What is Divergence
Divergence is when an asset’s price is increasing or decreasing in a way contrary to the change in direction of some technical indicator or relevant data.
It may suggest upcoming bull or bear trend reversals. Divergence can be positive or negative. Positive divergence signal potential increase in asset prices, while negative divergence implies possible price decreases.
It derives its meaning from observing a fundamental indicator, mainly an oscillator of some sort, relevant to the asset price, to scout for new highs or lows. If the price is achieving a new higher peak, but the indicator is achieving a lesser peak, this could mean that the price upward trend is waning. The opposite is also true.
As a result, divergence in combination with other tools are used by investors to anticipate price trend changes.