Bearish divergence occurs when the price of an asset, such as a cryptocurrency, reaches a new high while a technical indicator, like the Relative Strength Index (RSI) or MACD, falls. This discrepancy signals weakening momentum, suggesting that although the price is increasing, buyer enthusiasm may be diminishing.

Traders often view bearish divergence as a potential warning sign of an impending price drop. It indicates that the rally might not be sustainable, as fewer traders are willing to push prices higher. This can lead to a reversal, where the price begins to decline.

To spot bearish divergence, traders compare price charts and momentum indicators. If the price forms higher peaks but the indicator shows lower peaks, it confirms the divergence. Recognizing this pattern can help traders make informed decisions about entering or exiting positions, ultimately aiming to minimize losses or capitalize on potential price declines.