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Divergence definition
Divergence is a technical analysis signal that appears when the price of an instrument and a technical indicator move in opposite directions. It warns that the current price move may not be backed by matching momentum.
Divergence shows up most often on momentum indicators such as the Relative Strength Index, MACD, and the Stochastic Oscillator. Regular divergence points to a possible reversal, and hidden divergence points to a possible trend continuation.
Divergence signals a possible move, not a guaranteed one. Traders confirm it against support and resistance, trendlines, candlestick patterns, volume, or market structure before they trade it.
Divergence Example
You analyse EUR/USD with the Relative Strength Index. Price makes a lower low, but the RSI makes a higher low. That is regular bullish divergence: price is falling while momentum improves.
You do not buy straight away. You wait for price to break above a short-term resistance level first, which lowers the risk of acting on a weak signal.
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