Free Trading School · Level 11: Sentiment, Intermarket and Divergence
Divergence: when momentum disagrees with price
Divergence happens when price and a momentum oscillator such as RSI or MACD move in different directions. It is one of the most useful warnings that a move is losing strength.
Bearish divergence: price makes a higher high while RSI makes a lower high.
| Type | Price | Oscillator | Suggests |
|---|---|---|---|
| Regular bearish | Higher high | Lower high | Uptrend weakening |
| Regular bullish | Lower low | Higher low | Downtrend weakening |
| Hidden bullish | Higher low | Lower low | Uptrend likely to continue |
| Hidden bearish | Lower high | Higher high | Downtrend likely to continue |
Divergence is a warning, not a trigger. Trends can show divergence several times before turning. Wait for price to confirm, for example with a break of a trendline or a lower low.
Divergence tells you to tighten up and watch closely, not to jump in front of the trend.
Quick answers
Divergence happens when price and a momentum oscillator such as RSI or MACD move in different directions. It is one of the most useful warnings that a move is losing strength.
Divergence tells you to tighten up and watch closely, not to jump in front of the trend.
Regular bearish divergence. Momentum is weakening while price pushes higher.
Next lesson: Drawdowns and the maths of recovery