The Key Difference Between Bullish and Bearish Divergence

Bullish Divergence vs Bearish Divergence
Feature	Bullish Divergence	Bearish Divergence
Definition	Occurs when the price makes a lower low but the indicator forms a higher low, signaling potential upward reversal.	Occurs when the price makes a higher high but the indicator forms a lower high, signaling potential downward reversal.
Market Context	Typically appears in downtrends indicating weakening selling pressure.	Typically appears in uptrends indicating weakening buying pressure.
Price Action	Price is declining or making new lows.	Price is rising or making new highs.
Indicator Behavior	Oscillator or momentum indicator (e.g., RSI, MACD) shows higher lows despite price making lower lows.	Oscillator or momentum indicator shows lower highs despite price making higher highs.
Implication	Potential trend reversal from downtrend to uptrend; buying opportunity.	Potential trend reversal from uptrend to downtrend; selling or shorting opportunity.
Common Indicators Used	RSI, MACD, Stochastic Oscillator, Momentum.	RSI, MACD, Stochastic Oscillator, Momentum.
Signal Strength	Stronger if confirmed by volume increase or support levels.	Stronger if confirmed by volume decrease or resistance levels.
Risk	False signals possible if market remains weak; confirmation needed.	False signals possible if market remains strong; confirmation needed.
Trader Action	Consider buying or closing short positions after confirmation.	Consider selling or initiating short positions after confirmation.
Examples	Price hits new lows but RSI forms higher lows indicating momentum gain.	Price hits new highs but MACD forms lower highs indicating weakening momentum.
Duration	Can signal short-term or long-term trend changes.	Can signal short-term or long-term trend changes.
Use in Strategy	Used for timing entries during potential bottoms.	Used for timing exits or short entries near potential tops.
Market Psychology	Shows decreasing selling pressure and increasing buyer interest.	Shows decreasing buying pressure and increasing seller interest.