RSI Divergence + Bollinger Bands

Setup

• Chart: 1-min or 3-min candles with Bollinger Bands (20, 2) and RSI (14) in a lower pane
• Watch for price making a lower-low that touches or wicks the lower BB
• Simultaneously, RSI makes a higher-low compared to its previous oversold trough — this is bullish divergence

Entry

Long: after divergence is confirmed at the lower BB, enter on the NEXT candle's close if it closes back above the lower band. Bearish version: mirror at the upper BB.

Exit

First target: the middle band (SMA 20). Extended target: the opposite outer band. Take partial profits at each level.

Stop-loss

Below the divergence low (long) or above the divergence high (short) by a few ticks. Divergence trades need tight stops because they either work quickly or fail.

When it works

• Range-bound sessions where BB mean reversion is the dominant behaviour
• Divergence spans 5-15 bars — very short divergence is unreliable; very long is stale
• Both indicators agree cleanly — no false intermediate touches

When it fails

• Strong-trend sessions — divergence can persist for a long time before it works (or never resolves)
• Only one leg of divergence forms — wait for full confirmation
• Fake break of the BB followed by immediate deep move continuing the original direction

General trading rules that apply

Regardless of the specific setup, these apply to every strategy on this site:

• Never risk more than 2% of your account on a single trade
• Place a hard stop-loss before entering — no exceptions
• Journal every trade: setup, reason, outcome, one lesson
• After two consecutive losses, stop for the session
• Backtest and paper-trade for a month before deploying real capital