Divergence trading is a strategy that involves analyzing the relationship between the price of an asset and an indicator, typically a momentum oscillator like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD).When the price of an asset moves in one direction while the indicator moves in the opposite direction, this is known as divergence. For example, if the price of a cryptocurrency is hitting new highs while the RSI is falling, it may indicate weakening momentum. This can suggest a potential reversal or slowdown in price movement.Traders use these signals to make informed decisions. A bullish divergence occurs when prices drop but the indicator rises, indicating potential upward movement. Conversely, a bearish divergence happens when prices rise while the indicator declines, hinting at a possible price drop.Identifying divergence can help traders anticipate market shifts and manage their risk effectively, enhancing their trading strategies. However, it’s essential to combine this approach with other analysis methods for better accuracy and effectiveness.