A bearish divergence in volume refers to a situation in technical analysis where the volume of trading decreases while the price of a stock, currency, or other asset continues to rise. This scenario suggests that the upward price movement is losing momentum and may be nearing a reversal.
In traditional technical analysis, volume is often considered a confirmation indicator, meaning it should ideally confirm the direction of the price movement. When the price of an asset rises but the volume decreases, it can indicate weakening buying interest. This could be interpreted as a sign that the upward trend is unsustainable and may soon be followed by a downward movement.
Traders and analysts often use other technical indicators alongside volume, such as oscillators like the Relative Strength Index (RSI) or the Moving Average Convergence Divergence (MACD), to confirm signals and make more informed decisions about potential market movements. However, it's important to note that no single indicator can predict the market's behavior with certainty, and traders should consider multiple factors before making trading decisions.
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