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In my daily report, I use positive/negative divergence a lot, so what exactly positive divergence is and what exactly negative divergence is?
- Positive Divergence: When price has a lower low or a series of lower low but the indicator measuring the same price doesn’t, instead it has a higher high. This usually implies that the selling strength is weakening.
- Negative Divergence: When price has a higher high or a series of higher high but the indicator measuring the same price doesn’t, instead it has a lower low. This usually implies that the buying strength is weakening.
Divergence is very difficult to trade, because it can last very long time. A weakening buying/selling strength doesn’t mean there’s no buying/selling therefore the price may continue its course for very long time. So basically a divergence is not the reason to trade a reversal, you need other conditions to bet a reversal,see Trading Reversals.