A divergence occurs when an asset’s price is moving in one direction and an indicator is moving in a different direction. In general, if the price is rising and making higher highs but the indicator is making lower lows, there’s a divergence.
Why do technical traders use divergence signals?
Technical traders generally use divergence signals to enter a position when the price swing does not correspond with the oscillator momentum. The key factor to spotting a divergence is to identify when the price is making a new swing high or low and check whether the indicator is making a corresponding swing.
What is the logic behind divergence to analyse the market price?
The logic behind divergence to analyse the market price is that the indicator is showing a slowdown in momentum of the price. The momentum of the price will often change before the price itself.
What is bearish divergence?
Bearish divergence is when the price of an asset reaches higher highs, but the momentum indicator or oscillator shows lower highs. The discrepancy between price action and the momentum indicator indicates that the momentum in the current price trend is slowing and we could see a fall in price about to occur soon. What Is Bearish Hidden Divergence?
