SMT Divergence - ICT Concepts

Summary

Highlights

• Discover the nuances of SMT divergence and how it applies to correlated trading pairs like ES and NQ, or EU and GU. 🔄
• Learn how to spot divergence on charts and use it to predict potential market reversals. 📈
• Explore various examples that illustrate SMT in action through detailed market replay sessions. 🔁
• Understand the importance of using SMT as a confluence rather than a primary trading signal. 🤝
• Learn about integrating higher and lower time frame analyses to solidify trading decisions. 🕰️

Key Takeaways

• SMT divergence is a tool used to identify potential reversals by observing deviations between correlated trading pairs. 🔍
• It's particularly useful in forex trading and future contracts like S&P futures and NASDAQ futures. 📊
• Utilizing SMT involves comparing similar structures across different assets to anticipate market movements. 🔄
• SMT is best used as a confluence rather than a standalone signal in your trading strategy to ensure more accurate predictions. 🤝
• Aligning SMT with higher time frame trends and specific price action events provides stronger trading setups. 📈

Overview

Chapters

• 00:00 - 00:30: Introduction to SMT The chapter titled 'Introduction to SMT' begins with a brief introduction accompanied by music, setting the tone for the content about Smart Money Techniques (SMT). It includes a plan to start with a PDF overview that explains what SMT is and how to identify it. Following the PDF review, there will be a transition to chart analysis to provide examples of how SMT is utilized. Additionally, viewers are encouraged to join a free Discord channel for more resources, with a link provided in the video description.
• 00:30 - 01:00: Understanding Correlated Pairs The chapter titled "Understanding Correlated Pairs" discusses the concept of correlated pairs in trading. It explains that certain pairs of assets, such as ES and NQ or EU and GU, tend to move in the same direction because they are correlated or influenced by the same factors, like the dollar. The strategy of analyzing these correlated pairs is known as smt (not further explained in the text). The chapter suggests that correlated pairs generally exhibit a similar market structure, such as both putting in a low simultaneously.
• 01:00 - 01:30: Example of Bearish Divergence In this chapter, the concept of bearish divergence is explained. It involves comparing the movements of two correlated assets, where one asset shows a pattern of making a low followed by a higher low, while the other asset makes a low followed by a lower low. This difference in movement is identified as SMT (Smart Money Technique) divergence, and it serves as a bearish example of asset behavior.
• 01:30 - 02:00: Practical Uses of SMT Chapter "Practical Uses of SMT" discusses the concept of SMT (Smart Money Technique) in trading, specifically focusing on how to identify this phenomenon through chart analysis. It explains that an SMT occurs when one asset makes a higher high and another correlated asset makes a lower high at the same time, indicating divergence. The chapter illustrates this with an example using FX replay, which allows traders to better visualize and understand the SMT through historical data review and replay. The narrative better equips traders to recognize such patterns in different correlated assets, thereby leveraging them for making informed trading decisions.
• 02:00 - 02:30: Lower Time Frame SMT The chapter describes the correlation between S&P futures and NASDAQ futures, observing their price actions and movements. The narrator notes that as the S&P futures make a higher high after a decline, a similar pattern is expected in NASDAQ futures due to their correlated nature. Emphasis is on identifying and marking significant highs and lows to predict future market behavior.
• 02:30 - 03:00: When and Where to Find SMTs This chapter discusses the concept of SMT (Smart Money Technique) in trading, particularly in relation to the NASDAQ index. It explains the scenario when an SMT forms, notably when a market makes a higher high while another related index or market does not confirm this high. This can lead to a displacement, which could signal a market reversal. The chapter emphasizes observing these patterns as part of a trading strategy.
• 03:00 - 03:30: Example on Forex SMT The chapter discusses the use of SMT (Smart Money Technique) in Forex trading to confirm market reversals. It starts with the trader having a pre-existing idea or identifying a level on a higher time frame to look for SMT as a confirmation of reversal. The example provided describes anticipating a downside move towards sell-side liquidity. After the midnight market open, there is a 'Judas' move up, and during the London session, a high of the day is established. An SMT signal appears, which the trader trusts to confirm the anticipated downside move, expecting the price to continue lower, thus confirming the reversal.
• 03:30 - 04:30: Using SMT for Confirmation In this chapter, the concept of SMT (Smart Money Techniques) is discussed with a focus on using it for confirmation in trading decisions. The transcript explains that while SMT was not the main reason for the market reversal at a particular point, it served as a confluence factor. The discussion includes an example involving both higher and lower time frame SMTs, emphasizing that SMT essentially refers to market divergences. A specific example is mentioned by pointing out an 11:00 price low on the chart.
• 04:30 - 05:30: Inversely Correlated Pairs In this chapter titled 'Inversely Correlated Pairs,' the focus is on identifying and analyzing the inverse relationship between the ES (E-mini S&P 500) and NQ (NASDAQ-100) indices. The speaker points out specific points where these two indices behave differently. By marking a low point at 11:00, it is highlighted that while ES takes a lower low, the NASDAQ does not, exemplifying an inverse correlation on a lower time frame such as a 5-minute chart. The presence of such differences is visibly marked and analyzed to understand the movement and correlation of these trading indices.
• 05:30 - 06:30: SMT in Fair Value Gap The chapter titled 'SMT in Fair Value Gap' discusses the concept of SMT (Smart Money Techniques) and how it relates to fair value gaps. The narrator emphasizes the importance of looking for SMT signals in conjunction with higher time frame levels or ideas, suggesting that not all SMTs are significant on their own. Key points to consider include session highs and lows, previous days' highs and lows, and using SMTs on lower time frames when they align with higher time frame levels. The chapter provides insights into navigating different time frames to identify valuable SMT signals.

