Price makes a high the gauge won't match:the two diverge, a thing to watch.
A situation in which the price of a currency pair and a technical indicator calculated from it, such as RSI or MACD, move in different directions: for example, the price makes a higher high while the indicator makes a lower one.
Technical analysts traditionally read it as a sign that a trend is losing strength, but a trend can continue for a long time while divergence persists.
In plain words
Divergence is a disagreement between a price and an indicator calculated from it. The usual case: the price makes a higher high while a momentum indicator, a measure of how fast the price is moving, makes a lower high. It shows that the latest push went further than the one before, but with less force.
See it move
Price and Indicator are drawing apart
Why it matters
Technical analysts read divergence as a sign that a trend is losing strength. It is not a timing tool: a trend can continue for a long time while divergence persists, and many divergences are followed by no reversal at all.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
On an invented chart the price peaks at 1.1000 and later at 1.1050, while a momentum indicator reads 75 at the first peak and 65 at the second.
- 1Price1.1050 is above 1.1000, a higher high
- 2Indicator65 is below 75, a lower high
- 3The two disagree, which is called bearish divergence
The price is higher but momentum is lower, which is said to indicate a weakening rise and nothing more certain than that.
A common mistake
Divergence is often treated as a reversal that has already begun. It describes slowing momentum; the price may keep moving in the same direction.
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Educational information, not investment advice or a recommendation to trade.