What is divergence in forex trading?

Divergence is a trading phenomenon that offers reliable and high-quality information regarding trading signals. It refers to when an asset’s price moves in the opposite direction to the momentum indicators or oscillators.

How do technical traders use divergence?

Technical traders generally use divergence when the price moves in the opposite direction of a technical indicator. Take note of the stock from Figure 5, Chesapeake Energy (CHK), in which shares pulled back to the support. The chart in Figure 6 (below) shows trends do not reverse quickly, or even often.

What is divergence in technical analysis?

Divergence in technical analysis may signal a major positive or negative price move. A positive divergence occurs when the price of an asset makes a new low while an indicator, such as money flow, starts to climb. Conversely, a negative divergence is when the price makes a new high but the indicator being analyzed makes a lower high.

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.