
What is Bullish and Bearish Divergence ?
Divergences are a market condition that foretells the market situation. They help traders identify the upcoming change in momentum in the market. In fact, forex divergence trading strategy, which leverages chart information as well as the candlesticks, is one of the most reliable strategies employed by traders. It can be a critical addition to your arsenal, keeping you ahead of the market. So, if you’re new to the trading landscape and have heard plenty about bullish and bearish divergence already, it’s time to learn more about it, including how you can use the bullish & bearish divergence pattern in your buy-sell decisions.
What is Divergence?

When a technical indicator (like an oscillator or money flow) and the price of an asset are moving in opposite directions, it’s called divergence. This movement underlines that the current price trend may possibly be weakening, which can subsequently result in the price changing its direction. There is positive divergence and negative divergence. When the technical indicator is going higher and the price is going lower, it signals positive divergence wherein the market could be turning bullish. On the contrary, when the technical indicator is going lower and the price is going higher, it signals negative divergence wherein the market could be turning bearish.
Broadly, there are three types of divergence: Bearish, bullish, and hidden.
What is Bearish Divergence?
Bearish divergence is a negative divergence when the price reaches higher highs and the technical indicator touches lower highs. The trend shows the momentum is slowing and there could be a considerable fall in the price.
What is Bullish Divergence?
Bullish divergence is a positive divergence when the price reaches lower lows and the technical indicator touches higher lows. The trend shows the market momentum is getting stronger and there could be a considerable rise in the price very soon.
What is Hidden Divergence?
Hidden Divergence is the pattern when the price does not change and the technical indicator touches lower low or higher high. This trend shows that the current momentum is strong enough and will continue to be that way.
How to Identify a Divergence Pattern?
Now you know what is a bullish and bearish divergence, comes now the most obvious questions: How to identify a divergence?
Identifying bullish and bearish divergence is relatively simple if you have a basic understanding of how to read charts and what are some key technical indicators. It starts with first recognizing if the price has reached a lower low or higher high. Once you have recognized the price action, the next step is to use any of the technical indicators to see if this price action is different from what the technical analysis tool is showing.
If the tops or bottoms of the indicator differ from the price action, there’s divergence and the current market price is about to change. When the indicator is touching lower highs and the price is touching higher highs, it’s a bearish divergence. On the other hand, when the indicator is touching higher lows and the price is touching lower lows, it’s a bullish divergence.
Technical Indicators to Use
There are several technical indicators you can use to identify whether divergence has occurred or not. Here are some of the most common ones among traders:
- Relative Strength Index (RSI)
- Moving Average Convergence Divergence (MACD)
- Rate of Change (ROC)
- The Stochastic Oscillator
You can choose any divergence forex indicator per your preference. However, oscillator and RSI bullish and bearish divergence are usually the most popular momentum indicators.
How to Use Divergences?
You would likely have a fair understanding of its benefits and how having a forex divergence trading strategy is so important. You can use divergences to anticipate a change in the direction of the existing market price. Divergences occur right before the weakening or strengthening of the current trends. Once you’re aware of the upcoming price action, you can make your purchase or sell decisions accordingly to maximise your returns.
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