When trading, you will definitely encounter some changing conditions. Whether it is in a higher or lower condition. So this time, we will study one of the conditions that exist when looking at the current chart trend, namely Bearish Divergence. Bearish divergence is a condition where the asset chart pattern is in a higher high position. At the same time the indicator position is in a higher low position.

In this situation, the asset value chart shows a new value with a high number. Although there is a bullish in the market, the difference means that the momentum is slowing down. So there is a high possibility of a rapid price decline. For more details about this bearish divergence, you can understand the brief summary of the article below. But before that, you can do a user survey on GICTrade so that we can know about your satisfaction in using each service at GICTrade, so that we can improve the existing performance!

What Does Bearish Divergence Mean?

Bearish Divergence is a condition where the price is reaching a higher high condition while the oscillator is in a lower high condition as mentioned earlier. This condition will indicate an indication of a trend reversal from an initial uptrend to a downtrend (bearish). In the world of trading, divergence is a condition where the price of an asset moves in the opposite direction to a technical indicator, such as an oscillator.

Divergence is considered a warning that the current price may weaken, and in some cases can cause a change in price direction. Later you will find a price chart that shows an increase in the previous high to the current high.

However, the indicator curve below will show the opposite condition. Which shows that even though the price of the asset is increasing, the interest of traders in the asset is actually decreasing. This type will indicate that the trend at the time of the increase in the price of the asset in the related period will soon end.

So it is not surprising that this bearish divergence can also be called a negative divergence trend. Before we continue to the next discussion, you can understand the condition of this bearish divergence by trading in real-time on GICTrade through the GIC Mobile application which you can download the application on the App Store or Play Store on your Smartphone.

Indicator

For those of you who are still confused about how to find out this bearish divergence, there is a forex indicator that is used to detect the existence of the divergence itself. The indicator is as explained in this advanced forex education article:

Relative Strength Index (RSI)

Relative Strength Index or commonly abbreviated as RSI is an indicator that can be used to determine the condition of this divergence. The RSI indicator consists of one line, which will move in the overbought and oversold zones. In this way, RSI has a leading character. Therefore, RSI is a very good indicator if used to see divergence when analyzing forex asset charts.

When traders have found a mismatch between the top and bottom of the price action and the top or bottom of the RSI, then this pattern can be considered a pattern that experiences divergence. If a trader has seen this pattern, then it can be interpreted that the forex asset will later provide an early entry signal when trading.

Moving Average Convergence Divergence (MACD)

MACD or short for Moving Average Convergence Divergence is an indicator based on moving averages, where the signal can be taken at the time of the crossover. In this way, the indicator basically has a character that is left behind. However, the character that is left behind from MACD will only concern the main signal, namely the signal called the crossover. This MACD indicator also has two main functions, namely:

  1. The ability to see how the market conditions are being extended when the line is approaching the overbought or oversold mark.
  2. This MACD is also related to divergence trading. When the MACD peak or bottom is in the opposite direction from the price peak or bottom, then you have divergence.

Stochastic Oscillator

Stochastic Oscillator is an indicator which consists of two lines which will often interact with each other. At the top and bottom of the Stochastic Oscillator indicator there are two areas, namely the overbought and oversold areas. This Stochastic Oscillator will be a very appropriate indicator if used to recognize settings regarding divergence trading.

To find the difference between price action and Stochastic, you have to look for the difference between price direction and Stochastic tops and bottoms. This method is also almost similar to the method used in the MACD indicator. However, the Stochastic Oscillator will provide more divergence signals if you compare it to the MACD indicator.

With the reason that because of the dynamic character that has been owned by Stochastic itself. That way this Stochastic Oscillator can provide more opportunities than the MACD indicator. In addition to trading and finding the indicators above, you can also generate other income by inviting friends to trade too so that you will get additional income.

Pattern & Contoh Chart

After knowing the indicators of bearish divergence itself, this time we will learn what are the patterns and also examples of bearish divergence charts. The patterns are:

Hidden Divergence

This hidden divergence will generally show how the indication on the chart is regarding the continuation of the current trend. If the price is in a higher-low position, while the Oscillator is in a lower-low position, then this will indicate that there is an indication of an upward trend and will continue. For an example of this situation, which can also be called a bullish hidden divergence, you can see in the image below:

Meanwhile, if the price is in a lower-high position and the oscillator indicator is in a higher-high position, then this will indicate an indication of a downward trend and will continue later. With the following example:

Regular Divergence

As for Regular Divergence, it will generally show a sign of an indication of a reversal of the ongoing trend. If the price is in a lower-low position and the Oscillator is in a higher-low position, which indicates an indication of a reversal of the trend or reversal from a downward trend to an upward trend. This condition can also be said to be a bullish regular divergence, an example of which is as shown in the following image:

Regular Bullish Divergence

Meanwhile, for prices that have reached higher-high conditions and the Oscillator is in a lower-high position, this means that there is a bearish regular divergence that has shown an indication of a trend reversal or reversal from an upward trend to a downward trend. With an example like the picture below:


Regular Bearish Divergence

The charts in forex trading have shown examples of divergence along with its various variations. So it is also good for us to be able to identify when a divergence condition occurs, so that later we can also take the right position on each price movement that occurs at that time.

