Divergence
When the price of an asset and an indicator, index or other related asset move in opposite directions. In technical analysis, traders make transaction decisions by identifying situations of divergence, where the price of a stock and a set of relevant indicators, such as the money flow index (MFI), are moving in opposite directions.
Investopedia Says:
In technical analysis, divergence is considered either positive or negative, both of which are signals of major shifts in the direction of the price. Positive divergence occurs when the price of a security makes a new low while the indicator starts to climb upward. Negative divergence happens when the price of the security makes a new high, but the indicator fails to do the same and instead closes lower than the previous high. Related Terms:
Double Bottom
Double Top
Index
Indicator
Money Flow Index - MFI
Moving Average Convergence Divergence - MACD
Price Rate Of Change - ROC
Reversal
Technical Analysis
Trend |