Divergence generally means that the price and the indicator move in the opposite direction of each other, and the result of this is generally that when the price diverges, the price stops moving and changes direction. Observing divergence in indicators is known as one of the very strong signals in the science of technical analysis.
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Types of divergence
Divergence is divided into two categories:
1. Regular Divergence:
This typical divergence itself is divided into two categories: positive divergence and negative divergence.
Normal Negative Divergence: Occurs when the price forms a new ceiling, but the indicator fails to form a new ceiling above the previous one.
Divergence indicator
As we can see in the example above (hourly chart of Khosapa share) there is a negative divergence (RD). The price has formed a new ceiling while the indicator has not been able to do so, and the emergence of this situation itself could be a warning to control the risk because the possibility of a market downturn has been confirmed by the MACD indicator.
For speculators (market speculators are people who are thinking of making a profit in the short term), this negative divergence is a sign that the market trend is entering a new downturn and thus the outlook. They do not subvert transactions favorably.
Normal Positive Divergence: This type of divergence occurs in a downtrend and is such that the price succeeds in forming a new floor, lower than its previous floor, but the indicator can not build a new floor. The chart below shows this well.
Divergence indicator
The chart above is the hourly chart of Khasapa’s share. As it is clear, after observing a positive divergence in the indicator, while the share price has a downward trend, we see an upward trend and a share growth.
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