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Glossary

Divergence

Divergence occurs when an asset’s price moves in the opposite direction of a technical indicator or related data, suggesting that the current price trend may be weakening.

Luca Moschini

— 1 min read

Definition

Divergence refers to a situation where the price of an asset and a technical indicator move in opposite directions. This mismatch can indicate that the strength of the existing price trend is changing.

It is commonly observed when price continues in one direction while momentum-based indicators show reduced strength or a different directional movement.

How It Works

Divergence is identified by comparing price action with technical indicators such as oscillators. When price makes new highs or lows but the indicator does not confirm those moves, divergence is present.

This contrast between price and indicator behavior reflects changes in momentum rather than price itself.

Why the Term Matters

Divergence helps market participants assess whether a price trend is gaining or losing strength. It provides context about momentum conditions that may not be visible from price movements alone.

Understanding divergence supports broader market analysis by highlighting potential shifts in trend dynamics.

  • Momentum
  • Oscillator
  • Relative Strength Index (RSI)
  • Trend Reversal
  • Confirmation

FAQs

What is divergence in technical analysis?
Divergence in technical analysis occurs when price moves in one direction while a technical indicator moves in the opposite direction.

What are the main types of divergence?
The main types of divergence are positive divergence and negative divergence.

What is positive divergence?
Positive divergence occurs when price is falling while an indicator is rising, suggesting weakening downward momentum.

What is negative divergence?
Negative divergence occurs when price is rising while an indicator is falling, suggesting weakening upward momentum.

Does divergence guarantee a price reversal?
Divergence does not guarantee a price reversal and should be evaluated alongside other market information.

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