Published on: June 11, 2025
The Point & Figure (P&F) charts continue to stand out for their clarity and noiseless representation of market movements. Leveraging this visual strength, the Price & RS Divergence Scanner is a powerful tool designed to spot leading opportunities by analysing divergences between Price and Relative Strength (RS).
This scanner is built on simple yet profound principles of P&F charts. It focuses on the relationship between an individual stock’s price movement and its performance relative to a chosen benchmark or group of stocks. RS, by nature, is a leading indicator and divergences between RS and price action often signal a brewing opportunity before the price confirms the trend.
Understanding Price-RS Divergences
Divergences are powerful signals that indicate a shift in market behaviour. This scanner identifies four key divergence types, each with unique implications for traders and investors:
1. Bullish Swing Divergence
- What it shows: The RS chart is rising, indicating that the stock is outperforming its peers or the benchmark.
- Price action: The stock’s price has not yet reflected this strength.
- Interpretation: A bullish setup where the stock could soon begin to rise, catching up to its relative outperformance.
2. Bearish Swing Divergence
- What it shows: The RS chart is falling, indicating underperformance.
- Price action: The stock’s price hasn’t started declining yet.
- Interpretation: A potential bearish setup where the stock may soon begin to fall, aligning with its weakening RS.
3. Bullish Breakout Divergence
- What it shows: RS chart breaks out above resistance, signalling strong momentum.
- Price action: Price is still consolidating or has yet to break out.
- Interpretation: Early signal of a potential price breakout—ideal for early entries.
4. Bearish Breakout Divergence
- What it shows: RS chart breaks down, showing weakness.
- Price action: The stock price hasn’t confirmed the breakdown.
- Interpretation: An early warning sign of an impending price drop.
How to Use the Scanner
Using the Price & RS Divergence Scanner is straightforward:
- Select a stock universe – Choose a specific sector, index constituents, or custom watchlist.
- Define the benchmark (denominator) – This could be a sector ETF, the Nifty 50, S&P 500, or any index relevant to your group of stocks.
- Select Box Size, Time Frame and Condition.
- Scan for divergences – The scanner will highlight stocks falling into one of the four divergence categories.
Why This Matters
- Early signal generation: Because RS often moves before price, these divergences give traders a head start.
- Noise-free insights: P&F charts eliminate time and market noise, focusing only on meaningful price movements.
- Better risk-reward setups: Entering trades before price breakouts or breakdowns improves positioning and minimizes lag.
The Price & RS Divergence Scanner bridges the gap between classic relative strength analysis and P&F charting, offering a high-probability edge in stock selection. Whether you’re looking for early breakout candidates or identifying hidden weakness, this scanner helps you stay ahead of the curve by spotting divergence before the market reacts.
Add this to your analytical toolkit and let RS lead you to your next big trade.
