Divergence

A situation whereby an asset’s price is not moving in tandem with known technical indicators, implying that said price cannot be predicted.

Divergence is an observable situation where the price of an asset appears to run contrary to the predictions of a known indicator. Most of the time, divergence lets traders determine the presence of unknown outlier effects which undermine the influence of known technical indicators such as Average Directional Index (ADX), the Stochastic Oscillator Indicator, Bollinger Bands Indicators, among others.

Divergence generally has to do with expectations. In other words, due to experience and the readings of a particular indicator, price trends are expected to move in a specific direction. When price trends consequently move contrary to this expectation, traders are required to be vigilant.