Divergence
When price and an indicator move in opposite directions, hinting that the current move is running out of…
In plain English
When price and an indicator move in opposite directions, hinting that the current move is running out of steam.
Divergence is a disagreement. Price makes a higher high, but an oscillator such as RSI makes a lower high: the push upward is weaker than it looks. That is regular bearish divergence; the mirror version at lows is bullish.
Divergence can last a long time before price turns, so traders treat it as a warning light, not an exit sign.
Worked example
Spotting bearish divergence
- EUR/USD peaks at 1.0900, then later at 1.0950.
- RSI peaked at 75 the first time, but only 64 the second.
- Price went higher with less force behind it.
Bottom line: A warning that the uptrend may be tiring, not a guaranteed top.
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