Divergence
Divergence occurs when price and an indicator (like RSI or MACD) move in opposite directions. It signals momentum is weakening and a reversal might be coming.
Understanding the Concept
Divergence is your early warning system that the trend is running out of gas. Bullish divergence happens when price makes lower lows but RSI makes higher lows—sellers are losing strength. Bearish divergence is when price makes higher highs but RSI makes lower highs—buyers are exhausted. This stuff works because indicators measure the internal strength of moves. Price can keep grinding higher on fumes, but RSI sees the truth. Smart money watches for divergence at major support and resistance levels. That's where reversals actually happen, not in the middle of nowhere.
Real-World Example
Bitcoin hits $52k (new high), but MACD is lower than when BTC was at $50k. That's bearish divergence. Three days later, BTC dumps to $47k. The divergence called the top.
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