A price divergence signal occurs when a digital asset’s price movement contradicts the trend observed in a related on-chain metric or technical indicator. For example, if an asset’s price is increasing while the number of active users or transaction volume is decreasing, this creates a bearish divergence signal. Conversely, a rising price accompanied by falling network activity could indicate a speculative rally lacking fundamental support. Such signals are used by analysts to identify potential reversals or unsustainable market trends, prompting a deeper examination of underlying market conditions.
Context
Interpreting price divergence signals is a common practice in cryptocurrency technical analysis, providing insights into the health and sustainability of market trends. Discussions often revolve around the reliability of different on-chain metrics and their correlation with price action, as well as the potential for false signals in volatile markets. Future analytical tools aim to integrate more diverse data sources and machine learning models to provide more accurate and timely divergence alerts.
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