete RSI" and have some interesting findings, some of which I was aware of and others new to me; all of which may be of help to us all in trying to win in the markets.

Thanks again.

PS Broad-rock, I quite agree that it's possible to have a corrective wave make a new high in the form of an expanded flat (or running flat) but it would be the B element of that correction which did that rather than the A element which MUST be lower that the preceeding trend's high. An expanded flat would then usually have a C wave below the A whereas a running flat (very rare) could have a C which ends above A.
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RSI Divergences 02 May 2013 11:00 #5

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Agreed remo - one thing that must be noted is:

R.N. Elliott simply did not have enough data when he developed the theory. We have the tools and time that he did not. also the market has changed significantly through the use of technology since then... introduction of electronic trading and financial instruments.

what is commonly accepted practice, to what actually occurs contrary to common practice is another......
Last Edit: 02 May 2013 11:01 by WaveSurfer.
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RSI Divergences 02 May 2013 10:35 #6

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This is a good thread. :P :P
Diver/Jackozy
People will have different opinions when it comes to Elliott wave that is a given. I personally have created my own version of elliott as many know. I dont talk about it as its pointless and it almost drove me mad when i was trying to teach it.My method uses candlestick charts ;) ;) but im not gonna teach this method so dont ask :sick: :sick: :sick: Ive got my reasons as most know from the days of the private bb :ohmy: :ohmy:

Just agree to disagree on this matter as there is always more than one way to do things.
My methods of trading are different from conventional methods a lot of the time and this board is about trying to show what works for each other . No one is wrong as long as it works for you and you only will know . ;) ;)
Proofs in the pudding :P :P :P

You guys have not been offensive to each other so keep it that way. :P :P :P Just dont get personal like others have.
good thread as its very helpful to others to learn about RSI. :evil: :evil:
Information Purposes Only, Do Your Own Research
remo
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RSI Divergences 02 May 2013 06:19 #7

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Broad-rock,

For clarity I have never said this will identify the start or end of waves. What I do say is you cannot have a motive wave without an RSI divergence between the third and fifth waves. This is slightly different in that you can always have an extension to a wave. If it is a motive wave then, of course, you would also have a similar divergence in the extension. It must be so purely from the characteristics of a wave 5: it lacks 'strength' when compared to its counterpart, the wave 3, because the wave is ending. The RSI measures 'strength', hence this is a powerful tool in identifying motive waves from ABC's.
I know many people struggle with EWT, especially the labeling, hence my reason for bringing this to their attention. I don't claim to be 100% in my labeling, far from it, and I know it is impossible to be 100% correct, sometimes until after the wave 3 completes, as waves 2 and B waves can retrace to similar percentages. But, it's the RSI divergence which gives the game away and identifies the five-way wave as motive. Jackozy disagrees. Fine. But he already has his method. I brought this subject up to assist those who would like to learn but are struggling with the complexities not for those with closed minds stuck in 1938 :) sorry....couldn't resist the pop!
Might I suggest those interested folk take a dispassionate look back over their favourite charts and just see if they can see what it is I've been rattling on about.
That's all from me on the subject and apologies if this thread has caused any upset.
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RSI Divergences 01 May 2013 22:36 #8

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Hi B-r

I don't have any problem debating anything but there seems little to be gained by trying to have a discussion with someone who responds with "You think I'm wrong but I know you're wrong".

Question: if RSI was invented in 1978 and is probably the most widely used indicator, why has nobody else ever noticed that you can use divergences in it to guarantee a wave 5 top 100% of the time? The answer is simple: you can't. It happens a lot but not 100% of the time. I'm pretty sure Prechter might have noticed.

I have backtested it myself extensively. In fact, you can't even rely on an RSI divergence as a trend change pattern all that well.

I don't mind if diver wants to have his own wave theory, but Elliott's it ain't.
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RSI Divergences 01 May 2013 20:57 #9

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Sorry Jackozy and Diver but you just cant leave this thread like this, far too much good debate going on, calm down and lets see what we got so far.

