Technical indicators
Divergence
Definition
Divergence is when price and an oscillator such as RSI disagree: price makes a higher high while RSI makes a lower high (bearish), or price makes a lower low while RSI makes a higher low (bullish). It warns that momentum is fading but does not time an entry on its own. Our RSI divergence guide shows how to trade it.
Example
Say a stock rallies to $60.00 with RSI at 78, pulls back, then pushes to a higher high at $61.50 while RSI peaks at only 66. Price made a higher high but RSI a lower high, a bearish divergence: the second push had less momentum behind it. The stock can keep climbing for a while anyway, so many traders wait for a level to break before acting.
Hypothetical numbers, for illustration only.
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