SMT Divergence

The SMT Divergence indicator identifies high-probability reversal points by detecting Smart Money Technique (SMT) divergences between two correlated assets. This tool helps traders spot subtle shifts in market momentum by revealing when one asset fails to confirm the price action of another, often signaling an impending trend change.

Usage

The SMT Divergence tool is primarily used for inter-market analysis to identify non-confirmations between related financial instruments (e.g., S&P500 vs. Nasdaq).

• Bullish SMT Divergence: Occurs when the current symbol makes a lower low, but the comparison symbol makes a higher low. This indicates underlying strength.
• Bearish SMT Divergence: Occurs when the current symbol makes a higher high, but the comparison symbol makes a lower high. This indicates underlying weakness.

Traders can use these signals to anticipate market reversals or to confirm existing trade ideas. The indicator supports two visualization modes: 'Lines', which connect diverging pivot points for a clear view of the trend, and 'Labels', which mark specific pivot highs (PH) and pivot lows (PL).

Details

The script functions by tracking pivot points on both the current chart and a user-defined secondary symbol. It uses the request.security function to fetch price data from the comparison asset.

A divergence is confirmed when the price relationship between the two assets breaks—specifically, when their pivot trends (higher highs vs. lower highs, or lower lows vs. higher lows) do not align. The script uses a "Pivot Length" parameter to define the sensitivity of these swing points; a higher length results in more significant but less frequent signals, while a lower length captures smaller, more frequent fluctuations.

Settings

Core Parameters

• Comparison Symbol: Defines the second asset to compare against the main chart (e.g., using NQ1! when charting ES1!).
• Pivot Length: The number of bars required to the left and right of a price point to confirm it as a pivot high or low.

Visuals

• Display Style: Toggles between "Lines" (connecting pivots) or "Labels" (marking pivots with text).
• Line Width: Sets the thickness of the divergence lines when using the "Lines" style.
• Bearish Color: Customizes the color for bearish divergence signals.
• Bullish Color: Customizes the color for bullish divergence signals.

FAQ

How do I access SMT Divergence?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.

Which assets should I use for comparison?

SMT divergence is most effective on highly correlated assets, such as ES (S&P 500) and NQ (Nasdaq), or different currency pairs within the same group (e.g., EURUSD and GBPUSD).

Why do signals appear a few bars late?

The indicator relies on pivot detection, which requires a specific number of bars (defined by the Pivot Length) to pass after a high or low to confirm it as a genuine swing point.