divergence can be seen by comparing price action and the movement of an indicator. It doesn't really matter what indicator you use. You can use RSI, MACD, the stochastic, CCI, etc. The great thing about divergences is that you can use them as a leading indicator, and after some practice it's not too difficult to spot. When traded properly, you can be consistently profitable with divergences. The best thing about divergences is that you're usually buying near the bottom or selling near the top. This makes the risk on your trades are very small relative to your potential reward. Just think "higher highs" and "lower lows". Price and momentum normally move hand in hand. If price is making higher highs, the oscillator should also be making higher highs. If price is making lower lows, the oscillator should also be making lower lows. If they are NOT, that means price and the oscillator are diverging from each other. And that's why it's called "divergence." A regular divergence is used as a possible sign for a trend reversal. If price is making lower lows (LL), but the oscillator is making higher lows (HL), this is considered to be regular bullish divergence. This normally occurs at the end of a down trend. After establishing a second bottom, if the oscillator fails to make a new low, it is likely that the price will rise, as price and momentum are normally expected to move in line with each other.
Chart Analysis
