What is Divergence?
Divergence occurs when a technical indicator moves in the opposite direction of the price, signaling that the current trend may be weakening and a reversal could be imminent.
Divergence Explained
Divergence is considered one of the most powerful signals in technical analysis. Bullish divergence happens when price makes a lower low but the indicator makes a higher low — selling pressure is waning. Bearish divergence happens when price makes a higher high but the indicator makes a lower high — buying pressure is fading. RSI and MACD divergences are particularly widely watched.
Real-World Example
A stock makes a new high at $105, but RSI reads 68 versus its previous peak reading of 78 when the stock was at $100. This bearish divergence warns that the rally is losing momentum despite the higher price.
Related Terms
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