When trading, people often discuss top divergence and bottom divergence, but few truly understand these two concepts. I myself took quite some time to figure them out, so today I want to share my understanding.

Simply put, top divergence and bottom divergence are phenomena where price movements and technical indicators are "out of sync." Most people use RSI or MACD to judge, but the core logic is the same.

First, let's talk about top divergence. This occurs in an uptrend, where you see the price continuously making new highs and appearing very strong. But if you watch RSI or MACD, you'll notice they are actually weakening and not making new highs along with the price. This is a warning sign, as it usually indicates that upward momentum is waning and a pullback may be imminent.

Next is bottom divergence. This is the opposite, occurring in a downtrend. The price keeps making new lows and looks weak, but the indicator starts to rebound. What does this mean? It suggests that the downward force is weakening, and the market may be shifting from bearish to bullish. In simple terms, bottom divergence is a potential signal for a rebound opportunity.

In actual trading, I find that bottom divergence signals are especially valuable at low levels. When you see bottom divergence appearing in oversold areas, it usually indicates a stronger and more reliable signal. But there's an important point—no indicator is foolproof.

I've seen too many traders blindly trust a certain indicator and end up trapped. The correct approach is to treat top and bottom divergence as reference signals, combined with moving averages, volume, support and resistance levels, and other factors. Especially in choppy markets, divergence signals can produce false positives, so caution is essential.

Finally, I want to emphasize risk management. Even if a bottom divergence signal looks very clear, you still need to set stop-losses and take-profit levels. My habit is to confirm that the trend is truly reversing before gradually building a position, rather than going all-in at once. The market will always present the next opportunity; protecting your capital is key to long-term trading success.