Divergence is a disagreement between price and an oscillating indicator such as MACD or RSI. It is not strong enough an indicator to enter a position, but it gives an idea of the state of the market.Trading Strategy . Published · By tradingfanbois
What are divergences in trading?
When traders talk about divergences, or divs, they are pointing out a disagreement between the price action and a technical indicator. The thing to look for in the price development are highs and lows, pick a pair of prominent ones and check if your indicator rendered the opposite thing: price made higher high, look for lower high in the indicator for that timespan.
The indicator of choice is typically some kind of oscillator (RSI, MACD).
These divergences signify prevailing momentum in the market. Depending on the type of the divergence they suggest either continuation or reversal.
Divergences in short
We distinguish regular divergence, hidden divergence and exaggerated divergence.
Regular Divergence is a sign of trend reversal. Price keeps the trend but indicator already shows the reversal.
- Signal to short = regular divergence in tops. Price makes higher high but oscillator makes lower high. Underlying weakness, possible exhaustion at the end of a bull trend.
- Signal to long = regular divergence in bottoms. Price makes lower low but oscillator makes higher low. Underlying strength, possible bottoming in progress.
Hidden Divergence is a divergence that follows the trend. Hidden divs show the market is inclined to continue the current trend.
- Signal to short = hidden divergence in tops. Price makes lower highs but oscillator makes higher highs. Tends to be found on lower highs in a downtrend.
- Signal to long = hidden divergence in bottoms. Price makes higher low but oscillator makes lower low. Tends to be found during continuation pauses in an uptrend.
Exaggerated Divergence is only different in that price makes double top or double bottom rather than new high or new low.
Divergences only show a level where to wait for entry signal
The logic behind divergences is that sometimes the indicators shows hidden tendencies of the market (strength or weakness) that might not be visible from the price action yet.
However, this is not a sharp enough indication to signal the actual entry. It gives the idea about the direction you should be looking for when looking for an entry on that timeframe but you will need to dig deeper and switch to shorter timeframes to find a plausible place for your entry.
Examples of MACD divergence, RSI divergence and %bb divergence
Price vs MACD Divergence, standard settings
This is a regular bullish divergence on an old ETHUSD chart.
Price vs StochRSI Divergence
This is a 1D chart of BTCUSD, Bitfinex. The StochRSI shows hidden bearish divergence, the momentum is set to continue the bearish trend.
Price vs %b Divergence, BBands 21 periods - stdev 3
Divergence with %b is a more precise way to observe whether new extremes of the price action are closer to or farther from the bollinger band’s boundaries. There is a more reliable version of the double bottom formation on the bbands: price makes a new low but that now is not a new low relatively to the bbands. That is to say, the first low is below the lower bband and the second low is a lower low in absolute terms (the price) but also either on or above the lower bband - video on bbands explaining that in this article.
TradingView provides the %b indicator which measures how far is the price from the bollinger band of your selected standard deviation and it plots this distance. The situation where you have new low in price but not a new low relatively to the bands shows as a regular bullish divergence on %b.
This is a 2H chart of BTCUSD, Bitfinex - the same period as the previous one on 1D. Having bearish divergences on a longer timeframe and a bullish divergence on a shorter one shows a short recovery might be in the cards but the bulls aren’t winning yet.
Divergences Cheat Sheets
- Comprehensive Divergences Cheat-sheet with proper explanations. It is valid for all oscillating indicators, you can use it to evaluate MACD divergences as well as RSI divergences.
Crypto Divergences Explained by Josh Olszewicz
Josh Olszewicz did a Youtube series called Better know an indicator which included a good video on divergences. Other videos from the same series included the intro to Ichimoku cloud for crypto traders.
Resources To Learn More About Price/Oscillator Divergences
- ”dukascopy.com / Do you know everything about divergences?”
- ”babypips.com / Trading Divergences”
BitMEX (10% fee off) @ bit.ly/melancholic-100x
TradingView (~ 50% off in BTC) @ bit.ly/tradingview-moon
Conbase (no offer but you still click this lol) @ bit.ly/plebtier
EthFinex (NEC token rebates for MM) @ bit.ly/ethfinex
TensorCharts @ bit.ly/tensor-charts
Upcoming and current airdrops February 2019
|Name||Date||How to access||Official URL||Additional Info|
|FanEspo Big Competition (ERC20)||Limited||The eSports platform FanEspo is giving away the total of $1.6 million of tokens in contests. Top winner's prize is over $100K worth. You need to have a FanEspo account, the tokens you get are beta but they will be transferred into real tokens upon launch. Estimated value is 1 USD per token.||details||make acct|
|Athero Airdrop||As available||The IoT-Blockchain system Athero still has the airdrop open.||form||web|
|HubrisOne Airdrop Round + Bounties||Weekly (16 weeks of airdrops, each weekly round starts on Tue)||HubrisOne is a UK financial service that offers personal and business crypto-friendly bank accounts and crypto-fiat cards. The easiest way to get the token is to download their banking app, which gives you 1000 tokens (10 USD) but there is a massive bounty campaign with weekly payouts. The work ranges from social media engagement or Bitcointalk signature to content creation, all must be properly reported. New round starts every Tuesday, but on other days they publish random airdrops on their Twitter.||airdrop, bounty||twitter (more drops)|
|Synchrotron / $STC Airdrop #12||30 weeks of airdrops (Airdrop #12 starts 4 March 2019)||Hybrid PoW/PoS payment cryptocurrency. The team drops 72% of supply (18 MM coins) during 30 weeks of airdrop campaign; there is additional budget for bounties. The bounties are announced on discord server. Each airdrop round runs from Monday 10AM UTC to Friday 10PM UTC. Validation runs weekends and distribution Mondays. You need to download a $STC wallet.||drop rules in this thread||info|
|Bethereum Photo Contest||Starts 22 February 2019||Bethereum, the betting platform on ETH, is running a new Twitter campaign. Reply to Bethereum's monthly tweet with a photo the our gaming platform interface shown in the most interesting place adding #BethereumAnywhere to enter the contest for 25,000 Bether tokens. Two winners are selected every month, at the end of the contest three top photos will be awarded 100,000 Bether each.||rules||web|
|DSTRA / $DST Airdrop #22||Biweekly, drop #22 runs from 25 Feb 2019||DSTRA is PoS Scrypt Masternode coin with limited supply that will be used in DEX environment and marketplaces. There are airdrops every two weeks, users need to register via discord. Regular payouts verified.||discord||rules|
|Agri Novus Bounty||As available||New blockchain-based project for organic supplies providers and customers. The team will pay out bounties for social media work.||more|
|Tratok Airdrop||February - March 2019||Tratok stands for Travel Token, it is a token of an application to make bookings for travel and hospitality. Follow the Tratok Project on their social media platforms and get 1000 TRAT for each approved action. Tokens distribute 20th March 2019.||join|
|Genes Token Airdrop (ERC20)||As available||A tokenized project for genome storage service on the blockchain. You get 5 GENES for commenting on Bitcointalk.||join||web|
|Cargo Coin Bounty||Weekly||Cargo Coin, a token for transport & logistics with an ICO past the soft cap by now, is having a weekly extensive bounty. It spans from simple retweets to YouTube reviews - make your bounty hunter account and pick your poison.||join||info|
|AllForCrypto (WAVES)||Ends March 2019||A WAVES project for eBay-style marketplace on the blockchain. Drops $20 worth of AFCT, plus they have updated their bounty campaign.||join drop||bounty|