Divergence
Disagreement between price and indicator — warns of potential reversal.
Divergence occurs when price and an oscillator indicator (RSI, MACD) move in opposite directions — signaling that the current trend is weakening.
Types of divergence:
Bearish regular divergence:
•Price makes higher high (new maximum)
•RSI/MACD makes lower high
•Signal: bullish momentum weakening → potential decline
Bullish regular divergence:
•Price makes lower low (new minimum)
•RSI/MACD makes higher low
•Signal: bearish momentum weakening → potential rise
Hidden divergence (trend continuation):
•Hidden bullish: price higher low, RSI lower low → continuation of rise
•Hidden bearish: price lower high, RSI higher high → continuation of decline
Divergence ≠ guaranteed reversal:
•Can last longer than expected
•Use for confirmation, not as sole signal
•Strongest on higher timeframes (4H, D)