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Price-volume divergence and momentum indicators are important tools used in technical analysis to judge market trend strength and potential reversals. The two are often used in combination to improve analysis accuracy.
1. Price-Volume Divergence
Definition: When price trends are inconsistent with volume trends, it may indicate a change in trend.
1. Price rises while volume decreases (bearish divergence): Price reaches a new high but volume decreases, indicating weakening buying power and insufficient upward momentum, which may lead to a pullback or reversal.
2. Price drops while volume increases (bullish divergence): Price reaches a new low but volume increases, indicating exhaustion of selling power and buying interest, which may lead to a price reversal upwards.