GlossaryLevel 6
Divergence
A divergence is price and a momentum oscillator telling different stories. The classic example: price prints a new high while RSI prints a lower high than its previous one — price says "the advance continues", momentum says "we reached this high with less force than the last". Spotting it on a chart takes two steps: first mark the consecutive highs or lows on price, then compare the oscillator's peaks at those same moments. Price making higher highs while the oscillator makes lower highs is bearish divergence; price making lower lows while the oscillator makes higher lows is bullish divergence. Recall the fading-volume lesson of level 4 — divergence is the same "participation is thinning" story told in the language of momentum. The common misreading is to take a divergence for a trigger. It is a warning: in strong trends divergences pile up for months while price keeps going. All it says is that the force behind the move is fading; whether that becomes a reversal is for price itself, the swing sequence, to show. The lesson for risk literacy: the difference between a warning and an announcement is the difference between probability and certainty.
This content is educational information, not personalised investment advice. The chart examples are illustrative.