Divergence

What is Divergence?

Divergence is when the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, or is moving contrary to other data. Divergence warns that the current price trend may be weakening, and in some cases may lead to the price changing direction. Divergence can last a long time without a price reversal occurring. The trader can then determine if they want to exit the position or set a stop loss in case the price starts to decline. [1]

If the price chart has formed another new high or low, and the indicator chart has failed to, it is a sign of divergence.[2]

Divergence (convergence) can be repeated several times in a row, while combining different classes and thus creating a stronger reversal model. Each class should be analyzed separately in each case. We can’t say unambiguously which one is the strongest or the weakest one.[2]

What Does Confirmation Mean?

Confirmation refers to the use of an additional indicator or indicators to substantiate a trend suggested by one indicator. A trader often feels more secure deciding to act on a signal if more than one indicator is sending the same signal. If different indicators send conflicting signals, this is known as divergence.[3]