Divergence in RSI:
Dictionary definition of divergence states that when two things act oppositely it is called divergence. In case of RSI a divergence is seen when prices and their respective RSI move in opposite direction.
If the price is making a new high but RSI doesn’t make a corresponding new high, there isn’t enough strength in the price movement and may peak out. A reversal is expected shortly after this situation.
Similarly if the price is making a new low, but RSI is not making a corresponding new low, a trend reversal is expected and price may move up.
When RSI is making a new high and price is making a new low, it is called as bullish divergence. A bull trend is observed after this divergence is observed.
When RSI is making a new low and price is making a new high, it is called as bearish divergence. A bear trend is observed after divergence is observed.