Stochastics, RSI Divergence & Score Bonuses
Price leads, indicators confirm
In this framework, demand and supply zones drive all decisions. Indicators like Stochastics and RSI are secondary — they confirm the zone's signal or add a marginal point to the score. Never use an indicator to take a trade that fails the zone quality filter.
Stochastics bonus (+1)
Stochastics (14,3,3) measures momentum on a 0–100 scale. At a demand zone: if Stochastics is below 20 (oversold), add +1 to the Trade Score. At a supply zone: if Stochastics is above 80 (overbought), add +1. The indicator must reach the extreme AT the zone — not somewhere else on the chart.
RSI positive divergence at demand (+1)
Positive divergence: price makes a LOWER LOW (price is falling to a new low), but RSI makes a HIGHER LOW (RSI is rising). This means selling momentum is decelerating even as price falls — a sign that a bounce from the demand zone may be stronger than price alone suggests. Add +1 to the score.
RSI negative divergence at supply (+1)
Negative divergence: price makes a HIGHER HIGH (price is rising to a new high) but RSI makes a LOWER HIGH (RSI is falling). Buying momentum is decelerating even as price rises — a sign that the supply zone reaction may be strong. Add +1 to the score.
Maximum indicator bonus: +2
You can earn a maximum of +2 from all indicators combined (Stochastics +1, RSI divergence +1). Combined with the EMA crossover bonus (+1), the maximum total bonus from confluence is +3. These bonuses stack on top of the base score from Freshness + Strength + Base size.
Practice checklist
- At demand: check Stochastics — below 20 at zone = +1
- At supply: check Stochastics — above 80 at zone = +1
- Check RSI: lower low on price + higher low on RSI at demand = positive divergence = +1
- Check RSI: higher high on price + lower high on RSI at supply = negative divergence = +1
- Indicators only score when they align WITH the zone — not standalone
Mistakes to avoid
- Taking a trade because RSI is oversold even if there is no demand zone there
- Using indicators to override a low Trade Score zone — score below 5 means skip regardless
- Loading the chart with multiple indicators and getting conflicting signals