A divergence is when the price moves in one direction but the oscillator moves in the opposite direction. There are two variations of divergence, regular divergence, and hidden divergence. These apply to both bullish and bearish divergences.

Bearish divergence – measured on the top of charts and indicators

Bullish divergence – measured on the bottom of charts and indicators.

The most common indicators used for identifying divergence are the RSI and MACD.

Relative Strength Index (RSI)

Bearish Divergence

RSI Regular Bearish Divergence

Regular bearish divergence is when the price is making higher lows (HL), but the oscillator is making lower lows (LL).

RSI Hidden Bearish Divergence

Hidden bearish divergence is when the price is making lower lows (LL), but the oscillator is making higher lows (HL).

Bullish Divergence

RSI Regular Bullish Divergence

Regular bullish divergence is when the price is making lower lows (LL), but the oscillator is making high lows (HL).

RSI Hidden Bullish Divergence

Hidden bullish divergence is when the price is making higher lows (HL), but the oscillator is making lower lows (LL).

Moving Average Convergence Divergence (MACD)

Momentum is the force that oscillates between highs and lows, bringing changes in price action. A divergence line between the two MACD lines will almost always occur after a sharp price move.

MACD divergence can be measured using the two lines (signal and MACD line), using the histogram, or using both.