Updated on March 8, 2023
Positive Divergence is a technical analysis pattern that occurs when the price of an asset is making lower lows, while an indicator, such as a momentum oscillator, is making higher lows.
What does a positive divergence signify?
A positive divergence is seen as a bullish signal, as it suggests that the momentum in the underlying asset is starting to pick up, despite the fact that the price is still moving lower. Traders interpret this as a sign that the price may soon begin to move higher, and they may use this information to initiate a long position in the asset.
How can traders spot positive divergence?
Positive divergence occurs when the price of an asset is making lower lows, but a technical indicator is making higher lows. To spot positive divergence:
Plot the asset’s price and the technical indicator on the same chart.
Look for instances where the price is making lower lows, but the indicator is making higher lows.
Confirm the divergence with a trend line or by observing the slope of the indicator.