Divergence
Divergence is when price and an indicator move in opposite directions - a warning that the move is losing momentum.
Divergence is price making a new high or low while an oscillator fails to confirm it. It warns of fading momentum but needs price confirmation before it is tradeable.
Divergence occurs when price makes a new high or low but an oscillator like RSI or MACD fails to confirm it. Bullish divergence (price lower low, indicator higher low) warns of weakening selling pressure; bearish divergence warns of weakening buying. Divergence is a warning, not a signal on its own - momentum can stay divergent for a long time in strong trends, and divergences resolve only when price confirms by breaking the relevant structure.
How It Works
- Compare price swings against RSI, MACD or momentum readings
- Bullish divergence: lower price low with higher indicator low
- Bearish divergence: higher price high with lower indicator high
Trading Tips
Wait for price to break the trendline or swing level before acting on divergence
Divergence in overbought/oversold territory is more reliable
In strong trends, divergence can warn early and stay wrong for weeks - respect the trend
Divergence Example
Say GBP/USD prints a fresh monthly high while RSI prints lower than its last peak. Price shouts strength. Momentum whispers exhaustion. Two weeks later the pair drops 300 pips without ever closing higher.
How Traders Use Divergence
Treat divergence as an exit signal for winners and a no-new-entries flag, never as a blind entry. Wait for price to confirm the turn first. Divergence can persist for weeks while late money arrives.
Related Terms
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