Divergence is the single most powerful concept in technical analysis — and the most misunderstood. When price and an indicator move in opposite directions, the market is telling you something important. This glossary breaks down every type of divergence and how to trade it.
Trading involves risk. Binary options and forex trading involve substantial risk of losing your capital. This glossary is for educational purposes only. Never trade money you cannot afford to lose.
Divergence Types
Regular Bullish Divergence
Price makes a lower low, but the indicator (typically RSI or MACD) makes a higher low. This tells you that while price is still dropping, the momentum behind the drop is weakening. Sellers are running out of steam. This is a potential reversal signal — the trend may be about to turn up. Regular bullish divergence at a support level is one of the most reliable setups in trading (trade RSI divergence →).
Example: EUR/USD drops from 1.0900 to 1.0850 (lower low), but RSI at 1.0850 shows 32 vs 28 at the previous low. Momentum is weakening. The downtrend may be ending. You prepare for a CALL trade.
Regular Bearish Divergence
Price makes a higher high, but the indicator makes a lower high. Buying momentum is fading even though price is still climbing. This warns that the uptrend is losing strength and a reversal down may be coming. Regular bearish divergence at resistance is a high-probability PUT setup (see bearish divergence examples →).
Example: GBP/USD rallies from 1.2600 to 1.2700, but RSI at 1.2700 is 68 versus 75 at the previous peak. The bulls are tired. You consider a PUT trade targeting a reversal back down.
Hidden Bullish Divergence
Price makes a higher low, but the indicator makes a lower low. This is a continuation signal, not a reversal signal. It tells you that despite the pullback, the uptrend is still strong — buy the dip. Hidden divergence is less well-known than regular divergence but equally useful for trend traders (combine hidden divergence with trendlines →).
Hidden Bearish Divergence
Price makes a lower high, but the indicator makes a higher high. This confirms the downtrend is intact despite a temporary rally — sell the bounce. Hidden bearish divergence helps you avoid entering counter-trend trades during a pullback in a downtrend (see how to trade pullbacks in trends →).
Key Concepts
RSI Divergence
The most common form of divergence trading, using the Relative Strength Index. RSI is ideal for spotting divergence because it has clear overbought (70) and oversold (30) levels that help filter signals. A regular bearish divergence with RSI above 70 is stronger than one with RSI below 70. Similarly, regular bullish divergence with RSI below 30 is more reliable (learn RSI in detail →).
MACD Divergence
Divergence using the MACD histogram or MACD line. MACD divergence tends to be smoother and less noisy than RSI divergence because MACD is based on moving averages. MACD divergence works particularly well on higher timeframes (1-hour and above) for forex swing trading (learn MACD in detail →).
Divergence Cheat Sheet
Next Steps
Now that you understand divergence, here’s what to learn next:
RSI Divergence Strategy → — A complete trading system based on divergence.
What Is RSI? → — Master the indicator that powers most divergence trading.
Technical Indicators Glossary → — Learn more about MACD and other indicators.
Trading involves substantial risk of losing your capital. This glossary is for educational purposes only. Past performance does not guarantee future results. Always do your own research before trading.
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