How to interpret the triple divergence between the MFI indicator and the price?

The triple divergence pattern, identified through repeated discrepancies between price and the Money Flow Index (MFI), signals a potential trend reversal in volatile crypto markets.

Jun 26, 2025 at 01:15 pm

Understanding the Triple Divergence Concept

The triple divergence is a relatively rare and advanced technical analysis pattern that occurs when both price action and an oscillator, such as the Money Flow Index (MFI), form divergences not once, but three times in succession. This phenomenon suggests a significant potential reversal in market direction.

In the context of cryptocurrency trading, where volatility is high and momentum shifts rapidly, identifying triple divergence can provide traders with a powerful signal to anticipate trend exhaustion or reversal. It involves aligning the price chart with the MFI indicator to detect repeated discrepancies between the two.

What Is the Money Flow Index (MFI)?

The Money Flow Index (MFI) is a volume-weighted momentum oscillator that measures buying and selling pressure over a specified period—typically 14 periods. It ranges from 0 to 100 and helps identify overbought (>80) or oversold (<20) conditions.

Unlike the RSI, which only considers price, the MFI incorporates volume, making it more responsive to changes in market sentiment. In the crypto market, where large whale movements can significantly impact volume, the MFI becomes particularly useful for detecting hidden strength or weakness.

Identifying the First Divergence

The first step in recognizing a triple divergence is to spot the initial divergence between price and the MFI.

• A bullish divergence occurs when price makes a lower low, but the MFI makes a higher low.
• Conversely, a bearish divergence happens when price makes a higher high, but the MFI makes a lower high.

For example, during a downtrend in Bitcoin (BTC), if BTC hits a new low while the MFI does not confirm this low and instead forms a higher low, this signals weakening bearish momentum.

This initial divergence should be marked clearly on your chart for further confirmation.

Confirming the Second Divergence

After the first divergence, the market may retest the previous swing point. Traders should closely monitor whether another divergence appears:

• If price makes another lower low, but the MFI again fails to make a lower low, a second bullish divergence is formed.
• Alternatively, in an uptrend, if price records another higher high and the MFI fails to confirm with a higher high, a second bearish divergence emerges.

At this stage, the probability of a reversal increases. However, entering a trade based solely on two divergences remains risky. The third divergence is often considered the most critical.

Recognizing the Third and Final Divergence

The third divergence completes the triple divergence pattern. At this point:

• Price will typically form a third consecutive lower low in a downtrend, while the MFI starts forming higher lows, indicating growing buying pressure.
• Or, in an uptrend, price makes a third higher high, but the MFI continues to decline, signaling waning bullish momentum.

This final divergence acts as a strong warning sign that the current trend is losing steam. Many experienced traders wait for a breakout or breakdown confirmation before entering a trade, especially in the fast-moving crypto markets.

Trading Strategy Based on Triple Divergence

To effectively trade using the triple divergence pattern, follow these steps:

• Step 1: Confirm all three divergences visually by comparing price swings and MFI levels.
• Step 2: Look for confluence with other indicators like moving averages, support/resistance levels, or candlestick patterns.
• Step 3: Wait for a breakout above resistance or breakdown below support to confirm the reversal.
• Step 4: Set entry orders accordingly, preferably after a close beyond key levels.
• Step 5: Place stop-loss orders just beyond the last major swing high or low to manage risk.
• Step 6: Target profits at previous swing points or Fibonacci extension levels.

In highly volatile assets like Ethereum (ETH) or Solana (SOL), this strategy requires strict discipline and proper risk management.

Common Pitfalls and How to Avoid Them

Despite its strength, the triple divergence is not foolproof. Some common mistakes include:

• False signals in ranging markets: Divergences can occur frequently without leading to actual reversals.
• Ignoring volume spikes: Sudden surges in volume can distort the MFI reading, especially during news events or whale activity.
• Premature entries: Jumping into a trade before all three divergences are confirmed can lead to losses.
• Lack of risk control: Not setting proper stop-losses or position sizing appropriately can magnify losses.

Traders should always use additional tools such as volume analysis, trend lines, and moving averages to filter out noise and increase accuracy.

Frequently Asked Questions

Q: Can triple divergence appear in timeframes shorter than one hour?

Yes, although it's more reliable in higher timeframes like 4-hour or daily charts. Shorter timeframes like 15-minute or 30-minute can show triple divergence, but they tend to generate more false signals due to increased volatility and noise.

Q: Is triple divergence applicable to altcoins as well as Bitcoin?

Absolutely. The principle applies to any asset traded with sufficient volume. Altcoins like Cardano (ADA) or Chainlink (LINK) can exhibit similar patterns, especially during strong trending moves followed by exhaustion phases.

Q: Should I use MFI alone to trade triple divergence?

It’s not advisable. Combining the MFI with other tools such as MACD, RSI, or support/resistance zones enhances the reliability of the signal and reduces false positives.

Q: How long does a triple divergence reversal typically last?

The duration varies depending on market conditions and the strength of the underlying trend. Some reversals may last only a few hours, while others can extend over several days, especially in major cryptocurrencies like BTC or ETH.