📈 Indicators·intermediate

Divergence

Also called: bullish divergence, bearish divergence

When price moves in one direction but a momentum indicator moves in the opposite direction — a warning of trend exhaustion.

Divergence is one of the most powerful concepts in indicator-based trading. It happens when price and an oscillator (RSI, MACD, stochastics) move in opposite directions. Bearish divergence: price makes a higher high but the indicator makes a lower high — momentum is fading even though price is rising. Bullish divergence: price makes a lower low but the indicator makes a higher low — sellers are losing energy even though price is falling. Divergences are warning signals, not entry signals. They tell you the trend is losing energy, but the trend can stay alive for a while after the divergence appears. The trade idea is to wait for divergence + a confirmation signal (reversal candle, structure break) before entering. The most reliable divergences happen on higher timeframes (4-hour and daily) at major support or resistance. Divergences on the 5-minute chart are mostly noise.

Real trade example

USD/JPY's daily chart printed a textbook bearish RSI divergence at 161.95 in July 2024 — price peaked, RSI peaked 8 points lower. The reversal delivered 1,800 pips of downside over four months.

Related terms

RSI (Relative Strength Index)

intermediate

A momentum indicator from 0-100 that flags overbought (>70) and oversold (<30) conditions — and, more importantly, divergences.

MACD

intermediate

A momentum indicator that compares two moving averages to show trend direction, strength, and potential reversals.

Stochastic Oscillator

intermediate

A momentum indicator that compares the current close to its recent high-low range — used to spot overbought and oversold conditions.

Fibonacci Extension

intermediate

Fibonacci levels projected BEYOND the original swing (127.2%, 161.8%, 261.8%) — used to set price targets after breakouts.

Ichimoku Cloud

advanced

A multi-line trend indicator from Japan that visualizes support, resistance, momentum, and trend direction in a single chart overlay.

VWAP (Volume-Weighted Average Price)

advanced

An intraday indicator that shows the average price an asset has traded at, weighted by volume — used as a benchmark and dynamic support/resistance.

← Back to glossary Ask the desk a follow-up →