What it means
It is a confirmation for a sweep, not an entry on its own.
In practice
Markets that normally move together, such as the Nasdaq and the S&P 500, or EUR/USD and GBP/USD, should make new highs and lows together. When one takes out a low and the other refuses to, the move is not fully supported.
Traders look for this at the moment liquidity is taken: one market sweeps its low while the other holds, which strengthens the case for a reversal.
What to watch for
Correlated markets drift apart for ordinary reasons, including news that affects only one of them. The signal matters only at a key level and with a structure shift to follow.
Related terms
3 terms- DivergencePrice and an oscillator disagreeing: a higher high in price with a lower high in RSI, for example.
- Liquidity sweepPrice wicking through an obvious high or low to take the stops, then closing back inside and reversing.
- CorrelationHow closely two markets move together; positions in correlated markets are really one bigger bet.