Divergence

Divergence occurs when price and a momentum indicator move in opposite directions. While price might be making new highs, the indicator shows weakening momentum - or vice versa. This disagreement often precedes trend reversals.

The psychology: Price can be pushed to new extremes by fewer and fewer participants. Divergence reveals this exhaustion before price itself turns. It's like a car climbing a hill - it might still be moving forward, but if the engine is losing power, it will eventually roll back.

Divergence is a warning signal, not a timing tool. It tells you a reversal is likely coming but doesn't tell you exactly when. Many traders use it in combination with other signals for entry.