Usually, at the peak of the first wave, the RSI exhibits a false divergence. Though, one should not ignore the divergence, it is prudent to avoid trading against the momentum. A resistance can be broken to the upside just before that false bearish divergence. Similarly a support is broken to the downside just before that false bullish divergence (down trend). Normally, after a valid bearish divergence, a bullish trend line or support is broken to the downside. Why this time, a bearish divergence is in place after the price is showing more strength by breaking out to the upside?
I am not saying that one should disregard the divergence, but one must be aware of the false divergences at the peak of the first wave.
Warning
Though, a false divergence may be in place before the start of the second wave, it is always prudent to avoid being on the wrong side of the third Elliott wave.
Truly, an Elliott wave trader is using the RSI oscillator in those instances to find his or her way home so to speak.
In the third wave, one must focus on the breakout trade setups as long as the RSI oscillator is above 70 level (overbought or strong momentum). In a third bearish wave, one will also concentrate on on the bearish breakouts as long as the RSI is below thirty (oversold or strong bearish momentum).
One can use the overbought or oversold RSI to find financial instruments that are in the third Elliott wave.
Note that the RSI is usually overbought in a third bullish wave. However, that does not mean that whenever the RSI is overbought, the asset is in a third wave. It is the third wave that causes the RSI to reach the overbought zones. The overbought RSI does not create the third wave. I am dwelling on that a bit because of the beginner wave traders.The RSI oscillator becomes really useful at the end of the fifth wave when it often fires a valid divergence trading signal. I know that many traders just sell as soon a bearish RSI divergence is in place. If that is you go to Dayprotraders YouTube channel to learn more about RSI oscillator divergence trading.To avoid a long discussion, I will recommend that Elliott wave traders check out the YouTube playlist below.