Using Price and Indicator Divergence to Assess Trend Strength
Summary
The document explains divergence as a mismatch between an asset’s price movement and a related indicator, such as trading volume, RSI, or Stochastic RSI. It distinguishes regular divergence, which may warn of a possible reversal, from hidden divergence, which is framed as a possible continuation signal. Bullish and bearish forms are described through differences in price highs or lows and oscillator highs or lows; exhaustion divergence is presented as weakening momentum near an extreme.
The proposed use is to watch for divergence as a clue about trend strength, then consider it alongside other signals when evaluating entries, exits, or stop placement. The examples are conceptual and offer no systematic rules, measured results, or evidence supporting predictive reliability. The document itself cautions that divergences can be subtle and should serve as confirmation rather than a standalone signal. It does not specify how to select indicators, timeframes, or thresholds, so interpretation remains subjective.
Key ideas
- Divergence occurs when price and an indicator move in opposing directions.
- Regular bullish divergence may appear when price makes a lower low while an oscillator makes a stronger low.
- Regular bearish divergence may appear when price makes a higher high while an oscillator weakens.
- Hidden divergence is described as a potential trend continuation clue after a correction or recovery.
- Divergence is subjective and should be checked against other evidence before acting.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.