What is SMT divergence?

What does SMT divergence mean in practice?

Correlated markets usually make highs and lows together. If one sets a new high and the other does not, they have diverged, and the disagreement is read as a sign the move lacks broad participation, or that liquidity is being taken rather than a trend extending.

It depends entirely on which markets are compared and how a swing is defined, so two traders can see different divergences on the same day. Writing the pair, the swing rule and the timeframe down is what makes the signal testable.

A worked example

Illustrative only: market A makes a higher high at 5,010 while correlated market B stops at a lower high of 4,990. Under the rule, that disagreement is an SMT divergence.

How to read or test it

Choose the pair deliberately and check that the two markets really are correlated over the period you are testing, rather than assuming it. Define a swing in numbers, then count how often a divergence at a swing preceded a move in either direction. Remember that correlations drift, so a pair that moved together last year may not this year, and rerun the check on recent data before relying on it.

How AKQX handles SMT divergence

AKQX detects SMT divergence as a swing-style comparison across a configurable pair of correlated markets, and entry pair selection decides whether both are traded independently.

See ICT and SMC algo builder for the feature page.

A common mistake

Comparing markets that are not meaningfully correlated, then reading noise as divergence.

Related terms