530# RSI divergence with Two SMA

Divergence Trading


Submit by Buddy 13/01/2014


RSI Divergence with Two SMA is a system is a trend follower , and it’s mainly designed to catch the long term trend movement and follow it until it

changes direction and start an opposite trend.


It’s also designed to keep traders away from the market if the

trend is too weak or there is no clear/strong trend direction.

What makes this system even more powerful is that it’s easy to

follow and understand. It doesn’t require any trading experience.

Best Time frame is 1 Hour Chart, the system can be used with all

currency pairs.

The system uses two main indicators to identify major trend’s


First indicator: Simple Moving Average ( 9 SMA and 200

SMA ).

How to read this indicator and identify the trend?

9 SMA ( Blue Line ) Above 200 SMA ( Red Line ) = Up


200 SMA ( Red Line ) Above 9 SMA ( Blue Line ) = Down


Second indicator used with this system is RSI Divergence

( Period : 21 ).

Divergence Trading
Divergence Trading


How to read this indicator and identify the trend ?

Red Bar Below 0 line, After Down Arrow = SELL Signal

Blue Bar Above 0 line, After Up Arrow = BUY Signal



1 - Down Trend Signal

2 - SELL Signal

Simple Moving Average = Down Trend Signal

RSI Divergence = Sell Signal

Divergence Trading
Divergence Trading


BUY Trade:

1 – Up Trend Signal

2 – SELL SignalSimple Moving Average = Up Trend

RSI Divergence Indicator = Buy Signal.

Divergence Trading
Divergence Trading


Playing with stop loss and profit taking is an art. It requires a bit

experience. So if you are new to trading, you can use the

following simple rules:

Place target profit to 30 pips. And set stop loss to be the same.

Get out of the trade when you reach target profit, or when you

see the reverse signals. For example, when you are in a buy

trade, get out when you see one of the two indicators change


If you are an experienced trader, please go ahead with the next

section describing how you can place targets & stop loss with

Fibonacci levels.

For advanced traders:

For targets and stop loss , we are going to use one of the most

powerful trading tools. The Fibonacci levels! Read Forex Bill Killer

System #1 to learn more about using Fibonnaci retracement and

extension levels to place Stop Loss and Target Profit.

Again, this section is only for advanced traders. So let’s go ahead.

The principle is: Once price breaks support or resistance, we

place Fibonacci levels over the last wave for that level.

The above example shows USD/CAD 1H chart, support was just

broken and we placed Fibonacci levels over the high and low of

price wave.

Our Stop loss would be the 0.0 level

And First Target would be the 161.8 level

Second Target would be 261.8 level

divergence trading exit position
divergence trading exit position


Example trade

In the above example , the system generated a buy signal ( Up

trend ).

What we have done next is that we used Fibonacci levels to set

entry/targets and stop loss levels once 1H resistance was broken.


Divergence Trading
Divergence Trading
RSI Divergence with Two SMA
rsi Divergence with two SMA.rar
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