Recently, I’ve seen many people in the community asking about several concepts in technical analysis, especially the terms divergence at the top and divergence at the bottom, which are indeed easy to confuse. I’d like to share my understanding.

Simply put, these two concepts are mainly used to identify potential trend reversal signals. Most of the time, we look at indicators like RSI or MACD; divergence at the top usually indicates that the upward momentum may be peaking, while divergence at the bottom suggests that the downward trend might be nearing its end.

First, let’s talk about divergence at the top. When the price is still making new highs but the indicator fails to follow and instead shows weakening momentum, that’s divergence at the top. This signal is especially worth paying attention to at high levels because it suggests that the buying strength is diminishing and a pullback could be imminent.

Conversely, divergence at the bottom occurs when the price makes new lows during a downtrend, but the indicator does not follow and instead begins to rise. This situation indicates that the selling pressure is weakening, and the bears may be losing strength, presenting a potential opportunity for the bulls to turn the tide.

But here’s an important point to emphasize—no indicator is 100% accurate. From my experience, divergence at the top tends to be more reliable when it appears in overbought zones, and divergence at the bottom is similarly more trustworthy in oversold zones. However, even if the signals seem clear, I never rely on a single indicator to make decisions.

The correct approach should be to use multiple indicators together, such as combining moving averages, volume, support and resistance levels for analysis. Especially in choppy markets, divergence signals can produce false positives, so caution is essential.

My advice is that even if you see a clear divergence at the top and want to short, you must set a proper stop-loss. Risk management is always the top priority—there’s no perfect indicator, only a reasonable trading plan. Combine various analysis methods, develop strategies with both stop-loss and take-profit points, and execute them strictly. Only through disciplined practice can you survive long-term in trading.