In this lesson
- recognise bearish and bullish divergence
- find a real divergence on the Bitcoin chart from late 2024
- find out why divergence often fails and how to handle it
The price climbs to a new high, everyone celebrates – and the oscillator below the chart looks as if it does not care. Professor Wick knows the feeling: when a runner gets further than last time but gasps for air even more, the next lap may not happen. This mismatch is called divergence.
Bearish and bullish divergence#
- Bearish divergence: the price makes a higher high, but the oscillator (say RSI) only a lower peak. The rise goes on, but with less strength.
- Bullish divergence: the price makes a lower low, but the oscillator a higher trough. The fall goes on, but the sellers are running out of breath.
There is also so-called hidden divergence: the price makes a higher low, but the oscillator a lower one. It is read as a hint that the trend continues. The ordinary kind is enough to start with.
A real example: December 2024#
On 22 November 2024 Bitcoin climbed to 99,588 with RSI 14 at 82.2. Less than a month later, on 17 December, it made a new high of 108,353 – but RSI reached only 70.1. Price higher, strength lower:
- RSI 14 (panel below the chart, lines at 30 and 70)
- 99,588: Nov 22, 2024
- 108,353: Dec 17, 2024
- Divergence: Nov 22 – Dec 17, 2024
What came next: on 20 December the price fell as low as 92,233 during the day, and on 30 December it closed at 92,792. This time the warning was right. Now try to find it yourself:
Click the candle where the price made a higher high than in November, but RSI only a lower peak.
No candle picked yet.
Why divergence often fails#
In a strong trend a divergence can last for weeks. The price makes a higher high, then another and another – and RSI below is a little lower each time. Whoever sold on the first divergence missed the rest of the rise. Divergence does not say when the trend turns, or whether it will at all.
It is wiser to treat it as a heads-up: pay attention, tighten your risk, do not open a new trade in the direction of a weakening move. If you want to trade against the trend, wait for confirmation – for example a close below an important level or below a trend line.
Divergence is not an order
Divergence looks beautiful in hindsight. In real time you do not know whether the last high has already come. Trading on divergence alone against a strong trend is one of the most expensive habits of new traders.
Common myths#
- "Divergence = reversal." It often means only a slowdown or a while sideways.
- "The more divergences in a row, the surer the fall." A string of divergences in a strong trend is common, and the trend can keep going.
- "I can find divergence on every chart." If you look for it, you will find it almost everywhere. So define in advance exactly what counts as one.
Summary
- Bearish divergence: a higher high in price, a lower peak in the oscillator. Bullish: a lower low in price, a higher trough in the oscillator.
- December 2024: a high of 108,353 with RSI 70.1 against 99,588 with RSI 82.2 – then a fall towards 92,000.
- Divergence says a move is weakening, not when or whether it turns.
- Treat it as a warning and wait for confirmation, not as a signal to trade.