GLOSSARY // Technical Analysis
Divergence
Divergence is a disagreement between price and an indicator: price makes a new high or low, but the oscillator tracking it does not. Bearish divergence is a higher price high with a lower indicator high; bullish divergence is a lower price low with a higher indicator low.
The read is that the move's fuel is thinning even though price is still extending. A stock grinding to a new high on collapsing momentum is being carried by fewer, weaker pushes. RSI and MACD are the usual instruments, but the concept applies to volume and breadth as well: an index making highs while fewer stocks participate is the same structure.
Divergence is early by nature, which makes it dangerous as a standalone trigger. Strong trends can print divergence after divergence for months while price keeps going. It works best as a warning that tightens stops or as one condition in a setup that still requires price confirmation, like a break of support.
A stock rallies to 115 with RSI at 74, pulls back, then pushes to a new high at 120 while RSI only reaches 66. That is bearish divergence. It becomes actionable when price breaks the pullback low at 112; the decline that follows runs to 104. Had the trend been stronger, the divergence could have simply reset with RSI making a higher high on the next leg.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.