Divergence

Divergence in technical analysis refers to a discrepancy between the direction of price movement and the direction of a related technical indicator, such as RSI, MACD, Stochastic Oscillator, or On-Balance Volume. This disconnect suggests that the current trend may be losing momentum and a reversal could be approaching. There are four types of divergence. Regular bearish divergence occurs when price makes a higher high while the indicator makes a lower high — signaling potential reversal from an uptrend. Regular bullish divergence occurs when price makes a lower low while the indicator makes a higher low — signaling potential reversal from a downtrend. Hidden bearish divergence occurs when price makes a lower high while the indicator makes a higher high — signaling continuation of a downtrend. Hidden bullish divergence occurs when price makes a higher low while the indicator makes a lower low — signaling continuation of an uptrend. Regular divergences are reversal signals, while hidden divergences are continuation signals. Divergences are not timing tools — they can persist for extended periods before the expected move materializes. They are most reliable on higher timeframes (daily, weekly), at significant support or resistance levels, after prolonged trends, and when confirmed by other technical evidence such as candlestick patterns, trendline breaks, or volume changes.