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Convergence/DivergenceConvergence and divergence are two opposite concepts that are frequently used by traders to confirm observations on the price charts or to anticipate the direction of a price move. Convergence by definition means the coming together of one or more elements. Divergence on the other hand means the exact opposite; the elements are moving away from one another. Therefore, when two elements converge, they are both heading towards the same direction and if they diverge, they are headed in different directions. When a trader observes two elements such as volume and price both increasing, heading in the same direction, the trader interprets this as a convergence. There are many different elements on the chart that can be compared to one another for convergences or divergences. Indicators that trend in a different direction than price signal divergence. Divergences and convergence can also be observed between different indicators. Usually, price is one of the key elements that are compared to other indicators on the chart for divergences or convergences. For example, Price can be compared to the MACD (Moving Average Convergence Divergence) or OBV (On Balance Volume) to detect divergences and convergences. It is important to note that depending on time frame these divergence and convergence observations, signals or confirmations are not always reliable. Furthermore, even when they are accurate, the moves that they foretell can be extremely weak and short lived. Nevertheless, the concept is simply another helpful tool in the tool box for understanding the overall price action on a chart. As with any other analytical tool convergence and divergence should be used in conjunction with other analytical tools to support or negate the price developments observed on the chart.
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