What it is
Divergence is when price and an indicator tell different stories. If gold makes a new high but RSI does not, the push behind the move is weaker than before.
The finder does the comparing for you and draws the divergence on the chart. It only uses finished swings, because a swing still forming can move, and a divergence drawn off it could vanish after you had acted on it.
How it is calculated
1. Find confirmed swing highs and lows on price using the swing size setting. 2. Read the chosen indicator (RSI 14 by default) at the same candles. 3. Compare each swing with the previous swing on the same side. 4. Regular bearish: price higher high, indicator lower high. Regular bullish: price lower low, indicator higher low. 5. Hidden bearish: price lower high, indicator higher high. Hidden bullish: price higher low, indicator lower low. 6. Draw the matching lines on price.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| against | RSI | RSI, MACD, CVD, OBV or MFI | Which indicator price is compared with. CVD and OBV compare with volume based flow; RSI and MFI with momentum. |
| length | 14 | 2 to 100 | The length of the indicator, for example RSI 14. |
| swing size | auto | auto, or a fixed 0.25%, 0.5%, 1%, 2%, 3%, 5%, 8%, 12% or 20% | How big a move must be to count as a swing. Larger finds fewer, bigger divergences. |
| type | both | both, regular or hidden | Which kinds of divergence to show. |
How to read it
How to trade it
- 1
Use regular divergence for turns at the end of extended moves and hidden divergence for entries with the trend.
- 2
Entry trigger: after a regular bearish divergence on gold 1 hour, sell the first close below the last minor swing low.
- 3
Stop: above the divergence high, typically 8 to 15 points on gold 1 hour.
- 4
Target: the last major swing low, or 2 times the stop.
- 5
For hidden bullish divergence on US30, buy a bullish close after the higher low, with the stop below that low.
A bearish divergence trade is proved wrong if price closes above the divergence high, since momentum has caught up with price.
WickSpeak draws divergences on price and writes a plain-English reading of what type it is, how to trade it and what would prove it wrong. The WickSpeak versions of the oscillators also draw divergences on both price and the oscillator, and Playbook has a divergence condition kind.
Best markets and timeframes
Works on every market. On gold, US30 and NAS100 it is clearest on 15 minute to 4 hour charts; on 1 minute charts divergence appears constantly and means less.
Common mistakes
- Selling every bearish divergence in a strong uptrend.
- Entering on the divergence alone without a price trigger.
- Confusing hidden and regular divergence and trading the wrong way.
Works well with
Questions traders ask
What is the difference between regular and hidden divergence?
Regular divergence warns a trend may turn: price makes a new extreme the indicator does not. Hidden divergence suggests continuation: price makes a shallower pullback than the indicator.
Which indicator is best for divergence?
RSI is the most common choice and the default here. MACD suits slower swings, and CVD or OBV show whether volume backs the move.
Is divergence a reliable signal?
Divergence shows momentum fading, which can last a long time before price turns. Always wait for a price trigger such as a break of a minor swing.
Why does a divergence sometimes disappear?
On many tools a divergence is drawn off a swing that is still forming, so it can vanish. WickSpeak only uses confirmed swings to avoid that.