In the simplest terms, a "divergence" occurs when the price of security is moving in a direction that is opposite to one or more indicators. So, for example, a bearish divergence would occur when price makes a higher-high while the indicator makes a lower-high. A bullish divergence would occur when price makes a lower-low but the indicator make a higher-low.
Divergences are a fairly common occurrence and they often precede a change in the short-term trend, and divergence signals occur on all timeframes. Divergence signals can be traded on their own, or they can be incorporated as a confirmation in some other trading methodology. They are one of the more reliable confirmation signals out there when used in that fashion.
We currently offer 7 indicators (i.e., AO, RSI, DiNapoli Stochastic, CCI, Stochastics, Blau TSI, and MoneyFlow Index) that automate the process of finding and filtering divergence events.
RSI Divergence indicator running in a EURNZD Daily Chart
The divergence logic incorporated into each indicator is identical, which indicator you choose to use is strictly personal choice (i.e., if you already use CCI as part of your trading routine then selecting the CCI Divergence indicator would make the most sense). For purposes of illustration we are using the RSI Divergence Indicator in this document, but this user guide applies to all of the divergence indicators.
Please refer to the Overview topic for instructions on how to load and use the Divergence Indicators in TradingView.
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If you have comments, questions, or suggestions on how we can improve our product, please send an email to support@sr-analyst.com and reference Divergence Indicators for TradingView in the subject line.
