There are four types of indicators:

The RSI is a leading momentum indicator, meaning the signals are instant.

The RSI measures the magnitude of recent price changes to determine if the asset is overbought or oversold. 

Original usage

Keep in mind that almost every indicator can be used in different ways. Even beyond the orginal settings. The relative strength index was developed by J. Welles Wilder. Wilder recommended a smoothing period of 14 days. That means a 14 day moving average (read more about this setting below). Another quote from the wikipedia page:

"Wilder thought that "failure swings" above 50 and below 50 on the RSI are strong indications of market reversals.[6] For example, assume the RSI hits 76, pulls back to 72, then rises to 77. If it falls below 72, Wilder would consider this a "failure swing" above 70." 

Wilders also considers the RSI 50 line as both support and resistance. I recommend to always read the original settings first before using an indicator. Many traders and websites are using their own version of the indicator which might be confusing. 

How you can use RSI (Divergence)

First and foremost, there is no real right or wrong usage of the RSI indicator. You can use it in any way you want. Wilder recommends using a 14 day average but you can make it 50 or 100 if you like. Just keep in mind that using an indicator is just part of a larger trading plan. In other words, it’s not recommended to do any trading or investing based on a single indicator like the RSI.

The RSI is measured on a scale between 0 and 100. From 30 till 0 is considered oversold. and from 70 -100 is overbought. The RSI is a leading indicator, meaning the signals are instant.

I like to use the RSI as a trend\momentum indicator and not as an overbought or oversold indicator. I use the middle (50) as the baseline. When prices go above RSI 50 the trend is bullish and can indicate long positions. When below 50 it is considered bearish and can indicate short positions. Other traders use the 70 and 30 levels as overbought/oversold depending on the used strategy. The RSI indicator looks like this:

Source: Tradingview.com

The general concensus is that an RSI above 70 indicates that the security is overbought. In other words, the price this security is trading for is to high and should come down. So if RSI hits 70 or above this might indicate a sell signal or taking a short position (expecting the price will go down). Although RSI above 70 indicates the security is trading above it's fair value, that does not mean the price will go down.

Use tradingview to add indicators

I highly recommend using tradingview to add indicators to a chart. It has all the indicators you can think off and can add them for free (up to three indicators) to any chart you want. You can see that the levels 30 and 70 are marked with a dotted line. If you want you can remove these lines or give it another colour using Tradingview. You can also adjust the moving average used. You can also find RSI indicators made by the community that include other settings like RSI divergences.

RSI divergence

RSI is not only used to determine momentum but can also spot reversals or continuations of the trend. A reversal means that the trend is going in the opposite direction. From bullish to bearish or from bearish to bullish. These reversals can be spotted by looking at the price and the direction of the RSI. When the price is going up but the RSI is going down that means there is a divergence. This is also the case when RSI goes up but price is going down.

There are four types of divergences:

Regular bullish divergence

With a regular bullish divergence, the price is making lower highs but the oscillator (in this case the RSI) is making higher lows. A regular bullish divergence might indicate the end of the current trend. You’ll see regular bullish divergences mostly at the end of a downtrend. But that does not mean that every regular bullish divergence is a trend reversal.

Source: Tradingview.com

Regular bearish divergence

With a regular bearish divergence the price is making higher highs but the oscillator (in this case the RSI) is making lower highs. This might indicate the end of an uptrend.

Source: Tradingview.com

Hidden bullish divergence

With a hidden bullish divergence, the price is making a higher low while the RSI is making a lower low. This might indicate bullish trend continuation. 

Source: Tradingview.com

As you have noticed, you can have multiple divergences in a row.

Hidden bearish divergence

With a hidden bearish divergence, price is making lower highs but RSI is making higher highs. This might indicate bearish trend continuation.

Source: Tradingview.com

You can find many cheatsheets of RSI divergences online. Search for "RSI divergence overview" and you'll find a lot of examples. You can print these to learn the various types of divergences.

There are four types of indicators:

The Stochastic Oscillator is a leading momentum indicator, meaning the signals are instant. *

* Although some people consider it a lagging momentum indicator because it still uses prices from the past to determine momentum.

The stochastic oscillator is a momentum indicator comparing a certain price to multiple prices ranging over time. It is used to determine overbought and oversold areas much like the RSI.

The stochastic oscillator consists of two lines named K and D.

When these lines cross it might indicate a reversal. How does this look on the charts:

Source: Tradingview.com

There is also a stochastic RSI indicator. This indicator combines the stochastic formula with certain aspects of the RSI indicator. It also ranges from 0 -100. And just like the other two indicators, the stochRSI is also used to indicate overbought and oversold areas.

The stochRSI is more volatile than the stoch and RSI, generating more noise. It also creates more overbought and oversold areas. Due to this the stochRSI is not very reliable. But you can disable the K line and only use the D line to spot divergences. A divergence happens when the oscillator goes up or down while the price moves in the opposite direction. This could mean a trend reversal. You can find all divergences that happend for MTN GROUP ADR/1 RC-0001 when you exit this learning section.

How does the StochRSI look on the chart:

Source: Tradingview.com

Just like with all indicators, you can use them in various ways. But you should not use the stochRSI, RSI and MACD together on the same chart because they all show the same thing and will create extra noise.

If you want more information about the stochRSI check out investopedia.