What is divergence in trading?
In one line: Divergence is when price and an indicator, such as RSI or MACD, move in different directions, which can hint that a move is losing strength.
A simple example
Bearish divergence (a weakening rise):
- Price makes a high at $80. RSI reads 74.
- Price makes a higher high at $83. RSI reads only 66.
Price went higher, but the push behind it was weaker. The indicator didn't confirm the new high.
Bullish divergence (a weakening drop):
- Price makes a low at $40. RSI reads 25.
- Price makes a lower low at $38. RSI reads 32.
Price fell lower, but the selling was softer.
Hidden divergence
There's a second kind, often used for trend continuation. In an uptrend, price makes a higher low while RSI makes a lower low. It can hint the pullback is weak and the trend may resume.
Why it matters
Divergence is a way to see Momentum fading before price turns. It's a reason to pay closer attention, tighten a plan, or wait before buying into a move.
It works with any oscillator. RSI and MACD are the most common.
A common mistake
Trading divergence on its own. In a strong Trend, divergence can show up again and again while price keeps going. Bearish divergence at $83 can be followed by another at $88, and another at $95.
Treat divergence as a question: "Is this move tiring?" Then let the chart answer. A body close past the last turning point says far more than the indicator.
Divergence also needs clear turning points to compare. Comparing 2 random candles isn't divergence. Mark the last places price turned around first, then check the indicator at those same 2 points.
For how RSI works, see RSI explained. For what a real turn in the trend looks like, see Reversal.
Questions
Is divergence a buy or sell signal?
Not on its own. It shows momentum fading. Many moves keep going after divergence. Most traders wait for the price chart to confirm a turn.
Which indicator is best for divergence?
RSI and MACD are the most popular. Any momentum oscillator works. Using more than one doesn't make the signal stronger, as they're built from the same prices.
What timeframe is best for divergence?
It appears on every timeframe. Divergence on bigger timeframes tends to matter more than on 1-minute charts, which are noisier.
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