What is Divergence?

Divergence is when two items move in different directions to each other, and away from each other. In finance the term divergence is applied to asset prices, indicators and indices.

Divergence can provide a signal to enter a position, for example if the difference in the prices of Brent Crude and WTI crude starts to increase, a potential strategy would be to buy one and sell the other in the expectation that they will converge again in the future.

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