For how to use this divergence trading, it will be most suitable only to confirm the signal, and not to find the entry position. Before continuing to the discussion of How to Recognize the Pattern of Divergence itself, you can also register as an IB in the GICAffiliate program through this journal article which of course you will get various benefits along with additional bonuses from the program.

How to Recognize Patterns

When this divergence pattern occurs, the price will show a clear downward trend, while the RSI will increase. This means that even though the price may fall, market sentiment will still start to strengthen. If you are still confused about how to find out the existence of the bullish divergence pattern on the forex asset chart later, then there are several factors that you can understand before entering the forex asset market. The method is:

  1. A graph that will work on two variables is the main factor and characteristic to be able to see the divergence pattern itself. So there are many indicators that you can use to find out, such as the Relative Strength Index (RSI) indicator.
  2. You should also look for situations where the RSI has shown signs of a trend reversal, such as when a downtrend is turning into an uptrend.
  3. Then, you have to find and analyze the area that matches the chart and also find divergence, such as when the highest market price is followed by a slightly higher highest price.
  4. Traders should also be aware of how different price actions can also cause a divergence pattern itself.

Now, for those of you who are still confused about how to recognize this divergence pattern, you can prove your talent by taking the Preliminary Test which is a test from GICTrade to prove how far your trading talent has mastered.

Difference with Bullish Divergence

Well, for those of you who are still confused about the differences between these two types of divergence, then we will study them one by one briefly. The differences are:

Bullish Divergence

Bullish divergence is a pattern that will appear when the price is falling to the lowest position on a lower chart, but the technical indicator will actually reach the lowest position on a higher chart.

This will also indicate that the momentum in the market is strengthening. This bullish divergence can also indicate that the price in the market will start to experience an upward movement so that it can later catch up with the indicator.

The bullish divergence can also be a sign that the bear signal will become weaker. This would mean that there is a warning that the current trend could be more positive, or in other words, the trend will experience an increase.

Bearish Divergence

As for bearish divergence, as we have mentioned before, it is basically the opposite of bullish divergence. This bearish divergence will indicate a potential downward trend when the price will rise to the latest highest peak while the oscillator will refuse to reach the new peak.

This bearish divergence condition will occur when the price chart has reached a higher high position and while the indicator is at a lower high position. In general, this chart will show a trend that is starting to reverse, from initially depicting an uptrend to the trend becoming down.

Questions Regarding Bearish Divergence

Below we will discuss some of the questions commonly asked about bearish divergence itself. Perhaps there is an explanation that you still do not understand from the explanation above, then you can understand it through the explanation below.

What is the Target Movement of Bearish Divergence?

The easiest and most understandable confirmation for bearish divergence is when the CCI line is falling past the 0.00 level line. Candlestick patterns or formations can also be used as a confirmation that you can learn more about.

But it should also be remembered that this bearish divergence usually also tends to be followed by a downward correction, which makes the target of its movement not far away. In this case, the nearest trendline or support can also be used as a target in its furthest movement.

How is Forex Volume during Bearish Divergence?

In the example of Regular Bearish Divergence, the signal will work according to the same principle, namely on the indicator, although in the end the market will provide an update, by showing the lowest position with the highest.

For the Extended Divergence example, you will later see that there is a new price that will reach the lowest point from before, namely when the volume oscillator and also DeMarker will show a lower position that will be higher.

What is Exaggerated Bullish Divergence?

This Exaggerated bullish divergence will later show how two lows at a level that can be said to be more or less the same. However, the indicator will show a slightly different picture later. The second low will later be slightly higher than the first low.

This Exaggerated bullish divergence is certainly not much different from regular bullish divergence, both will show a signal that there will be a reversal in the direction of an existing trend, which is when the pattern will appear at the end of the market trend. After you understand about bearish divergence itself, then you can see how the condition occurs in the market in real-time.

It is also a good idea for you to study other cases on the internet such as in the GIC Journal or other books to learn how bearish divergence conditions or other trading matters can improve your understanding.

Divergence itself is also a pattern in trading that will be very useful if you learn it to help you find a weak point in a trend or a reversal of a momentum. Each type of divergence can also be used as a benchmark in taking certain actions when making a profit. You can also fill out the Trader Assessment survey to be able to consult about trading on GICTrade.