When price and momentum disagree
Bearish divergence: price makes a higher high but RSI/MACD makes a lower high — the new high had less momentum behind it. Bullish divergence is the mirror: a lower price low with a higher momentum low.
Divergence is a warning, not a trigger. Trends can diverge for a long time before anything happens ('divergence can persist'). Use it to tighten stops or wait for a structure break to confirm — not to blindly counter-trade a strong move.
Spotting it step by step
Divergence is simple to check once you have a routine:
- Find two adjacent price highs (or lows).
- Compare them to the matching highs/lows on RSI or MACD.
- Higher price high + lower indicator high = bearish divergence (weakening).
- Lower price low + higher indicator low = bullish divergence (fading selling).
Why it gets people run over
Divergence appears in every strong trend and can persist for a long time before anything happens — a chart can print three bearish divergences and keep rising. Use it to protect profits (tighten stops) or to wait for a structure break to confirm, not as a signal to counter-trade a powerful move. It's a caution light, never a green light to fight the trend.