Divergence can be either bullish or bearish. Bullish divergence occurs when the price of a currency pair makes new lows while the indicator fails to make a new low. Bearish divergence happens when the price makes a new high but the indicator stays lower than the previous high.
Price divergence in technical indicators often forms as trend strength weakens, as momentum from a sharp move breaks down into increased volatility. Although price action may still appear to continue in one direction, technical indicators may diverge from price action. Since the technical indicators divergence is recording the lessening strength in trend, traders will watch for and position themselves to take advantage of a reversal. Either exiting existing positions, or looking for entry opportunities.
