Divergences in technical analysis are used to spot early signs of a trend change. They happen when the price of a stock moves in the opposite direction of an indicator, like RSI or MACD. This shows that the current price trend may be weakening and could reverse soon. Traders use divergence as a signal to buy or sell at the right time.

What Is Divergence in Technical Analysis?

Divergence is when the price of a stock and a technical indicator move in different directions. For example, if the price is going up but the indicator is going down, this may show a possible reversal. It gives early warning that the current trend may not continue for long.

Why Is Divergence Important for Traders?

Divergence helps traders know when a trend might be ending. It can warn you before a price change happens. If you see bearish divergence, it may be a good time to sell. If you see bullish divergence, it may be a good time to buy. It gives signals early, which is useful for better entry and exit points.

What Are the Two Main Types of Divergence?

There are two types of divergence: bullish and bearish. Bullish divergence happens when the price makes lower lows but the indicator makes higher lows. This means the price might go up. Bearish divergence happens when the price makes higher highs but the indicator makes lower highs. This means the price might fall soon.

Which Indicators Are Commonly Used for Divergence?

Some popular indicators for finding divergence are RSI (Relative Strength Index), MACD (Moving Average Convergence Divergence), and Stochastic Oscillator. These tools help you see if the strength of the trend is going down while the price is still moving up or down.

Can Divergence Be Used Alone for Trading?

It’s best not to use divergence alone. It works better when you use it with other tools like support and resistance, volume, and chart patterns. Divergence gives signals early, but it doesn’t always mean the price will change. Using more tools makes your trading more reliable.

Is Divergence Useful for All Timeframes?

Yes, divergence can be used in short, medium, or long-term trading. Whether you're a day trader or a long-term investor, divergence helps you see hidden signals that the price trend might change. Just make sure to match the indicator’s timeframe with your trading style.