Bearish Divergence

Bearish divergence is a technical analysis signal that warns of potential trend exhaustion and an upcoming price reversal from bullish to bearish. It occurs when a security's price makes a higher high (or equal high) while a momentum indicator — such as the Relative Strength Index (RSI), MACD, Stochastic Oscillator, or On-Balance Volume — simultaneously makes a lower high. This disconnect between price and momentum suggests that while price is still rising, the underlying buying pressure is weakening. The logic is straightforward: in a healthy uptrend, both price and momentum should be making new highs together. When momentum fails to confirm the price high, it indicates that fewer buyers are supporting the advance and that sellers may soon take control. There are two types: regular bearish divergence (price makes a higher high, indicator makes a lower high) signals a potential trend reversal, while hidden bearish divergence (price makes a lower high, indicator makes a higher high) signals trend continuation in a downtrend. Bearish divergences are more reliable when they occur after extended uptrends, at known resistance levels, on higher timeframes (daily and weekly), and when confirmed by other technical signals such as bearish candlestick patterns or volume decline. However, divergences can persist for extended periods before price reverses, so traders typically wait for additional confirmation before acting.