Diver has identified what EWT really needed (IMO), a method or rules to start and end waves, ok so it was not available to Elliot and is not every-ones answer. But EWT needs to be less subjective.

Jackozy - I understand the question, How does the Dow correct to new highs ? in the same direction as the trend, Wave B of an expanded flat ?
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RSI Divergences 01 May 2013 16:37 #10

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Yes, let's.

Remo, Ronnie et al, my apologies for having been drawn into this. There's simply no helping some people.
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RSI Divergences 01 May 2013 16:29 #11

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The fact is they do backtest 100% if you label correctly.
You think I'm wrong and I know you're wrong, so let's agree to differ and leave it there:)
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RSI Divergences 01 May 2013 16:02 #12

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"My point was, and is, had the RSI been in existence I'm 100% certain Mr Elliott would have made it a rule."

But that's pure supposition diver. And given his almost OCD-like meticulousness and the fact that RSI divergences don't backtest 100% of the time I doubt he would have.

What you've just shown there IS a 5 wave move - it's the 5th wave up from 03/09 lows. However, you've got that whole 5 wave move as an ab-abc move. That's not part of EWT. Even then, the first subwave up of the sequence you've highlighted (which isn't the one I was referring to) only retraces 38.2% so by your earlier argument can't be a subwave 2 but that's exactly what you're saying it is.

Still, each to their own. As long as it's working for you mate...
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RSI Divergences 01 May 2013 14:47 #13

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I should also have mentioned the RSI divergence on that five way wave 5 as just posted:)
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RSI Divergences 01 May 2013 14:46 #14

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Mmmmm...... looks like 5 waves to me :P

The label for the current wave is undecided and will be clarified when the top is ultimately achieved.

There is no rule of divergence in EWT as stated in 1938 for the simple reason I have already stated at the outset: there was no RSI until 1978. My point was, and is, had the RSI been in existence I'm 100% certain Mr Elliott would have made it a rule.
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RSI Divergences 01 May 2013 13:57 #15

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You've labelled the move down to 2009 lows as a (b) wave but you've also labelled it as an impulse (motive) wave. A wave B of any degree is ALWAYS corrective and cannot have a motive form (ie 5 waves).

You've labelled the move up from 03/2009 to 04/2010 as an A wave. This needs to have the form of either an abc (as you appear to have labelled it) or a motive 5 wave form. In the abc case your c wave would need to be motive (ie have 5 subwaves) but yours has only 3. This is not an acceptable form for a c wave . It's OK for a W, Y or Z but that's not how you're labelling your count.

Your rules of counting are also suggesting the this current move to all times highs is a large degree wave ((a)) which would then require a wave ((b)) down followed by a ((c)) up. In other words, you've got the whole move up from 2009 lows as a corrective sequence but what is it correcting against if it's at all time highs at an ((a)) wave with further massive highs to come for the ((c))?

You're correct that there was no >50% retrace in the move I highlighted but there's no rule that says a wave 2 MUST be >50%. There's the guideline of alternation which suggests that 2 should normally have the opposite form from 4 but, again, that's not a rule.

There are no circumstances in EWT which allow for a wave A of any degree to be at an all time high. A wave B can be, but not an A. An A wave after an uptrend MUST end lower than the previous trend high.

Of course, all of these problems (and others I've not mentioned) would go away if only you drop your rule about RSI divergences. There is no such rule.

Is it not really much more likely that the sequence I posted is an impulse wave? It doesn't break any EWT rules to have it as such whereas your count does.

I do accept, as I've stated, that RSI divergence are often seen as you describe but they aren't a requirement. There seems little point in repeating this so I'll leave it at that. RSI wasn't even invented when Elliott devised his theory so it's impossible for it to have been a fundamental requirement of it.

GL.
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RSI Divergences 01 May 2013 12:39 #16

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Ha! Ha! Now I just know you know the answer to that B)



.....because it's an A wave. Check out what you are labeling wave 2 and you will find it didn't even retrace to 38.2%, a first indication this is not a motive wave as most wave 2's retrace to at least 50%. No divergence on the RSI between your waves 3 and 5 and it's a cast iron ABC. Check out the C wave to W and you will see a perfect example of a motive wave; as was the wave ( b ) of the move from 2007 to 2009.

