Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 1: Principles of financial trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 2: Principles of Financial Planning and Cash Flow in Financial Trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 3: Understanding financial trading techniques
WHAT IS DIVERGENCE?
A condition of bullish or bearish divergence is said to exist where the market continues to trend up or down, whilst the momentum indicator is heading in the opposite direction. This is a sign that although the trend is still intact as evidenced by the move to a new high or low, that the speed of the rise or fall is falling. This tends to be a reliable signal that the market is running into trouble (especially if the indicator is already in overbought or oversold territory when it starts to turn) and frequently precedes a turn, as some sort of top or base could be building.
The following chart shows bullish divergence.
