Divergence trading (RSI and MACD)

Divergence happens when price and an indicator disagree with each other — specifically, when price makes a new high (or low) but a momentum indicator like RSI or MACD fails to make a matching new high (or low). That disagreement is read as a warning sign that the move's underlying strength is fading, even while price itself is still pushing further.

Bearish divergence is when price makes a higher high but RSI or MACD makes a lower high at the same time — momentum is quietly weakening even as price grinds to a new peak, often ahead of a reversal or at least a meaningful pullback.

Bullish divergence is the mirror image: price makes a lower low, but the indicator makes a higher low — selling pressure is fading even as price technically still falls, sometimes catching the exact bottom of a move before price itself confirms it.

RSI divergence tends to work well spotting shorter-term exhaustion; MACD divergence, because it's built from moving averages themselves, tends to reflect slightly longer-term momentum shifts — many traders check both together rather than relying on just one.

Divergence is a warning, not a trade signal on its own. It can persist and get more extreme for a surprisingly long time before price actually turns — which is why most traders treat it as one more piece of confluence to watch for, alongside an actual support/resistance level or candlestick confirmation, rather than an automatic reason to enter.