Divergence
When price and an indicator point in opposite directions, what might that be telling us?
In plain words
A divergence appears when price and a technical indicator move in different directions: price falls while the indicator holds firm or rises, or price rises while the indicator weakens. The indicator may track momentum, participation or positioning, so the disagreement shows one of them is not confirming the move.
Why it matters
Traders often treat a price move as more reliable when indicators confirm it. A divergence suggests the move is running on thinner support, or that positioning is not adjusting to the new price, which can precede a reversal or simply mark a market that is undecided. It is a prompt to look closer, not a verdict.
In a real week: ETH, week of 16 December 2019
In the week of 16 December 2019, ETH opened at 142.46 and closed at 132.09, a fall of 7.28%, after touching a low of 116.26 on Wednesday 18 December at 13:00 UTC. Two indicators refused to confirm that weakness. Average eight-hour funding stayed positive at 0.0093% (high 0.01%, low 0.0034%), so longs kept paying shorts as price dropped, and dollar volume of 0.38bn came in at 0.79 of its prior twelve-week average, so the decline was carried on below-average volume.
A common mistake
Treating a divergence as an automatic reversal signal. It can persist for weeks while a trend continues, and the indicator may simply be measuring something the price move does not yet reflect.