Convergence and divergence are two important concepts in technical analysis that help traders identify possible trend reversals in the crypto market. Here are the main differences between them:
Convergence occurs when the price of an asset falls to a new low, while the indicator (oscillator) shows growth.
Signal: Indicates a possible upward trend change. This could be a buy signal as the price may start to rise.
Example: If the price of Bitcoin is falling but the RSI starts to rise, this could be a convergence signal.
Divergence occurs when the price of an asset makes new highs or lows, but the indicator shows the opposite movement.
Signal: Indicates a possible downward trend change. This could be a sell signal as the price may start to fall.
Example: If the price of Ethereum is rising but the MACD starts to fall, this could be a divergence signal.
The main difference
Signal Direction: Convergence usually indicates a possible price increase (bullish signal), while divergence indicates a possible price decrease (bearish signal).
Both of these phenomena help traders make more informed decisions, but it is important to remember that they are not exact calls to action and should be used in conjunction with other analysis methods.
Technical indicators that help traders analyze market trends and identify possible price reversal points are called Oscillators. Oscillators measure the speed and change of price movement, which allows you to identify whether an asset is overbought or oversold.
Some popular oscillators include:
Relative Strength Index (RSI): Shows when an asset is overbought or oversold, which may indicate a possible trend reversal.
MACD (Moving Average Convergence Divergence): Helps determine momentum and trend direction using the difference between two moving averages.
Stochastic Oscillator: Compares the current closing price of an asset to its price range over a specified period of time to determine whether it is overbought or oversold.
These tools help traders make more informed decisions about buying or selling assets in the crypto market.
Divergence and Convergence in cryptocurrency is a discrepancy between the direction of the asset price movement and the readings of a technical analysis indicator, and is one of the strongest reversal signals in technical analysis. This phenomenon is considered an important signal for traders, as it may indicate a possible trend reversal.
There are three types of Divergence: regular (against the trend), hidden (following the trend) and extended.
A common divergence (or classic divergence) against the market is a situation when the price of an asset and a technical analysis indicator move in opposite directions. This may indicate a possible reversal of the current trend.
Normal divergence:
Bullish Divergence:
Signal: Indicates a possible price increase.
Example: The price of an asset is making new lows, but an indicator (such as RSI) is showing higher lows. This may indicate that selling pressure is easing and the price may start to rise.
Bearish divergence:
Signal: Indicates a possible price drop.
Example: The price of an asset is making new highs, but the indicator is showing lower highs. This could mean that buying pressure is easing and the price could start to fall.
How it works:
Bullish Divergence: If the Bitcoin price falls to new lows but the RSI starts to show higher lows, this could be a buy signal as the price could start to rise.
Bearish Divergence: If price $BNB rises to new highs but MACD starts to show lower highs, this could be a sell signal as price may start to fall.
Hidden divergence is a situation when the price of an asset and a technical analysis indicator move in opposite directions, but unlike regular divergence, it indicates a continuation of the current trend, not a reversal.
Hidden divergence:
Hidden Bullish Divergence:
Signal: Indicates continuation of the uptrend.
Example: The price of an asset makes a higher low, but an indicator (such as RSI) shows a lower low. This may mean that the uptrend will continue.
Hidden Bearish Divergence:
Signal: Indicates continuation of the downward trend.
Example: The price of an asset makes a lower high, but the indicator shows a higher high. This may mean that the downtrend will continue.
How it works:
Hidden Bullish Divergence: If price $BTC makes a higher low but RSI shows a lower low, this could be a signal for the uptrend to continue.
Hidden Bearish Divergence: If Ethereum price makes a lower high but MACD shows a higher high, it could be a signal for the downtrend to continue.
Extended divergence is a type of divergence that indicates a continuation of the current trend rather than a reversal. It is often seen during sideways market movements or when double tops or bottoms are forming.
Extended Divergence Division:
Extended Bullish Divergence:
Signal: Indicates continuation of the uptrend.
Example: The price chart shows a double bottom and the oscillator shows a higher low. This may mean that the uptrend will continue.
Extended Bearish Divergence:
Signal: Indicates continuation of the downward trend.
Example: The price chart shows a double top, but the oscillator shows a lower high. This may indicate that the downtrend will continue.
How it works:
Extended Bullish Divergence: If price $GALA forms a double bottom but RSI shows a higher low, this could be a signal for the uptrend to continue.
Extended Bearish Divergence: If Ethereum price forms a double top but MACD shows a lower high, it could be a signal for the downtrend to continue.
