Simply put, divergence is a “parting of ways” between prices and indicators. Bullish divergence occurs when prices move down as the indicator moves up (see the green trendlines below). Bearish divergence is just the opposite; prices continue up as the indicator turns down (see the red trendlines).
In the chart above, the RSI crossed above 30 at point B1. This represents a typical point where a buy trade based on a traditional oversold signal would occur. The corresponding sell signal would have occurred at point S1 when prices crossed below 70. However, by waiting for a divergence confirmation at points B2 and S2, both the entry and exit could have been improved.
So take a look at your trading systems that have overbought/oversold-based signals and consider parting with tradition by introducing a bit of divergence.