Divergence Trading

Divergence Trading

Divergence occurs when price and an indicator move in opposite directions, signaling potential trend change or continuation.

Divergence Types

Regular Divergence (Reversal)

| Type | Price | Indicator | Signal | | --- | --- | --- | --- | | Bullish Regular | Lower Low | Higher Low | Momentum weakening, potential reversal up | | Bearish Regular | Higher High | Lower High | Momentum weakening, potential reversal down |

Hidden Divergence (Continuation)

| Type | Price | Indicator | Signal | | --- | --- | --- | --- | | Bullish Hidden | Higher Low | Lower Low | Uptrend pullback ending, continuation up | | Bearish Hidden | Lower High | Higher High | Downtrend rally ending, continuation down |

Multi-Indicator Detection

| Indicator | Best For | Extreme Zone | | --- | --- | --- | | RSI | OB/OS exhaustion | 70 for regular div | | MACD histogram | Momentum shifts | Compare histogram peaks/troughs with price | | Stochastic | Ranging markets | 80 (skip mid-range div) | | MFI (volume proxy) | Smart money confirmation | Rising MFI + falling price = accumulation |

Strength: 1 indicator diverging = note only. 2 = trade with confirmation. 3+ = high probability.

Validation Rules

• Minimum 5 candles between comparison points (fewer is noise)
• Maximum 50 candles between comparison points (too far = weak)
• RSI must be in extreme zone (70) for regular divergence
• If RSI crosses 50 between the two points, divergence is invalidated
• Both price swings must be visually clear, not micro-swings

Workflow

1. Get indicator data:

`` get_indicators(indicator_code="rsi", symbol=, exchange=, interval=) get_indicators(indicator_code="macd", symbol=, exchange=, interval=) get_indicators(indicator_code="stoch", symbol=, exchange=, interval=) ``

1. Compare swings: For each indicator, identify last two significant peaks/troughs and compare direction vs price direction

1. Score: Count diverging indicators (1-3). Check if at key S/R level for bonus confluence.

1. Get candles for chart drawing:

`` get_candles_around_date(symbol=, exchange=, interval=, date=) ``

1. Mark divergence on chart:

`` draw_chart_analysis(action="create", drawing={ "type": "trend", "points": [ {"time": , "price": }, {"time": , "price": } ], "options": {"text": "Bullish Divergence (RSI + MACD)"} }) ``

1. Wait for confirmation candle (engulfing, hammer, pin bar) at the divergence zone before entry

Key Rules

• NEVER trade single-indicator divergence alone; require 2+ indicators
• NEVER trade mid-range RSI divergence (RSI 40-60 is meaningless)
• NEVER enter without a confirmation candle; divergence is a warning, not an entry
• Higher timeframe divergence is far more reliable than LTF; use 1H+ minimum
• Divergence can persist in strong trends; use hidden divergence (continuation) in trends, regular divergence only at extremes
• Entry on confirmation candle close; stop beyond the second divergence swing point

Related Skills

• rsi-divergence — focused RSI divergence framework; this skill extends it to multiple indicators
• macd-trading — MACD histogram divergence is one of the four indicators in multi-indicator scoring

Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: SKE-Labs
• Source: SKE-Labs/agent-trading-skills
• License: Apache-2.0

Install and usage instructions live in the source repository linked above.