Divergence happens when price and an oscillator (RSI, MACD, stochastic) move in different directions. It's an early warning that momentum is fading.
Bearish divergence
Price makes a higher high, the oscillator makes a lower high. The rally is running on fumes.
Bullish divergence
Price makes a lower low, the oscillator makes a higher low. Sellers are losing power.
How to trade it
- Connect swing highs to swing highs (or lows to lows), on both price and the oscillator.
- Divergence is a warning, not a trigger. Wait for a break of structure or a reversal candle.
Wick says
Divergence is the market's voice cracking. The words say "new high!" but the tone says "I'm exhausted."
Key takeaways
- Bearish: higher high in price, lower high in the oscillator.
- Bullish: lower low in price, higher low in the oscillator.
- Use it as a warning, then wait for confirmation.