Trading glossary
What is divergence in trading?
Divergence is when price and a momentum indicator such as RSI move in different directions, for example price makes a higher high while the indicator makes a lower high.
Bearish divergence is a higher high in price with a lower high on the indicator, suggesting the rally has less momentum behind it. Bullish divergence is a lower low in price with a higher low on the indicator.
Divergence is a warning that momentum is fading, not a timing signal. Trends can continue through several divergences.
How traders use it
- Compare clear swing points in price with the matching points on the indicator.
- Give more weight to divergence at a key level or at the edge of a pattern.
- Wait for a structure break before treating divergence as a reversal.
Example
Bitcoin makes a high at 72,000, pulls back, then makes a higher high at 73,500. RSI peaked at 78 the first time but only 66 the second. Price made a higher high, RSI a lower high: bearish divergence.
Frequently asked questions
What is hidden divergence?
The reverse case, often read as continuation: in an uptrend, a higher low in price with a lower low on the indicator.
Which indicators show divergence?
Any momentum indicator, including RSI, MACD and stochastics.
Related terms
Related patterns
Educational content only, not financial advice. Chart patterns describe probabilities, not certainties, and every pattern can fail. See our disclaimer.