Divergence Definition
In the context of cryptocurrency and blockchain, divergence refers to a situation where the price of a cryptocurrency and a specific indicator move in opposite directions. It is a term borrowed from technical analysis in traditional financial markets and is often used as a signal of a potential trend reversal. Divergence can be either positive (bullish) or negative (bearish), depending on the direction of the price movement and the indicator.
Divergence Key Points
- Divergence is a concept from technical analysis used to predict potential trend reversals in the price of a cryptocurrency.
- It occurs when the price of a cryptocurrency and a specific indicator move in opposite directions.
- Positive divergence (bullish) happens when the price is decreasing but the indicator is increasing, suggesting a potential upward trend.
- Negative divergence (bearish) occurs when the price is increasing but the indicator is decreasing, indicating a potential downward trend.
What is Divergence?
Divergence is a term used in technical analysis to describe a situation where the price of an asset and a specific indicator are moving in opposite directions. This is often seen as a signal of a potential trend reversal. In the context of cryptocurrency and blockchain, divergence can be used to predict potential price movements of cryptocurrencies.
Why is Divergence important?
Divergence is important because it can provide traders and investors with signals about potential trend reversals in the price of a cryptocurrency. By identifying divergences, traders can potentially make more informed decisions about when to buy or sell a cryptocurrency. However, divergence is just one tool among many in technical analysis and should be used in conjunction with other indicators and tools.
When does Divergence occur?
Divergence occurs when the price of a cryptocurrency and a specific indicator move in opposite directions. For example, if the price of a cryptocurrency is decreasing but the indicator (such as the Relative Strength Index or Moving Average Convergence Divergence) is increasing, this is known as positive divergence and could signal a potential upward trend. Conversely, if the price is increasing but the indicator is decreasing, this is known as negative divergence and could signal a potential downward trend.
Who uses Divergence?
Divergence is primarily used by traders and investors who use technical analysis to guide their trading and investment decisions. By identifying divergences, these individuals can potentially make more informed decisions about when to buy or sell a cryptocurrency.
How is Divergence identified?
Divergence is identified by comparing the direction of the price movement of a cryptocurrency with the direction of a specific indicator. If the price and the indicator are moving in opposite directions, this is a divergence. Traders often use charting software or platforms to help identify divergences.
