I built the E tool because I kept missing the same setup over and over. Price would push to a new high, RSI would quietly roll over, and I would either be in the wrong direction or flat watching it reverse. Manual divergence spotting on a fast futures market is slow and inconsistent. So I automated the part that matters: finding that divergence at an actual extreme, not somewhere in the middle of a range.
This guide covers what the indicator does, how to run it on TradingView, how to use it in Sierra Chart, and how to fit it into a real trading plan.
What the Indicator Shows and Why It Matters
RSI divergence by itself is not a reliable signal. You will find divergence in trending markets all day and get run over every time. The E tool narrows the filter. It only flags divergence when price is at a defined extreme, either above an overbought RSI threshold or below an oversold one.
The two patterns it watches for:
- Bearish divergence at a high. Price makes a higher high, RSI makes a lower high. Momentum is fading while price stretches. Classic exhaustion.
- Bullish divergence at a low. Price makes a lower low, RSI makes a higher low. Sellers are losing steam at an oversold extreme.
When it fires, you get an ATR-based stop placed automatically and a trailing mechanism that lets the trade breathe without giving back the whole move. The TP target is set as a multiple of that initial risk, so you always know your R before entry.
Why does the extreme filter matter? Divergence in a trend is noise. Divergence at an overbought or oversold reading, after a sustained push, has a much better reason to resolve with a reversal. You are not just seeing RSI disagree with price. You are seeing it disagree while price is stretched and extended.
How to Use It on TradingView
Once the indicator is added to your chart, here are the inputs you need to configure and what each one does.
- RSI Length. Default 14 works fine for most futures setups. On a 5-minute NQ chart I run 10 to get a more responsive read. On 15-minute or higher I keep it at 14.
- Extreme Thresholds. These are your overbought and oversold levels. I use 70 and 30 as a starting point. On a very clean trending day, you may want to push to 75/25 so you only catch the genuinely stretched moves.
- Lookback. How many bars back the indicator looks to find the previous swing for the divergence comparison. Too short and you get whipsaws on micro-swings. Too long and you miss the setup entirely. I run 8 to 15 bars depending on the timeframe.
- ATR Multiple. This controls stop placement. A 1.5x ATR stop is reasonable on a 5-minute chart. If you are trading a 15-minute or 30-minute chart, you may need to tighten it or the stop becomes too wide for your risk budget.
- TP R Multiple. How many R to target. I set this at 2R minimum. The trail handles the rest if the move extends.
- Session Filter. This matters. You do not want the indicator firing at 2am on thin overnight tape. Set the session window to the hours you actually trade. For NQ and ES I filter to 9:30am to 4:00pm ET, or I extend to 8:30am if I am trading the open range.
Concrete steps on the chart:
- Pull up your instrument (NQ, ES, MNQ, MES) on the timeframe you trade.
- Add WFF E from the indicators list. Configure the inputs above before you do anything else.
- Wait for a signal bar. The indicator will plot a marker on the candle where the divergence is confirmed. It does not repaint, so the signal is locked when that bar closes.
- Check the broader context before entering. Is this signal at a known level, a prior session high, a VWAP stretch, a daily high? A signal at nothing is weaker than a signal at a real structural level.
- Enter on the close of the signal bar or the open of the next. The stop is shown on chart. Size your position so the stop equals the dollar risk you planned before sitting down.
- Let the trail manage the exit. Do not move the stop manually unless your read on the market fundamentally changes.
How to Use It in Sierra Chart
Sierra Chart gives you more control and more precision, especially if you are running the E tool as part of an automated or semi-automated workflow.
- Load the study. The WFF E study is available as a custom ACSIL study. In Sierra Chart go to Analysis, then Add Custom Study. Select the WFF E file from your studies folder.
- Map the inputs. The Sierra Chart version mirrors the TradingView inputs. RSI Length, Extreme High Threshold, Extreme Low Threshold, Lookback Bars, ATR Multiple, TP Multiple, and Session Start/End in HH:MM format (ET). Enter these in the study settings panel.
- Signal output. The study paints a buy or sell arrow on the bar where divergence at an extreme is confirmed. It also draws the ATR stop level as a horizontal line extending from the signal bar. The TP level is drawn as a second horizontal line.
- Alerts. Right-click the study and set up a Sound Alert or a Message Alert on the signal subgraph. I run a pop-up plus an audio file so I do not have to stare at the screen all session.
- Order bar integration. If you are trading direct through Sierra Chart's DOM or Order Bar, you can pre-set your stop order to match the drawn stop level. When a signal fires, your order template already has the right distance baked in. You confirm and send.
- Multi-chart setup. I run E on a 5-minute and a 15-minute chart simultaneously. A signal on both timeframes at the same level is a much stronger read than a signal on one alone. Sierra Chart makes this easy with linked chart books.
One thing to check in Sierra: make sure your chart data feed is set to the correct session. If your bar data includes extended hours by default and your session filter is set to RTH only, confirm the bars are being built correctly before trusting the signal output.
How to Combine It with the Rest of Your Plan
The E tool is a trigger, not a thesis. You still need a reason to be looking for a reversal at that moment.
Here is how I layer it into a session plan:
- I mark the prior day high and low, overnight high and low, and key VWAP levels before the open. Those are my reversal candidate zones.
- When price runs into one of those zones and E fires, that is my setup. Two things lining up: structural level plus momentum exhaustion.
- If E fires in open air with no structure near it, I either skip or size down hard. A signal needs context.
- I also pay attention to the broader bias for the day. A bullish divergence signal in a market that has been trending down hard all week deserves more skepticism than the same signal on a rangebound day.
- One more filter I use: volume. If the signal bar has noticeably light volume compared to the prior bars, the exhaustion read is cleaner. Heavy volume on the signal bar sometimes means absorption, not reversal, so I am more cautious.
The E tool works well alongside the other WFF indicators. If you want more setups and breakdowns, check the rest of the blog for other indicator guides and trade frameworks.
See Exactly Where This Setup Works Before You Trade It
Run an RSI divergence at extreme strategy on 8-plus years of NQ data with your own session filter (say, 9:30am to 11:30am ET only, 70/30 thresholds) and see exactly which conditions hold up and which do not, before a single dollar is at risk.
Backtest Credits unlock the Qualified tier of the WFF Backtest Lab, giving you full access to run custom strategy tests across our full historical data set.
This content is for educational purposes only and is not financial advice. Past performance does not guarantee future results. Most short-term traders lose money. Trade responsibly and only risk capital you can afford to lose.