What kind of signal does a negative divergence provide to analysts?

A negative divergence occurs when the price of an asset is making new highs while a technical indicator, such as an oscillator or momentum indicator, is not confirming those new highs. This discrepancy suggests that the upward price movement may be losing strength and that buying pressure is weakening. Analysts interpret this as a signal that the current trend may not be sustainable, thereby serving as a warning of a potential trend reversal.

In the context of technical analysis, recognizing a negative divergence allows analysts to prepare for a possible shift in trend, whether that means the price could flatten, correct, or ultimately reverse to a bearish trend. This makes negative divergence an important signal for decision-making processes related to entry and exit points in trading.