Divergence — what it is and how to use it in trading
Definition
A divergence in trading is a mismatch between the direction of price and the direction of an oscillator indicator (RSI or MACD) across two compared extremes: price keeps moving while the oscillator has already started to turn — a sign of weakening momentum.
How it works in the builder
The Trading Way builder offers two types: an RSI divergence (rsi_bullish_divergence/rsi_bearish_divergence) and a MACD divergence (macd_bullish_divergence/macd_bearish_divergence) — both boolean operands, confirmed on the bar of the second compared extreme, delayed by the right parameter.
What it looks like on the chart
Classically a divergence is drawn with two trendlines — one across the price extremes, another across the matching oscillator points; lines pointing in different directions is the divergence.
Typical use
A divergence is not a standalone entry signal, but a filter or reversal confirmation, usually paired with a higher-timeframe trend filter or a structural confirmation (BOS/CHoCH, a candlestick pattern).
Common pitfalls
Divergences are a subjective signal: in a strong trend the mismatch can drag on for several bars before price reverses, or never reverse at all. There is also a "hidden" divergence (a trend-continuation signal) — the builder only implements the classic reversal divergence, not the hidden variant.
This block is available in the strategy builder
137 no-code blocks — build an entry condition with this term and test it on history
Historical results do not guarantee future ones. The service is an informational and analytical tool, not an individual investment recommendation; trades are not executed.