Divergence is a popular term in technical analysis that describes when the price of an asset is moving in the opposite direction of a technical indicator.
For instance, if the currency price is moving up, but a technical indicator (e.g. oscillator) is moving in the opposite direction. When it comes to trading divergences, there are two types and each contain either a bullish bias or a bearish bias.
The divergence types are:
Regular divergence
Hidden divergence
Regular Bullish Divergence indicates underlying strength. Regular Bullish Divergence occurs as a warning of a potential change of trend direction from a downtrend to an uptrend.
Regular Bearish Divergence indicates underlying weakness. Traders believe that it is a warning of a potential change of trend direction from an uptrend to a downtrend.