In the “before” chart, we observed a bearish RSI divergence on the weekly timeframe. This is a classic signal indicating potential weakness in the ongoing trend. While the price of Polycab was making higher highs , the RSI was showing lower highs. This mismatch suggested that even though the price was moving upwards, the momentum behind the movement was weakening.
Interpretation:
This divergence typically indicates that the current uptrend could be losing strength and a reversal or correction might be imminent.
In the “after” chart, the predicted price action played out, confirming the RSI divergence. We saw a significant correction, with the price dropping sharply from the highs, losing about 9.22% by the time of this analysis. This sharp decline in price validated the earlier bearish divergence, showing that momentum had indeed shifted and resulted in a downtrend.
Takeaway:
RSI divergence, when combined with price action, can be a powerful tool to anticipate potential reversals. In this case, the weekly RSI divergence signaled a loss of momentum in the bullish rally, followed by a sharp decline in price. It emphasizes the importance of monitoring both price and momentum indicators for effective trading strategies.
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