Divergence

Divergence occurs when the price of an asset and a momentum indicator move in opposite directions, suggesting that the current trend is weakening. For example, if a price makes a new high but the RSI makes a lower high, it indicates that the momentum behind the move is fading despite the higher price.

This is a powerful signal for a potential trend reversal, as it highlights a disconnect between price action and underlying buying or selling pressure. Divergence is widely used in both crypto and traditional markets to anticipate turning points.

It requires patience and confirmation, as divergence can sometimes persist for an extended period before a reversal actually occurs. It serves as an early warning system for traders to reduce risk or prepare for a change in strategy.