Quick… what’s an “oscillator”?
If you don’t know, then an “oscillator divergence” probably won’t mean a hill of Columbian coffee beans to you.
For our purposes, we’ll define an “oscillator” as:
A technical analysis term for an indicator that moves up and down, wavelike, within a range.
There are a lot of oscillators available to us, but there’s no way I can cover all of them. Instead, let’s focus on the MACD (Moving Average Convergence Divergence) – it’s a good one.
Without getting into the “how” and “why” behind this indicator, for now all you need know is it gauges trend strength. I use it (or an equivalent) for spotting divergences. So, what’s a “divergence”? A divergence occurs when price makes a new high or low but the MACD doesn’t (this holds true for other oscillators, as well).
And, what you need to know is, a bullish divergence occurs when price makes new lows but MACD doesn’t follow suit. A bearish divergence is the reverse; it occurs when price makes new highs but MACD fails to make new highs, as well.
Divergences can indicate a trend is getting ready to reverse, as seen in the below chart.
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