What is Divergence?

Price making a new extreme while an oscillator refuses to confirm it — momentum quietly leaving the move.

Divergence occurs when price and a momentum indicator such as the RSI disagree at the extremes. In bearish divergence, price prints a higher high but the oscillator prints a lower high — the new price extreme was reached with less momentum than the previous one. In bullish divergence, price makes a lower low while the oscillator makes a higher low. Either way, the engine is weakening while the car still rolls forward, and that condition frequently precedes a pullback or a full reversal.

The critical discipline is remembering that divergence is a condition, not a signal. Strong trends routinely print two, three or more divergences before actually turning, and traders who short every bearish divergence in a bull run donate their accounts to the trend. Divergence earns its place as one voice in a larger case: a bearish divergence forming while price sweeps a major high into a supply zone, followed by a change of character, is a coherent reversal story. Divergence alone, in the middle of a healthy trend, is just an early — often far too early — whisper.