Divergence Analysis
Divergence analysis is a technique used by traders to identify when the direction of an asset price is not supported by the momentum of an oscillator. A bullish divergence occurs when the price makes a lower low while the oscillator makes a higher low, suggesting that selling pressure is weakening.
A bearish divergence occurs when the price makes a higher high while the oscillator makes a lower high, indicating that buying pressure is losing strength. This analysis is a cornerstone of technical trading, providing a warning that the current price trend may be about to end.
It allows traders to anticipate reversals before they are confirmed by price action. In crypto markets, divergence is often a precursor to major trend shifts.
It requires a keen eye for detail and the ability to distinguish between noise and significant signals. By identifying these discrepancies, traders can position themselves advantageously.
It is an essential skill for those practicing discretionary technical analysis.