Bullish/Bearish Divergence

A bullish divergence occurs when the price of an asset reaches lower and lower lows, while a technical indicator (such as the RSI, MACD, or stochastic oscillator) forms higher and higher lows. This suggests that selling pressure is weakening and that a potential rise is coming. Conversely, a bearish divergence occurs when the price reaches higher and higher highs, but the indicator shows lower and lower highs. This indicates that buying pressure is decreasing and that a price decline may follow. Interpreting divergences requires caution. They are not absolute buy or sell signals, but rather alerts that must be confirmed by other technical indicators, volume analysis, or candlestick patterns. The strength of a divergence is often related to its magnitude and the time period over which it develops. A divergence on a weekly chart will generally be more significant than a divergence on a 15-minute chart. There are also "hidden divergences" which, unlike classic divergences, signal a continuation of the current trend. A hidden bullish divergence occurs when the price makes a higher low and the oscillator makes a lower low. Conversely, a hidden bearish divergence occurs when the price makes a lower high and the oscillator makes a higher high.