What is Divergence in Trading?

In finance, divergence happens when an asset’s price moves in the opposite direction of a technical indicator, often signaling a weakening trend or potential reversal. Traders use divergence with indicators like RSI or Stochastic RSI to spot bullish or bearish signals.

• Positive Divergence: Price is falling, but indicators suggest buying pressure – seen as a bullish sign.

• Negative Divergence: Price is rising, but indicators show weakening demand – seen as bearish.

While divergences can guide entry and exit points, they may produce false signals and should be combined with other analysis tools.