No matter what the time frame, all swing traders are interested in trends. Often the “eye test” of a chart does not capture the underlying strength of a trend. For that reason, we monitor RSI near highs. If RSI is not making a high while an index or stock is, that is what I call a negative RSI Momentum Divergence.
Take a look at the current QQQ chart. Notice that it is basing near highs while RSI has failed to make a new high. While this is not yet a short setup, it is a clue that momentum is slowing and a pullback is in order. A close below the old high makes this a failed breakout and possible short setup.
To get a better understanding of the failed breakout trade, watch this video of a resent successful short trade.
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