divergenceconcept

Understanding Divergence:

The Market's "Warning Signal" ⚠️

⚪​Divergence is a powerful concept in technical analysis that can give you a heads-up on a potential trend reversal. It happens when the price of an asset and a technical indicator (like the RSI, MACD, or Stochastic) move in opposite directions.

⚪​Think of it as a disagreement. The price is saying one thing, but the momentum indicator is saying another. This is often a sign that the current trend is losing strength.

⚪​Two Main Types of Divergence
​As shown in the image below, there are two primary types:

​🟢 Bullish Divergence
​What to look for: The price makes a Lower Low, but the indicator makes a Higher Low.
​What it means: The downward momentum is weakening. Even though the price is still falling, the selling pressure is not as strong as before. This often signals a potential reversal to the upside (a "buy" signal).
​See the green lines on the left side of the chart.

​🔴 Bearish Divergence
​What to look for: The price makes a Higher High, but the indicator makes a Lower High.
​What it means: The upward momentum is fading. The price is making new highs, but there is less power behind the move. This can indicate a potential reversal to the downside (a "sell" signal).
​See the red lines on the right side of the chart.
​Why Is It Important?

🟩Divergence is one of the most reliable leading indicators. It doesn't just tell you what has happened; it gives you a clue about what might happen next. By spotting these disagreements, you can be prepared for market turns before they become obvious to everyone else.

🟩​Pro Tip: Never trade on divergence alone! Always use it in conjunction with other analysis tools like trendlines, support & resistance levels, and candlestick patterns for confirmation

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