Have you ever looked at a chart and felt it was about to reverse, but couldn't figure out why? In such cases, experienced traders look for the market's "secret language"—divergence. It's one of the most reliable leading indicators that can predict a trend reversal before it becomes obvious to everyone.
In this guide, we'll explain in simple terms what divergence is, its different types, and how to use it to improve your crypto trading results.
What is RSI Divergence in Simple Terms?
Imagine you're driving a car uphill. You're still moving up, but you notice the engine is losing power. Your experience tells you the climb will soon be over. Divergence in trading is the same thing. The asset's price is still moving in one direction (e.g., up), but the momentum indicator (in our case, RSI) is already showing weakness and moving in the opposite direction.
Definition
Divergence is a discrepancy between the direction of price on a chart and the direction of a technical indicator. This "anomaly" is a powerful signal that the current trend is weakening.
Key Types of Divergence in Technical Analysis
There are two main types of divergences: classic, which signals a potential trend reversal, and hidden, which hints at a trend continuation.
1. Classic Divergence (Reversal Signal)
This is the most well-known type used to spot market tops and bottoms.
- 🟢 Regular Bullish Divergence: Occurs when the price sets a new, lower low, while the RSI forms a higher low. In simple terms: sellers are losing steam, and buyers are preparing to take over. This is a potential signal to go LONG.
- 🔴 Regular Bearish Divergence: Occurs when the price sets a new, higher high, while the RSI forms a lower high. In simple terms: buyers' enthusiasm has run out. This is a potential signal to go SHORT.
2. Hidden Divergence (Trend Continuation Signal)
Traders use this type to enter a trade in the direction of the main trend, often after a minor correction. We recently added hidden divergence detection to our bot. We will cover this powerful technique in more detail in a future article.
The Problem with Manual Signal Hunting
Finding divergences manually is a huge amount of work. You have to constantly monitor dozens of charts, it's easy to miss a signal, or act on emotion. The best opportunities often appear while you're asleep or busy with other things.
The Solution — Automation with AI
This is exactly the problem our Telegram bot, Divergence Hunter, solves. It acts as your personal assistant that never sleeps and emotionlessly analyzes hundreds of charts 24/7, sending you a notification only when it finds a clear divergence signal.
Conclusion
Divergence is not a holy grail, but it's one of the most reliable tools in a trader's arsenal. By learning to see them, you'll start to understand the market better and find higher-quality entry points. And if you want to automate the process and get ready-made signals, give our bot a try. It's completely free at this stage.
