Divergence
When price makes a new extreme but the indicator does not, suggesting momentum is fading.
Also called: bullish divergence · bearish divergence
In plain language
Bearish divergence: price makes a higher high while RSI or MACD makes a lower high. The move is extending, but with less force behind it.
Bullish divergence is the mirror — a lower low in price with a higher low in the indicator.
Divergence is a warning about momentum, not a reversal signal. Momentum can fade for a long time before price actually turns, and in a strong trend it may never turn at all.
Why it matters
Divergence is a good reason to tighten a trailing stop or decline a fresh entry in that direction. It is a poor reason to open a counter-trend position on its own.
Common mistakes
- Entering counter-trend on divergence alone with no confirmation from price.
- Repeatedly re-entering as divergence persists through a strong trend.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A momentum oscillator from 0 to 100 that compares the size of recent gains to recent losses.
A momentum indicator built from the difference between two exponential moving averages.
A sustained directional bias in price, built from a repeating pattern of highs and lows.
A stop loss that follows price in your favor and never moves back against you.
The pattern of highs and lows that describes whether a market is trending or ranging.