Bearish Divergence
Bearish divergence is a technical analysis term used to describe a situation where a security’s price is making higher highs, but the associated indicator is making lower highs. This is seen as a sign of a potential trend reversal, as the indicator is not confirming the price action. Bearish divergence is the opposite of bullish divergence, which is when the price is making lower lows, but the indicator is making higher lows.
History of Bearish Divergence
The concept of bearish divergence was first introduced by Charles Dow, the founder of Dow Theory. Dow Theory is a form of technical analysis that is based on the idea that the market discounts all information and that price movements are not random. According to Dow Theory, bearish divergence is a sign that the current trend is weakening and that a reversal may be imminent.
Since its introduction, bearish divergence has become a popular tool for technical analysts. It is used to identify potential trend reversals and can be used to confirm other technical signals. Bearish divergence is often used in conjunction with other technical indicators, such as moving averages, to confirm a potential trend reversal.
Table of Comparisons
| Price Action | Indicator |
|---|---|
| Higher Highs | Lower Highs |
Summary
Bearish divergence is a technical analysis term used to describe a situation where a security’s price is making higher highs, but the associated indicator is making lower highs. This is seen as a sign of a potential trend reversal, as the indicator is not confirming the price action. For more information on bearish divergence, investors can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Bullish Divergence
- Moving Averages
- Technical Analysis
- Trend Reversal
- Support and Resistance
- Price Action
- Indicators
- Chart Patterns
- Volume
- Oscillators
