NISM Certifications · NISM-Series-XV: Research Analyst · Technical Analysis
A bullish divergence between price and an oscillator such as MACD is said to occur when:
Bullish divergence occurs when price makes a lower low but the oscillator, such as MACD, makes a higher low. This signals that downside momentum is fading and a reversal upward may follow. The opposite pattern, a higher price high with a lower oscillator high, is bearish divergence.
- APrice makes a higher high and the oscillator makes a lower high
- BPrice makes a lower low and the oscillator makes a higher lowCorrect
- CBoth price and the oscillator make lower lows
- DBoth price and the oscillator make higher highs
Explanation
Bullish divergence shows selling momentum weakening: price falls to a new low but the oscillator forms a higher low, hinting at a possible upward reversal. Option one describes bearish divergence, while the other two show confirmation, not divergence.
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