Divergence is a situation where the direction of the price diverges from the direction of an indicator, signaling a potential trend reversal. There are two main types of divergences:
• Bullish Divergence:
The price shows lower lows, while the indicator (such as RSI, Stochastic, or MACD) shows higher lows. This indicates weakening selling pressure and a possible upward reversal.
A hidden bullish divergence appears the opposite on the chart but still suggests a potential reversal to the upside.
• Bearish Divergence:
The price makes higher highs, while the indicator shows lower highs. This signals weakening buying pressure and a possible downward reversal.
A hidden bearish divergence also has an opposite visual pattern but confirms a potential reversal to the downside.
Use divergences to confirm trend reversals and identify optimal entry points in the market.
The higher the timeframe, the stronger the signal. On lower timeframes (1–15 minutes), divergences are often broken.
A triple divergence is a very strong reversal setup.
