Divergence
Divergence is a mismatch between price and an indicator: price makes a new high or low, but the indicator does not confirm it. It can signal that the strength behind a move is weakening, though it does not say when or whether the price will turn.
How divergence works
Indicators such as the RSI, the MACD or on-balance volume measure the force behind price moves. Normally, a new price high comes with a new high in momentum. When price pushes higher but the indicator makes a lower high, the move is happening with less force than before. That disagreement is a divergence.
Bullish and bearish divergence
A bearish divergence appears in a rise: price makes a higher high, the indicator a lower high. It suggests buying momentum is fading. A bullish divergence appears in a decline: price makes a lower low, the indicator a higher low. It suggests selling pressure is easing.
Some traders also watch hidden divergences, which point the other way and are read as signs that the existing trend may continue.
An example
Say a coin peaks at 100 with the RSI at 80. A few weeks later it climbs to 108, but the RSI only reaches 68. Price made a higher high; momentum made a lower high. That is a bearish divergence. It suggests the second rally was weaker, but the price could still rise to 115 before anything changes, and the divergence could simply disappear.
Limits and common mistakes
Divergences are visible only after the second peak or trough has formed, and they can persist through several more highs in a strong trend. Acting on the first divergence without any confirmation, such as a break of a recent low or a trendline, often means acting too early.
They are also easy to see after the fact and harder to judge in real time, because you need to decide which peaks to compare. Using clear rules, a consistent timeframe and other context makes them more useful.
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Frequently asked questions
Which indicators are used to spot divergence?
Most commonly the RSI and the MACD, but any momentum or volume indicator, such as on-balance volume or the stochastic oscillator, can be used.
Is divergence a reliable reversal signal?
Not on its own. It shows weakening momentum, which may lead to a pause, a sideways phase or a reversal, or may be overridden by the trend continuing.
What is the difference between regular and hidden divergence?
Regular divergence hints that a trend may weaken or reverse. Hidden divergence, where price makes a higher low but the indicator a lower low (or the reverse), is read as a sign the trend may continue.
Related terms
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