Have a good day mate :) I'm doing some decorating :blink:
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RSI Divergences 01 May 2013 11:33 #17

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Here's an example of how a 3rd wave didn't extend to a minimum of 1.618 of wave 1 and also didn't have a bearish RSI divergence:

Dow.gif


dl.dropboxusercontent.com/u/20815047/Dow.gif

There was also no divergence on the daily chart between these 2 peaks.
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RSI Divergences 01 May 2013 10:38 #18

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Here's an example of a negative RSI divergence on POG's daily chart:

POGdaily01_05_13.gif


dl.dropboxusercontent.com/u/20815047/POGdaily01_05_13.gif
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RSI Divergences 30 Apr 2013 18:18 #19

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On Greenhill,

How kind you are! I don’t expect my request to be answered every time, as I know people like you are busy. And I am so luck that I can get diver and your help here on this particular subject, on this ChartView.


Spot on... i may not agree with everything but do find both of their post helpful in both learning and thought provoking way... but you know what... at least they provide opinion and debate and i think this place would be worst off without them both. :-)

nobody is all ways right, every trader i'm aware off does things their way, if it's making them money why change something that works for that individual...

i see lots of others lurking abt, be a much better place if more contributed and even if its just to ask a question to aid their learning that's sufficient... this site has been designed for that....

rgds WS
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RSI Divergences 30 Apr 2013 16:15 #20

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Hi Jackozy,

How kind you are! I don’t expect my request to be answered every time, as I know people like you are busy. And I am so luck that I can get diver and your help here on this particular subject, on this ChartView.

Yes, I know bullish and bearish divergences. Your this post will help me to know RSI indicator more.

Thanks for this link:dl.dropboxusercontent.com/u/20815047/%2B...SI%20divergences.jpg
One picture = 1000 words.

I regard this Negative RSI is a false sign for sp further up, and Positive RSI has probability in keeping sp from falling or reversing the sp short term downtrend. As you said that +ve and -ve divs are continuation patterns.


I did put RSI of GKP oversold chart on GKP BB on Sunday. Rcmacf responded me a post, telling me to use RSI with caution, and suggested me to read the book of John Hayden. He provided me search words: The Complete RSI, John Hayden

I found this pdf file and downloaded it. I tell myself I have to read it (it is hard for me now)

on greenhill
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RSI Divergences 30 Apr 2013 15:34 #21

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Hi Jackozy,

I'm very well aware of the requirements set out by Elliott Wave International and do not disagree with them. The 1.618 minimum is an additional requirement not mentioned, to my knowledge by them, but used extensively by many EWT practitioners across the globe. Please don't run away with the idea this is something I dreamt up; I only wish I could lay claim but that would be crass. I have yet to find a single instance wherein the 1.618 does not hold up, which is why I, and many others, used it as a 'must have'. If you find one then please advise as I'd love to take a look.
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RSI Divergences 30 Apr 2013 13:23 #22

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OG, here's a link to that pdf: mediafire.com/?ed0fb7b7t3e6y6l

GL
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RSI Divergences 30 Apr 2013 13:04 #23

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Hi On Greenhill, sorry for the delay in coming back to you.

You're probably already familiar with bullish and bearish divergences, yes? If not then either visit remo's learning section or just say and I'll clarify those on this thread.

Positive and Negative divergences are very different. I was made aware of these only in the last year or so by a technical poster on the GKP BB called Rcmacf if I recall correctly. I can't remember where he got them from They don't appear too often but can be used to confirm trend continuation and are therefore very important.

A positive RSI divergence can occur during an uptrend where prices drop to form a higher low (obviously during a correction/consolidation in the uptrend such as at a wave 4 or a subwave 2 or 4 of 3) but the RSI drops further and makes a lower low when compared to its level at the previous price low.

A negative RSI divergence is the reverse; prices make a lower high during a downtrend but RSI makes a higher high.

