What is divergence in stock trading?

Divergence in stock trading is the contradiction between price action and indicators on the chart. Since indicators themselves are based on price action, if the price is going contrary to the indicator, this is a clear sign that trouble is on the horizon. This conflict of price and technical indicators is one of the strongest signals in trading.

How do you identify divergence in stock charts?

To identify divergence in stock charts, traders typically start by analyzing the price action of the asset. They look for higher highs or lower lows in the price movement. As they do this, traders look at corresponding movements of a chosen technical indicator, focusing on whether it confirms or contradicts the price trend.

What is divergence & convergence in trading?

Divergence and convergence in trading are concepts related to the relationship between a financial asset’s price and a technical indicator. Divergence occurs when the price and indicator move in opposite directions, indicating a potential trend reversal.