What is Divergence?
Divergence
Forex Trading Glossary
Quick Answer: Divergence occurs when price and an indicator move in opposite directions, hinting at weakening momentum.
What is Divergence?
Divergence occurs when price moves in one direction while an indicator moves in the opposite direction, signaling potential trend exhaustion.
Types of Divergence
- Bullish divergence: Price makes lower lows while the indicator forms higher lows.
- Bearish divergence: Price makes higher highs while the indicator forms lower highs.
- Hidden divergence: Supports trend continuation when corrective moves diverge.
- Indicator choice: RSI, MACD, and stochastic oscillators are common tools.
Confirmation Required
Use support and resistance breaks or volume shifts to confirm that divergence is translating into real price movement.
Applying Divergence
- Timeframe alignment: Validate on higher timeframes before trading lower ones.
- Combine with structure: Divergence near key levels is more meaningful.
- Risk management: Place stops beyond recent extremes to allow room for reversals.
- Avoid overuse: Not every divergence leads to a reversal; wait for confirmation.
Related Terms
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