Bullish Divergence

Bullish Divergence: A Trading Strategy for Spotting Market Reversals

Understanding Bullish Divergence

Bullish divergence is a technical analysis pattern that indicates a potential reversal in a downtrend. It occurs when the price of an asset makes lower lows, while a momentum indicator, such as the relative strength index (RSI), makes higher lows.

Characteristics of Bullish Divergence

The following are the key characteristics of bullish divergence:

• Price makes lower lows.
• Oscillator makes higher lows.
• Divergence between price and oscillator.

Implications of Bullish Divergence

Bullish divergence suggests that the downtrend is losing momentum. This can be a sign that a reversal is about to occur. Traders may use bullish divergence as a signal to buy an asset in anticipation of a price increase.

Cautions

It's important to note that bullish divergence is not a perfect indicator. It should be used in conjunction with other technical analysis tools to confirm a trading decision. Additionally, traders should be aware that divergence can sometimes be false, leading to incorrect trading signals.