Divergence

How to use Divergence

Divergence uses price action and some type of momentum oscillator (see lagging indicators - Most common are the RSI or MACD).
Divergence occurs when price action is trending in one direction and momentum of a stock is trending in the opposite direction. Though it is not guaranteed, nor does it tell you for how long, it does indicate a potential reversal.
Better to identify larger time frames of divergence for larger moves
Trading Strategy: How to trade divergence with technical indicators offers a great read on divergence and its usage with three different momentum oscillators: RSI, Stochastic, and MACD

note: Divergence does not always result in a reversal in the timeframe you are expecting. This tool should be used as another method that builds confluence to your strategy and not as an absolute.

Bearish Divergence.MP4

Bearish Divergence

Here is another example of Bearish Divergence

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Bullish Divergence

Example of Bullish Divergence

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