Divergence is a disagreement between price behavior and an indicator, commonly a momentum measure such as the Relative Strength Index (RSI). Traders compare corresponding price swings with indicator swings to assess whether momentum supports the observed trend. The comparison concerns direction and structure, not the numerical distance between the two scales.
Reading regular divergence
Regular bullish divergence occurs when price makes a lower low while the indicator makes a higher low. For example, an asset’s price could move from a low of 100 to 95 while the corresponding RSI lows rise from 25 to 32. This suggests that downside momentum may be weakening.
Regular bearish divergence is the opposite pattern: price reaches a higher high while the indicator forms a lower high, suggesting possible weakening of upward momentum.
A warning, not a timetable
Divergence does not establish that a reversal will occur or when it might happen. A strong trend can continue despite repeated divergences. The selected timeframe, indicator settings, and choice of swing points can change the interpretation.
Price structure, trading volume, and broader market conditions provide additional context. Multiple indicators derived from the same prices are not necessarily independent evidence, and a divergence alone does not determine a complete trade plan.