What is Divergence Engine?
Strata's probabilistic detector for price–indicator divergences — the early-warning of trend exhaustion.
Definition
A divergence happens when price makes a new extreme (higher high or lower low) but a corroborating indicator (RSI, momentum, volume) does not. Strata's divergence engine grades every observed divergence by a *probabilistic* score combining indicator gap, lookback persistence, RVOL confirmation, regime gate, and historical resolution rate for that instrument. Output: bullish/bearish divergence with a confidence percentage and an "actionable / watch / discard" verdict.
Why it matters for trading
- Naive divergence flags fire constantly and resolve only ~30-40% of the time — useless. Probabilistic grading filters out the noise so the actionable subset resolves at 60%+.
- Divergences in single-narrative regimes (heat > threshold) decay fast; the engine auto-haircuts confidence in WAR/CRISIS regimes where idiosyncratic signals are dominated by macro flow.
- Cross-asset divergences (e.g. SPX higher high, copper not confirming) are higher-quality than single-asset divergences. The engine elevates these to the regime alert layer.