Divergence is a situation where the chart and the Stochastic oscillator move in different directions: one rises and the other falls. If a divergence appears between the chart and the oscillator, a trend reversal is possible, and the price will begin to fall after the rise and vice versa. There are 2 types of divergence: bearish and bullish.
Bearish divergence is a divergence where the chart moves up, showing an uptrend, but the oscillator moves down. The divergence is stronger if the indicator is in the overbought zone. With a bearish divergence, the asset price may reverse and start to fall after the rise.
Bullish divergence is when the chart moves down showing a downtrend, but the oscillator moves up. The divergence is stronger if the indicator is in the oversold zone. If a bullish divergence is formed on the chart, the asset price may reverse after the fall and go up.
Note: if a divergence appears on the chart and the oscillator is in the neutral zone between 20 and 80, it is not recommended to enter the market. This is a weak signal.
