Building an RSI Divergence Bot from Scratch

RSI divergence occurs when price makes a new high or low but RSI fails to confirm momentum. Filtered correctly, this can provide a robust mean-reversion entry signal.

Detecting Divergence Programmatically

import pandas as pd

def compute_rsi(series, period=14):
    delta = series.diff()
    gain = delta.clip(lower=0)
    loss = -delta.clip(upper=0)
    avg_gain = gain.ewm(com=period - 1, min_periods=period).mean()
    avg_loss = loss.ewm(com=period - 1, min_periods=period).mean()
    rs = avg_gain / avg_loss
    return 100 - (100 / (1 + rs))

Filtering False Signals

Require oversold context, minimum bar spacing, and confirmation candles before execution. Raw divergence detections are too noisy in live crypto markets.

Deployment Notes

Start with paper trading, enforce position sizing constraints, and use a kill switch based on drawdown or execution anomalies.