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Trading and Investment Terms

Divergence

The name of this pattern speaks of its character. We have a divergence when the price movement is contrary to the indicator movement. This type of Regular Divergence pattern comes in two forms

Two types of Divergence: 

  1. Regular Divergence: Regular divergences signal a possible trend reversal.
  2. Hidden Divergence: Hidden divergences signal a possible trend continuation

Each type of divergence will contain either a bullish bias or a bearish bias

 

A divergence is what happens when the price of an asset is moving in the opposite direction to a momentum indicator or oscillator.

 

It is the opposite of a confirmation signal, which is when the indicator and price are moving in the same direction.

 

When divergence is spotted, there is a significant chance of a price retracement.

There is a positive and negative divergence. 

  • Positive divergence indicates a move higher in the price of the asset is possible. 
  • Negative divergence signals that a move lower in the asset is possible.