Bearish Divergence Summary
Bearish divergence is a technical analysis signal indicating a potential reversal in an uptrend, suggesting that the current price increase is losing momentum and a downtrend may follow.
Key Characteristics:
- **Price and Indicator Discrepancy**: Occurs when the price makes higher highs, but an oscillator (e.g., RSI, MACD) makes lower highs.
- **Momentum Indicators**: Commonly used indicators include the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and stochastic oscillator.
- **Trend Reversal Signal**: Suggests weakening upward momentum, potentially leading to a price decline.
Trading Strategy:
1. **Identify the Divergence**: Look for higher highs in price but lower highs in the momentum indicator.
2. **Confirm the Signal**: Use additional technical tools or patterns to validate the bearish signal.
3. **Entry Point**: Enter a short position when the price starts declining post-divergence.
4. **Stop-Loss Placement**: Set a stop-loss above the recent high.
5. **Target Price**: Determine the target price using support levels, previous lows, or other indicators.
Key Points:
- **Discrepancy**: Higher highs in price not matched by higher highs in a momentum indicator.
- **Reversal Indication**: Potential signal for a trend reversal from uptrend to downtrend.
- **Risk Management**: Confirm with additional analysis and set appropriate stop-loss levels.
Bearish divergence is a technical analysis signal indicating a potential reversal in an uptrend, suggesting that the current price increase is losing momentum and a downtrend may follow.
Key Characteristics:
- **Price and Indicator Discrepancy**: Occurs when the price makes higher highs, but an oscillator (e.g., RSI, MACD) makes lower highs.
- **Momentum Indicators**: Commonly used indicators include the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and stochastic oscillator.
- **Trend Reversal Signal**: Suggests weakening upward momentum, potentially leading to a price decline.
Trading Strategy:
1. **Identify the Divergence**: Look for higher highs in price but lower highs in the momentum indicator.
2. **Confirm the Signal**: Use additional technical tools or patterns to validate the bearish signal.
3. **Entry Point**: Enter a short position when the price starts declining post-divergence.
4. **Stop-Loss Placement**: Set a stop-loss above the recent high.
5. **Target Price**: Determine the target price using support levels, previous lows, or other indicators.
Key Points:
- **Discrepancy**: Higher highs in price not matched by higher highs in a momentum indicator.
- **Reversal Indication**: Potential signal for a trend reversal from uptrend to downtrend.
- **Risk Management**: Confirm with additional analysis and set appropriate stop-loss levels.