Sounds confusing in words so here's a simple picture in a link: dl.dropboxusercontent.com/u/20815047/%2B...SI%20divergences.jpg

If you search online you wil find that these are very often confused with bullish and bearish divergences but they are very different and are used for very different things. Bull and bear divs are trend change patterns whereas +ve and -ve divs are continuation patterns.

They're also known as Momentum Discrepency Reversal Points.

Try looking for a pdf of "The Complete RSI" by John Hayden. (If you find one please post it - I'm looking for that myself!).

Hope that helps!
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RSI Divergences 30 Apr 2013 12:46 #24

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Hi Diver,

All that really matters is that we each have methods which works for us so as long as yours works for you then that's ok and all's good. I spent a LOT of time a couple of years ago back-testing the idea that a wave 5 top could be confirmed using RSI divergences and the conclusion was that it cannot as they don't always occur. I did this work with another who I consider to be way more advanced than me when it comes to EWT (I learnt a huge amount from this person) and we agreed with our findings.

You wrote: "I disagree with regard to the minimum requirement for a wave 3: if it doesn't make at least 1.618 of wave 1 it is an ABC and not a wave 3. Anyone who claims otherwise is trying to make their labels fit their count.
So, let's agree to differ for the time being but, I'm confident you will come to appreciate the validity of these statements in due course"

I'm happy to agree to differ here but I think our disagreement on this will be for a bit longer than "the time being" ;-)

It is quite clear in the Comprehensive Course on the Elliott Wave Principle (and other texts on EWT) that it is NOT a requirement for wave 3 to be a minimum of 1.618 of wave 1. The only rule regarding wave 3 length is that it must not be the shortest of waves 1, 3 or 5. Wave 3 can even be shorter than wave 1 (as WS has pointed out) as long as wave 5 is shorter still, though this is rare.

Hope that helps but, as I said, all that really counts is whether our own methods work.

:-)
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RSI Divergences 30 Apr 2013 07:13 #25

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On Grennhill. If you look at the RSI you will see the wave formations quite clearly as the RSI follows the characteristics of the waves and this, in turn, will help with your understanding of EWT. Also, if you use trend lines within the RSI the formation become even clearer. In fact, without using the RSI, labeling wave formations can become very confusing. Hope this helps.
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RSI Divergences 29 Apr 2013 21:56 #26

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This is a really good thread, some great comments and opinions.

It would seem that there are different opinions on requirements for systems based on Elliots.

Wouldn't work if we all did the same thing..

RSI used correctly, like Jackozy has shown many times, is very useful.
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RSI Divergences 29 Apr 2013 14:14 #27

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hey i like waves so here my two penneth worth.... :cheer:

Third waves can have the follow relationships to wave one: 0.618, 1.0, 1.618 and 2.618.

Fifth waves can have a relationship to wave three, or wave one, or the combination of waves one through three.

imo it dont have to be 1.618 :whistle:

Regards,

WS
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RSI Divergences 29 Apr 2013 13:51 #28

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Just to clarify. At no time did I say you cannot have an extended wave 5. You most certainly can but, there will still be a divergence on the RSI between waves 3 and 5. It may be in a lesser time-frame, but it will be there.
I disagree with regard to the minimum requirement for a wave 3: if it doesn't make at least 1.618 of wave 1 it is an ABC and not a wave 3. Anyone who claims otherwise is trying to make their labels fit their count.
So, let's agree to differ for the time being but, I'm confident you will come to appreciate the validity of these statements in due course ;)
Sorry if I came across as presumptuous: it certainly wasn't intended that way :)
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RSI Divergences 29 Apr 2013 12:47 #29

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Jackozy,

"In fact, using RSI bullish and bearish divergences has been a key part of my strategy for years. I also look for positive and negative divergence too so actually, I'm fairly familiar with RSI as an indicator..."

What is the difference between bullish divergence and positive divergence? Also what is the difference between bearish divergence and negative divergence?

