Divergence Trading Strategy: Overview, Rules, Backtest Analysis

In trading, divergence means that the price swings and the indicator movement are not in phase. A divergence signal is generated when the price is making a higher swing high but the indicator is making a lower high, or the price is making a lower swing low when the indicator is making a higher swing low, thus indicating a potential divergence trading strategy. This implies that the price swing is losing momentum and is likely to reverse soon.

Divergence is a very common signal used by traders to find opportunities in various financial markets, and there are many indicators you can use to identify it. But what is the divergence strategy?

In this post, we take a look at the divergence trading strategy and the indicators for trading it. We backtest a divergence strategy.

But first, let’s start with some theory and examples:

What is divergence in trading?

In trading, divergence means that the price swings and the indicator (oscillator) movement are not in phase. A divergence signal is formed if the price is making a higher swing high when the