How far can the weekly RSI rebound after the bottom divergence?

Weekly RSI bottom divergence suggests weakening bearish momentum and potential bullish reversals, especially when confirmed by volume and other timeframes.

Jun 25, 2025 at 04:49 pm

Understanding Weekly RSI and Its Role in Technical Analysis

The Relative Strength Index (RSI) is a momentum oscillator used to measure the speed and change of price movements. On the weekly chart, the RSI becomes a more reliable indicator for long-term traders and investors. When analyzing the weekly RSI, it reflects broader market sentiment over extended periods, typically 14 weeks by default. The value ranges between 0 and 100, with readings below 30 considered oversold and above 70 deemed overbought.

In cryptocurrency trading, where volatility is high and trends can reverse quickly, understanding the weekly RSI helps traders identify potential reversals or continuations. Weekly RSI divergence occurs when the price makes a new low while the RSI makes a higher low, suggesting underlying strength despite falling prices.

Important: Weekly RSI divergences are not always followed by immediate rallies. Patience and confirmation from other indicators are necessary.

What Is Bottom Divergence in Weekly RSI?

A bottom divergence in the weekly RSI appears when the price reaches a lower low, but the RSI forms a higher low. This discrepancy indicates that selling pressure is decreasing even though the price continues to fall. It often precedes a bullish reversal, especially if supported by volume increases or positive candlestick patterns.

For example, during a downtrend in Bitcoin’s price, if the weekly RSI fails to reach a new low and instead starts rising, it signals that bears are losing control. This setup is particularly powerful when confirmed across multiple timeframes — such as daily and 4-hour charts aligning with the weekly signal.

• Bottom divergence suggests weakening bearish momentum.
• It should be combined with trendline breaks or moving average crossovers for stronger validation.
• Volume spikes after divergence increase the probability of a successful rebound.

Historical Patterns Following Weekly RSI Bottom Divergence

Looking at past cycles in major cryptocurrencies like Bitcoin and Ethereum, there have been several instances where a bottom divergence in the weekly RSI preceded a significant rally. For instance, in late 2022, Bitcoin formed a strong weekly RSI bottom divergence before rallying over 60% in the following months.

However, the magnitude of the rebound varies depending on several factors:

• Market sentiment – A shift toward risk-on behavior boosts post-divergence gains.
• Fundamental catalysts – Events like ETF approvals or halvings enhance the impact of technical setups.
• Macro conditions – Favorable interest rate environments support larger rebounds.

Each cycle has unique characteristics, so relying solely on historical performance without considering current conditions can lead to misleading conclusions.

How Far Can the Price Rebound After Weekly RSI Divergence?

The extent of the rebound depends on how deep the oversold condition was and how strong the divergence appeared. In general, traders use Fibonacci extensions and previous swing highs to estimate targets. If the RSI was below 25 for an extended period and then shows a clean divergence, the potential move can be substantial.

For example:

• If the price dropped 40% before forming the divergence, a 50–70% retracement may be expected.
• In strong bull markets, the price may surpass the prior swing high by 20–30%.
• Conversely, in weak or sideways markets, the rebound might only reach the 38.2% Fibonacci retracement level.

Traders should also monitor key resistance levels and adjust their profit-taking zones accordingly.

Strategies to Trade the Weekly RSI Rebound

Trading the weekly RSI rebound requires a structured approach. Here’s a step-by-step guide:

• Confirm the divergence – Ensure that the weekly RSI is making higher lows while the price makes lower lows.
• Check alignment with daily RSI – Daily RSI should also show signs of turning bullish.
• Look for volume confirmation – Rising volume during the early stages of the bounce supports the validity of the reversal.
• Enter near support zones – Use horizontal support or trendlines to time entries.
• Set stop-loss below the recent low – Protect capital in case the divergence fails.
• Target Fibonacci extension levels – Take partial profits at 50%, 61.8%, and 100% retracements.

This method allows traders to capture the bulk of the move while managing risk effectively.

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Frequently Asked Questions

Q: How do I differentiate between a real weekly RSI divergence and a false signal?

A: A valid weekly RSI divergence is confirmed when the price and RSI continue to move in opposite directions for at least two consecutive weeks. Additionally, volume trends and alignment with shorter timeframes help filter out noise.

Q: Can I use weekly RSI divergence alone to make trading decisions?

A: While weekly RSI divergence is a strong signal, it's best used alongside other tools like moving averages, volume analysis, and candlestick patterns. No single indicator guarantees success in volatile crypto markets.

Q: What timeframe should I combine with the weekly RSI for better accuracy?

A: Traders often use the daily and 4-hour charts to confirm the weekly signal. These timeframes provide insights into short-term momentum and help time entries more precisely.

Q: Does the depth of the RSI matter before a rebound?

A: Yes. The deeper the RSI falls into oversold territory (below 25), the stronger the potential rebound, assuming other confirming factors are present.