DEFINITION of '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.



BREAKING DOWN 'Divergence'

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.

  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  3. Triple Exponential Average - TRIX

    A momentum indicator used by technical traders that shows the ...
  4. Advances And Declines

    The number of stocks that closed at a higher price than the previous ...
  5. Index

    A statistical measure of change in an economy or a securities ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following ...
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