Momentum divergence happens when price makes a new high or low but momentum indicators like RSI, MACD, or volume fail to confirm, creating a warning signal that the trend is weakening and reversal may be near. Bullish divergence happens when price makes lower lows but momentum makes higher lows (potential bottom signal). Bearish divergence happens when price makes higher highs but momentum makes lower highs (potential top signal). Divergences don't guarantee reversals but they identify when buying or selling pressure is exhausting.
Example:
Bitcoin rallied to new all-time highs in October 2025, reaching $126,210. However, technical indicators showed weakening momentum during the final push higher compared to earlier rally phases. Volume declined during the final ascent to $126,210 compared to the rally through lower levels. Traders who recognized this momentum divergence at the 1.618 Fibonacci extension took profits, correctly anticipating trend exhaustion. Days later, Bitcoin crashed significantly as the divergence played out and selling pressure overwhelmed the weakening buying momentum.