Divergence

What is '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.
 

 

Divergence

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.

RELATED TERMS
  1. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  2. Ease Of Movement

    A technical momentum indicator that is used to illustrate the ...
  3. Confirmation

    The use of an additional indicator or indicators to substantiate ...
  4. Swing High

    A term used in technical analysis that refers to the peak reached ...
  5. Indicator

    Indicators are statistics used to measure current conditions ...
  6. Demarker Indicator

    An indicator used in technical analysis that compares the most ...
Related Articles
  1. Trading

    Exploring Oscillators and Indicators: Leading And Lagging Indicators

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com Indicators can be separated into two main types - leading and lagging - both differing in what they show users. Leading ...
  2. Trading

    Trend-Spotting With The Accumulation/Distribution Line

    The A/D line highlights buying and selling pressure to confirm existing trends.
  3. Trading

    Exploring Oscillators and Indicators: Conclusion

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com The goal of every short-term trader is to determine the direction of a given asset's momentum and to attempt to profit from ...
  4. Trading

    How To Use Technical Indicators To Master Financial Spread Betting

    As a popular tool of investing in the United Kingdom, spread betting encompasses the buying or selling of an underlying asset when a strike price is met.
  5. ETFs & Mutual Funds

    Break Down Modern Market Trends To Grasp Movement

    Convergence points to dynamic conditions that can elicit strong trends while divergence suggests conflict, more typical of rangebound price action.
  6. Markets

    Wal-Mart Least-Liked Supermarket Among Shoppers

    Wal-Mart (NYSE: WMT) may have low prices, but that's not enough to endear it to its own customers. The retailer came in last place in Market Force Information's (MFI) annual Retail Grocery Study, a ...
  7. Markets

    Obscure Indicator Confirms Bullish Outlook For Gold

    There will be a number of earnings reports this week, and traders should start focusing on the trend in earnings. That could be bearish for the stock market.Weak Start to Earnings Season Puts ...
  8. Managing Wealth

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
  9. Markets

    Four Breakout Stocks To Watch

    These biotechnology and pharmaceutical stocks continue to put in new highs, but indicators are diverging.
  10. Trading

    Support And Resistance Basics

    Understanding the concept of Support and Resistance in trading can drastically improve your short-term investing strategy.
RELATED FAQS
  1. What are common trading strategies when identifying divergence of indicators on a ...

    Learn some of the principle strategies traders can employ after spotting a divergence between technical indicators on a price ... Read Answer >>
  2. What are the main differences and similarities between the Money Flow Index (MFI) ...

    Learn to distinguish between the relative strength index (RSI), a popular momentum oscillator, and the money flow index (MFI), ... Read Answer >>
  3. What are the main differences between Money Flow & Money Flow Index (MFI)?

    Find out how to differentiate between standard money flow and the Money Flow Index, two methods of expressing the strength ... Read Answer >>
  4. What are the main differences and similarities between Money Flow Index & On Balance ...

    Understand the basics of On Balance Volume and the Money Flow Index, including their similarities and differences in terms ... Read Answer >>
  5. What are the best technical indicators to complement the Moving Average Convergence ...

    Learn the best technical indicators to use as part of a trading strategy in conjunction with the moving average convergence ... Read Answer >>
  6. What do traders determine when there is divergence between an oscillator and a moving ...

    Understand the basics of divergence between a moving average and an oscillator and how this signal is interpreted by traders ... Read Answer >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center