What does a divergence on a chart mean?

Divergence on the chart may occur if the direction of price movement and OBV are different. When the price rises and the OBV falls, this may indicate a possible price reversal down in the near future. If the price is falling and the OBV is rising, the price will likely turn up soon.

Is divergence a technical indicator?

In normal market conditions, the price action of an asset and the technical indicator move in the same direction. In other words, when the price prints a new high, the technical indicator should print a new high as well. Divergence is not a technical indicator per se, but a trading concept. There is no mathematical formula to calculate divergence.

What is a divergence signal in trading?

In trading, divergences occur when the price of an asset and the indicator are moving in opposite directions. In other words, when the price of an asset is out of sync with the corresponding indicator’s readings, a divergence signal occurs.

When does divergence occur in a downtrend?

In a downtrend, divergence occurs when price makes a lower low, but the indicator does not. When divergence is spotted, there is a higher probability of a price retracement. Figure 5 is an example of divergence and not a reversal, but a change of trend direction to sideways.