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Definition of 'Divergence'

A divergence is when a stock, futures, commodity or currency price moves to a higher or lower point and the oscillator or indicator based on that price does not. Divergences can also happen when the price moves to an equally higher/lower point while the oscillator doesn't.

A divergence occurs when:
Price makes 	Oscillator makes
Higher High Lower High
Lower High Higher High
Lower Low Higher Low
Higher Low Lower Low

In the first 2 instances the divergence calls for a short trade and in the second 2 it calls for a long trade. Divergences are much easier to see in diagrams.

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