I've just realized that many people in the group often confuse the concepts of divergence at the top and divergence at the bottom when doing technical analysis. Actually, understanding these is quite important because they are strong signals for predicting market reversals.

Basically, divergence occurs when the price and indicators like RSI, MACD, Stochastic( do not move in the same direction. When the price hits a new high but the indicators fail to follow and show a downward trend, that’s a top divergence — a warning signal that the market may soon reverse downward. Conversely, when the price hits a new low but the indicators still show an upward trend, that’s a bottom divergence — indicating a potential recovery opportunity.

In trading practice, top divergence is often used to assess the risk of a pullback from high levels, while bottom divergence helps us recognize when selling pressure is weakening. The key point here is that the strength of the divergence signal also depends on overbought or oversold zones — when divergence occurs in these zones, the signal tends to be more reliable.

But don’t rely too heavily on a single indicator. I’ve seen many new traders make this mistake. The correct approach is to combine divergence with other tools like moving averages, trading volume, or support and resistance levels. Divergence is just one part of the bigger picture.

Another thing — always set a stop loss even when the divergence signal is clear. The crypto market moves too quickly, and a false signal can happen at any moment. Also, remember to confirm with other indicators before acting; don’t rush into an all-in position based solely on a divergence signal.