What Is Divergence (Bullish / Bearish)?
Divergence occurs when price action diverges from a momentum indicator like RSI or MACD. Bearish divergence: price prints a higher high, but the indicator prints a lower high — the trend is weakening despite continued price advance. Bullish divergence: price prints a lower low, but the indicator prints a higher low — selling pressure is exhausting.
Divergence is one of the most-discussed and most-overused signals in retail technical analysis. It works reasonably well on daily timeframes in late-stage trends, especially when confirmed by volume decline or a clear price-action failure pattern. It works poorly on intraday charts in choppy markets, where it fires constantly with little predictive value.
The correct use of divergence is as a risk filter, not a reversal trigger. If you're long and clear bearish divergence appears, tighten your stop or reduce size — don't necessarily reverse to short. Trends often run for weeks after divergence first appears.
Related terms
- MACD (Moving Average Convergence Divergence) — Trend-following momentum indicator showing the difference between two exponential moving averages.
- RSI (Relative Strength Index) — A momentum oscillator (0-100) measuring the speed and magnitude of recent price changes.