SMT divergence

What it is

SMT divergence compares two closely related markets, such as ES and NQ, or EURUSD and GBPUSD (or either against the dollar index). If one makes a new low but the other makes a higher low, one of them is showing strength the other isn't.

That disagreement at a key level often comes before a reversal. ICT calls it a 'crack in correlation'.

With a market that moves the opposite way, the rule flips. EURUSD and the dollar index (DXY) move inversely, so a bearish SMT is EURUSD making a higher high while DXY makes a higher low (it should have made a lower low). A bullish SMT is EURUSD making a lower low while DXY makes a lower high.

How to spot it

• Compare the same swing on both charts over the same window.
• Positively correlated (ES and NQ): one makes a lower low (or higher high); the other doesn't.
• Inversely correlated (EURUSD and DXY): compare one market's high with the other's low.
• Correlated markets can lead or lag each other by a few minutes, so compare swings, not the exact same candle.

How to use it

• Use it as confirmation at a sweep or zone, then trade with a market structure shift.
• Many traders enter on the stronger of the two.

Common mistakes

• Comparing markets that aren't actually correlated.
• Forgetting to flip the rule for an inverse pair such as EURUSD and DXY.
• Treating SMT on its own as an entry signal; it is supporting evidence.

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