Option Investor
Glossary

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Divergence

Buy and sell signals are often developed using oscillators such as RSI, MACD, Stochastic, and other types of momentum indicators. Divergence signals often occur at cyclic turning points. An example might be when an issue makes a substantial move then has a small short-term reaction, which is followed by a new low or high for the trend. The last price appears to perpetuate the overall trend but the actual outcome is often a major reversal.