Divergence in technical analysis occurs when the price of an asset moves in the opposite direction of a related technical indicator or oscillator. It signals that the momentum underlying the 澳洲幸运5开奖号码历史查询:price trend is changing, which may foreshadow a potential shift in the trend's directi🌌on.

Traders monitor divergences because they can provide early warnings that market momentum is weakening or strengthening, even before it is reflected in price action.

Understanding Divergence

Divergence highlights a discrepancy between prices and an 澳洲幸运5开奖号码历史查询:indicator. Under normal market conditions, a rising price typically coincides with increasing momentum (and similarly, a falling price with decreasing momentum). Indicators like the relative strength index (RSI) may fail to hit a new high as price rises.

This variance suggests the prevailing trend could be weakening. Divergence is often considered a leading signal that a trend shift might be coming since changes in momentum usually precede shifts in price.

Types of Divergence

There are two basic types of divergence:

Positive Divergence

Positive or bullish divergence occurs when prices reach new lows, but the 澳洲幸运5开奖号码历史查询:momentum indicator records higher lows. Th♐is implies declining bearish momentum and may indicate a price reversal upward.

Negative Divergence

Negative divergence, or bearish divergence, occurs when prices create higher highs, bu𒁃t the momentum indicator shows lower highs. This signals a reduction in bullish momentum, suggesting that prices may reverse downward.

How Divergence Works in Technical Analysis

The RSI,💫 MACD, and Stochastic Oscillator are useful tools for spottingღ divergences.

Here's more on what these indicators are and what they can reveal:

• RSI: Divergence appears when the RSI’s highs or lows diverge from price. For example, if the price makes new lows but the RSI bottoms at higher levels, it signals bullish divergence; if the price makes new highs but the RSI peaks at lower levels, it signals bearish divergence.
  
• Moving average convergence divergence (MACD): An indicator based on two moving averages of price, often visualized with a signal line and histogram. A divergence is underway, for instance, when the price reaches a higher high but the MACD histogram forms a lower high, indicating reduced bullish momentum. Similarly, a lower low in price paired with a higher low in MACD would suggest fading bearish momentum.
  
• Stochastic oscillator: An indicator that compares a security’s closing price to its recent price range. Divergence occurs when the stochastic oscillator’s peaks or troughs disagree with the price. For instance, if the stochastic makes lower highs while the price is rising, it indicates a bearish divergence. Likewise, higher stochastic lows against lower price lows indicate a bullish divergence.

Examples of Divergence in Trading

A bullish divergence in a downtrend can alert a trader that selling pressure is waning. A common strategy is to prepare to go long once additional confirmation arrives, such as a break above a downtrend line or a bullish 澳洲幸运5开奖号码历史查询:candlestick pattern. 

Similarly, in an uptrend, a bearish divergence can prompt a trader to consider selling or shorting after confirming that the trend is turning. Some traders also use divergence as a signal to take profits or exit an existing position before a reversal erodes their gains.

Example: Positive Divergence in Bitcoin (BTC/🎃USD)

The chart below of bitcoin (BTC/USD) shows a clear example o🐷f how positive (bullish) divergence appears. Between late March and early April 2025, bitcoin's price formed distinct lower lows, dropping from about $82,080 to around $81,256. Meanwhile, the RSI made higher lows within the same period.

This divergence indicated weakening bearish momentum, signaling that selling pressure was decreasing even though the p♌rice continued downward. Traders observing this divergence could interpret it as an early sign of a bullish reversal. Indeed, subsequent price action confirmed this signal, with BTC having a noticeable rally, eventually climbing above $87,000.

Example: Negative Divergence in EUR/USD

The EUR/USD chart below shows a clear negative (bearish) divergence occurring between April 14 and April 16, 2025. During this pe🌄riod, EUR/USD price action formed higher highs, rising from about 1.05129 to around 1.0532🐈2. Meanwhile, the RSI showed lower highs, indicating a decline in bullish momentum.

Thi♔s divergence suggested weakening buying strength despite the price reaching new highs. Traders noting this divergence could interpret it as an early indication of a potential downward reversal. As anticipated, shortly after the divergence formed, EUR/USD had a significant price decline, dropping below 1.04000.

Divergence vs. Confirmation

Confirmation in technical analysis occurs when a price trend aligns clearly with signals from momentum indicators, validating the strength and direction of a trend. In contrast, divergence signals a disagreement between price movements and indi꧋cator momentum, highlighting potential weakening or reversals of trends.

In practice, traders often wait for confirming events (such as a support break, resistance rejection, ♓or indicator🀅 crossover) before acting on a divergence, thereby filtering out false signals.

Limitations and Risks of Relying on Divergence

Like all 澳洲幸运5开奖号码历史查询:trading signals, divergence has its limitations. Here are some reasons why divergence can make traders prematurely exit or enter positions, misinterpreting these sig🦹nals:

• False signals: Not every divergence results in a trend change. In choppy or highly volatile markets, indicators can show divergences that lead to no meaningful price move. Also, during strong trends, an oscillator may diverge for a long time while price continues to rise or fall, causing traders to misjudge the trend’s endurance.
  
• Uncertain timing: Divergence tells you a trend is weakening, but it doesn’t pinpoint when a reversal will occur (if at all). A divergence can persist over many price bars before the market finally turns. Traders who act too early on divergence alone may endure a drawdown if the price keeps moving in the original trend for a time.
  
• Subjectivity in identification: Determining what counts as a significant high or low on an indicator can be subjective. Different analysts might identify different points for comparison, especially if the price swings are minor. Small differences in how divergence is measured can lead to different conclusions.
  
• Indicator lag: Momentum indicators are derived from price, so they inherently lag to some degree. A divergence often becomes evident only after several periods of data. By the time it's confirmed, the price might have already started to reverse or could be on the move, potentially giving late signals.

Because of these limitations, traders should confirm any divergence with evidence on the pr🎃ice chart itself before acting.

Risk Management and Best Practices

To use divergence signals effectiv▨ely, managing your risk is crucial:

• Use stop-loss orders: If entering a trade based on divergence, protect the trade with a 澳洲幸运5开奖号码历史查询:stop loss in case the signal fails. For example, if you short a currency pair because of a bearish divergence, you might place a stop just above the recent swing high in case the uptrend resumes.
  
• Proper 澳洲幸运5开奖号码历史查询:position sizing: Treat divergence as just one signal. Avoid borrowing too much for a divergence trade. Using moderate position sizes ensures that a false signal or a delayed reversal doesn't inflict outsized damage to your portfolio.
  
• Confirm with other analysis: Wait for a confirming technical signal before fully committing. This could be a break of a 澳洲幸运5开奖号码历史查询:trendline, a crossover in the MACD, a notable volume spike, or a candlestick reversal pattern. Confirmations help filter out false divergences and improve the probability of success.
  
  Even strong divergence signals can fail because of unexpected news or shifts in market sentiment. By managing risk through stops, proper sizing, and waiting for confirmations, traders can use divergence signals while safeguarding against false moves.

The Bottom Line

Divergence occurs when an asset’s price and a technical indicator move in opposite directions, indicating a possible change in trend momentum. Traders use bullish or bearish divergence to anticipate reversals. However, these signals are not guarantees—it's essential to confirm divergence setups with other technical evidence and to employ proper risk management when trading based on divergence.