Drift

Divergence in the world of technical analysis is when you're chillin' and you notice an asset’s price is zooming one way while some other data, usually a technical indicator, is vibing in the opposite direction. 😲

So, like, imagine the price starts doing its own thing, not vibing with an indicator (think "higher highs” in price, but “lower highs” in the indicator), that’s your sign, bro! It might just be telling us about a potential plot twist in the price direction. 🔮

Traders, a.k.a the market's detectives, use these divergence vibes to figure out if the market trend is starting to lose its chill, which could end up in a consolidation phase or even a total trend reversal. 🌪️

Trading volume is a classic example of something that could spark divergences like they’re fireworks on New Year's Eve. 🎆

Here's the sitch: if price is heading one way and volume’s kinda lazy heading the other way, you've got yourself a divergence, my friend.

For instance, if the price shoots upward but volume's nah, that's a divergence moment! 🌟

While you can see these divergence shows between a price and pretty much any other data, they're like BFFs with technical indicators. They're tight with momentum oscillators like the legendary Commodity Channel Index (CCI), Relative Strength Index (RSI), Stochastic, and Williams %R. 🔥

Types of Divergences

So, here's a little tea: TWO main types of divergences out there, fam:

1. Regular
2. Hidden

And surprise, surprise, each type of these charming divergences can have either a bullish bias or a bearish bias. 🎭

Regular Divergence

When price is out here making lower lows (LL), and the oscillator’s throwing higher lows (HL), say hello to regular BULLISH divergence vibes. 😎

If price feels like doing a higher high (HH), and the oscillator is like, nah, going lower high (LH), boom! Regular BEARISH divergence appears! 💢

Hidden Divergence

During an uptrend, if the price hits a higher low (HL), and the oscillator is not even on the same page with its lower low (LL), you’ve stumbled upon a hidden BULLISH divergence, bravo! 😇

Conversely, when on that downtrend grind, if the price sneaks to a lower high (LH) and the oscillator sneaks around with a higher high (HH), that’s your hidden BEARISH divergence moment. 💀

Heads up, regular divergences might be sending you signals for trend plot twists, while hidden divergences are like, “nah dude, it's staying the course!” 🛣️

• Regular divergences = might just be hinting at a trend reversal.
• Hidden divergences = probably saying, “we’re still on track with that trend continuation.”