I REALLY RESPECT DIVERGENCES, but after many years, I still don’t understand these "WRONG" divergences. They feel like a lottery.
Looking at this situation with $ATOM : the price is forming lower highs, while the RSI is showing higher highs. This isn’t a classic "bullish" or "bearish" divergence in the usual sense (where we typically analyze lows for bullish divergence and highs for bearish divergence), but this phenomenon can still carry significant signal value.
We can clearly see that this divergence has already worked once to push the price lower. What’s next??? Obviously, in this case, we need to wait for the monthly timeframe to close.
I really dislike it when $BTC just rockets to the moon—nothing works, everything becomes a lottery.
What this might indicate for future movement:
1. Strengthening of Hidden Momentum: If RSI, which measures momentum strength, shows higher highs while the price fails to update its previous highs, it could indicate that the "internal" strength of the market is growing. In other words, buyers are gaining confidence even though the price hasn’t yet responded with a full upward breakout.
2. Warning Sign of Weakening Downtrend: Lower price highs usually indicate a continuation of the downtrend or, at least, a prolonged correction. However, the fact that RSI is trending upward suggests a gradual buildup of strength "under the surface." This could be a precursor to a potential reversal or at least a more significant upward correction.
3. Waiting for a Breakout or Confirmation: Such signals are often "early warnings." It’s important to wait for the price to confirm the signal—for example, a breakout of resistance levels, the formation of bullish candlestick patterns (like a Pin-bar or Bullish Engulfing), or a move above the descending diagonal. If such a breakout occurs while RSI is already rising, it can serve as a strong catalyst for further growth.
