Recently, some friends asked me about the divergence rate, so I might as well explain this indicator thoroughly. To be honest, many people know about the divergence rate, but few can use it well.

Let's start with the basics. The divergence rate is called BIAS in English, and its core logic is quite simple—it's a percentage that shows how far the stock price deviates from the moving average. You can think of it as a measurement tool to help you determine whether a stock is overbought or oversold. The calculation method is (closing price of the day - moving average price) divided by the moving average price, then multiplied by 100, so you can see the degree of deviation.

I'll use a straightforward analogy. Imagine a harvest year where rice yields are very good, and prices soar. Farmers see the prices hitting new highs and start to panic—they worry that once the buyers have collected enough grain, they will stop purchasing, and eventually no one will want to buy. So even if prices are already high, they rush to sell at low prices. Investors in the stock market think similarly: when prices rise too rapidly, they want to sell; when prices fall sharply, they want to buy the dip. The divergence rate helps you catch this psychological turning point.

There are two types of divergence rate. One is positive divergence, where the stock price is above the moving average, indicating a short-term rally; the other is negative divergence, where the price is below the moving average, indicating a significant decline. The larger the absolute value, the more serious the deviation. There are also cycle-based divisions, commonly 5-day, 10-day, 30-day, etc., and you can adjust the parameters yourself.

How to use it to find buy and sell points? That’s the key. In a weak market, a divergence rate above 5 is considered overbought, so you might consider selling; a divergence rate of -5 indicates oversold, so buying could be considered. But in a strong market, the standards should be raised to 10 and -10. For example, I look at the stock Eastmoney, and its 24-day divergence rate once exceeded 10. At this point, you should be alert to a possible rebound, and you can choose to hold or reduce your position accordingly. Conversely, when the divergence rate drops below -15, it’s a good opportunity to buy the dip—don’t cut your losses at this level.

In actual trading, I usually call up the divergence rate indicator directly on the platform and then adjust parameters according to my trading style. Short-cycle parameters respond quickly but are prone to false signals; long-cycle ones are slower but more stable. Most importantly, don’t rely solely on the divergence rate. I usually combine it with KD indicators or Bollinger Bands, which greatly improves accuracy.

Let’s talk about the pitfalls of the divergence rate. First, it has a lagging nature, so it might miss the best entry or exit points, which is why I trust it more for finding buy signals rather than sell signals. Second, for stocks that have a slow and steady rise and fall with little volatility, the divergence rate is basically useless. Also, small-cap stocks are easier to manipulate, so the reference value of divergence rate is limited. Blue-chip stocks with good fundamentals tend to rebound quickly when falling, but problematic stocks may keep falling forever without recovery.

Overall, the divergence rate is a useful auxiliary tool, but it must be combined with other indicators and fundamentals. Parameter selection is also crucial—too sensitive, and you’ll trade too frequently and lose fees; too insensitive, and you’ll miss the market movements. Lastly, I recommend setting up alert notifications on the platform, so you can continuously monitor your watchlist and greatly improve safety.