Divergence: When Price and Momentum Disagree
Divergence setups look past the price chart entirely and ask whether the move underneath it is actually getting weaker.
Divergence happens when price makes a new high or low, but the momentum indicator underneath it doesn't confirm — it prints a weaker high or a shallower low instead. It's one of the few setups that requires looking at two swing points, not just the most recent candle.
Bullish and bearish divergence
Bullish divergence: price prints a lower low, but HARSI prints a higher low. Sellers pushed price down further, but with less underlying force than the previous leg down — a possible sign the selling is running out of steam. Bearish divergence is the mirror image at the top of a move: a higher high in price with a lower high in HARSI.
Why HARSI instead of plain RSI
ChartWyz runs divergence on HARSI (RSI calculated from Heikin Ashi closes, see the Heikin Ashi lesson) rather than standard RSI. Heikin Ashi smooths out individual candle noise, which makes swing highs and lows on the oscillator easier to compare cleanly — plain RSI on raw candles tends to produce jagged, harder-to-read swings that generate more false divergence signals.
The honest limitation
Divergence can persist for a long time before price actually turns — 'the market can stay irrational longer than you can stay solvent' applies directly here. A divergence signal is a warning that momentum is weakening, not a countdown timer to a reversal. ChartWyz requires the divergence to form within a bounded lookback window (40 candles) specifically to avoid stretching the comparison across swings that are too far apart to mean anything.