I feel that EWT is too difficult for me, but interested in RSI, which I may can manage of using. If you have time ... Always appreciated your help.
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RSI Divergences 29 Apr 2013 09:29 #30

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Hi diver
The part about the 123 low break would not work with regards to Elliott's as a123 would have come way earlier than on a wave 3.
The 123 low would have happened onThe wave 1 itself . It would be the first higher high. I use it for early entry.
Information Purposes Only, Do Your Own Research
remo
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RSI Divergences 29 Apr 2013 07:55 #31

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"So, just because nobody has told you how to use the RSI to its fullest doesn’t mean it is not so, merely you haven’t got to thinking about it yet. I promise you, it is so, and it is a very valuable tool. Have a great week, and may all your divergences be profitable."

A tad presumptuous, diver.

In fact, I've been using RSI divergences longer than I've been using EWT. In fact, using RSI bullish and bearish divergences has been a key part of my strategy for years. I also look for positive and negative divergence too so actually, I'm fairly familiar with RSI as an indicator though I'm not claiming to know it all.

I don't disagree with much of what you wrote, however. Just that you seem to change common occurrences into "requirements".

I'm quite sure Elliott would have usind a PC but that's completely irrelevant. The FACT is that there is no REQUIREMENT in EWT for an RSI divergence as you describe. That it is a common feature is down to the market psychology as you describe, I agree but you can have a wave 5 top which does not divergence in RSI from the wave 3 one.

One other thing. It is also NOT a requirement that wave 3 be a minimum of 1.618 of wave 1. Again, that's the most common scenario, but by no means a rule. Sometimes it's wave 5 which gets extended (I can show you a very clear example of that if you wish), in which case it's not likely to have a divergence from the wave 3 top either.

Look, I agree that your observations are frequently seen. I'm just saying that they're not rules or requirements as you do. Does it not concern you that, by insisting on your RSI rules, nearly every wave you label is corrective? Statistically, 62.5% of waves should be impulsive. How can you almost never have an impulse wave?
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RSI Divergences 29 Apr 2013 07:34 #32

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One very important thing I forgot to mention - the divergence can be in a lesser time-frame.
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RSI Divergences 29 Apr 2013 07:07 #33

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Jackozy. Reference the divergences on the RSI.
Consider the following and then tell me if you still disagree.
EWT first announced by R.N.Elliott in 1938.
RSI announced 1978 by Welles Wilder.
Personal Computers become popular for trading purposes 1990’s thru 2000’s.
Why would Elliott Wave International tell you anything for free when everything they do is to make money for themselves, and all they ever say is, ‘Aren’t we clever!’? Or, ‘Stop being stupid wasting your money on lousy trades, come and give it to us instead!’
Then consider the characteristics of wave structure.
• Wave 1 is a big struggle between the old trend and the new; which is why it can never be the longest wave. It is a fight all the way through; which is why you will not see divergence here.
• Wave 2 is the old trend trying to win the battle to continue in the opposite direction: news is still bad, in general folk are not convinced of the existence of a new trend. It hasn’t proved itself yet with a 123 break, a la Remo
• Wave 3 finally breaks the old trend and the professional money gets involved. We see real strength and the wave shoots to a minimum 1.68 of wave 1. This is the point when the professionals start checking for continuation and take their first share of profits. By this time the PI’s are confident we have a new trend and are piling in, not wishing to miss the boat. From here things can go two ways we either get an extension, because ‘news’ is good and confidence is high, or we get…
• Wave 4. Here we see the real profit taking.
• Wave 5 is a last throw of the dice for the professionals, and lots of PI’s throwing their money away. The trend weakens considerably due to an absence of professional money. This wave is inherently weaker than a wave 3 hence the necessary divergence.
Now go back to 1938. Don’t you think Mr Elliott would have revelled in a PC? Are you really telling me he wouldn’t have used the RSI as a major tool in his armoury? All this from a man who diligently manually updated charts every day! The same applies to Mr Welles Wilder in 1978. At this time a computer comparable to that in today’s mobile phones filled a reasonable size room. You can but wonder what these guys would have come up with had they had the advantages we have today!
So, just because nobody has told you how to use the RSI to its fullest doesn’t mean it is not so, merely you haven’t got to thinking about it yet. I promise you, it is so, and it is a very valuable tool. Have a great week, and may all your divergences be profitable. ;)
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