Volume divergence plays a very important role in trading. It shows the mismatch between price and volume. When the price of a stock goes up but the volume goes down, or the price goes down but volume goes up, it can be a sign that the price trend may soon change. Traders use volume divergence to predict reversals and make smart entry or exit decisions.

What is Volume Divergence in Simple Words?

Volume divergence means that the volume is not supporting the price movement. For example, if the price is going up but the volume is going down, it means fewer people are buying. This shows that the price rise may not be strong and can reverse. Traders watch volume divergence to know if a trend is weak or strong.

Why Do Traders Use Volume Divergence?

Traders use volume divergence to check if the current price movement is strong or weak. If the volume is not supporting the price move, it could be a sign that the price will change direction. This helps traders to take better buying or selling decisions and avoid false breakouts or breakdowns.

How to Spot Volume Divergence on a Chart?

To find volume divergence, look at both the price chart and volume bars. If the price is making higher highs but volume is going down, it is negative divergence. If the price is making lower lows but volume is going up, it is positive divergence. These signals help traders to spot trend reversals.

What Are the Types of Volume Divergence?

There are two types of volume divergence – positive and negative. Positive divergence happens when the price is falling but volume is rising. It means buyers are entering and the price may go up. Negative divergence happens when the price is rising but volume is falling. It means buyers are losing interest and the price may fall.

When Is Volume Divergence Most Useful?

Volume divergence is most useful during strong trends or before a breakout or breakdown. It helps traders to confirm if the trend is real or fake. If the volume does not support the trend, then there could be a reversal soon. It helps traders to enter or exit the trade at the right time.

How to Combine Volume Divergence with Other Indicators?

You can combine volume divergence with indicators like RSI, MACD or Moving Averages. When both price indicators and volume show divergence, it gives a stronger signal. For example, if price is going up, RSI is overbought and volume is falling, it can be a clear sell signal. Using two signals together increases your accuracy.