A bearish divergence is a technical analysis signal indicating a potential reversal from an uptrend to a downtrend. It happens when there is a discrepancy between the price movement of an asset and a momentum indicator. Here's a breakdown:
1. **Price Movement**: The asset's price continues to rise, making higher highs. 2. **Momentum Indicator**: Common indicators include the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), or Stochastic Oscillator. During a bearish divergence, these indicators make lower highs despite the rising price.
Key Points: - **Higher Highs in Price**: Indicates that the asset is still in an uptrend. - **Lower Highs in Indicator**: Shows that the momentum behind the uptrend is weakening.
Implication: - The weakening momentum suggests that the current upward trend may be losing steam. - This can be a signal for a potential price reversal to the downside.