Glossary
Divergence
When price and an indicator move in opposite directions, such as a new price high with a lower RSI high, hinting momentum is fading.
On this page
A divergence occurs when a security's price and a technical indicator disagree. Price makes a new high, but a momentum Oscillator such as the Relative Strength Index (RSI) or MACD makes a lower high, or price makes a new low while the indicator holds above its previous low. Traders read the disagreement as a sign that the force behind the move is weakening.
The two classic types
- Bearish (negative) divergence: higher high in price, lower high in the indicator. Buyers are still lifting the price, but with less conviction.
- Bullish (positive) divergence: lower low in price, higher low in the indicator. Sellers push to a new low, but with less force.
Some traders also track "hidden" divergences, which point to a trend continuing rather than reversing, but the terms are used inconsistently across sources.
Limitations
Divergence is a warning, not a timing signal. In a strong trend, momentum can diverge for weeks or months, and successive divergences can pile up while price keeps going. Because oscillators are bounded, they naturally flatten during long trends, which manufactures divergences that mean little. Identifying the "peaks" is also subjective; two analysts can pick different swing points on the same chart. Most practitioners therefore wait for price itself to confirm, and test the idea on the instruments they trade before relying on it.