SMT Divergence - ICT Concepts Transcription

• 00:00 - 00:30 [Music] how's it going everyone this video is going to be over smt or smart money techniques or smart money tools we'll first hop into a PDF to go over what it is how to identify it and then hop into the charts to go over a few examples and how it is used now if you haven't already be sure to check the link in the description below for access to my free Discord this is where I link all of the
• 00:30 - 01:00 PDFs for all of my videos as well as answer people's questions now smt is a technique used when looking at correlated pairs for example if we have es and NQ they are both correlated or should be moving in the same direction so we can use those for smt or EU and gu since those are correlated or they are both against the dollar we can use those as well now generally with correlated pairs or correlated assets we're going to have similar structure for example here one pair or one asset puts in a low
• 01:00 - 01:30 and the other also puts in a low then we put in a higher low and we also put in a higher low now what smt is is when one of these assets diverge from the other so while this one was making a low and a higher low this one made a low and a lower low now that Divergence right there is an smt now let's take a look at a bearish example here you can see they are both correlated but when we have one diverging from the other or one making a
• 01:30 - 02:00 high and higher high while another is making a high and a lower high that is an smt but let's hop into the charts and show how this can be used so here we are in FX replay and that's what we're going to be using to replay this as it makes it a lot easier to see the smts now just taking a look at the structure here you can see we have a high and looking at the same time over here we also have a high then we have a low and at the same time we have a low and we have another high and another high you can see how these are correlated assets which is the
• 02:00 - 02:30 S&P futures and NASDAQ futures you can see we go down make a low a high and we continue lower so these are correlated assets so just looking at the current price action here and marking out this high if one is going to make a higher high we'd expect the other to make a higher high as well let's see what happens and you can see we have made a higher high on S&P future
• 02:30 - 03:00 however did we make a higher high on NASDAQ no so what is that that is an smt so letting this continue to play out let's see what happens you can see we do end up making a higher high however relative to this High here we still have not yet made a higher high on NASDAQ and here we get displacement down now how can smt be used well it is really a confluence to a reversal so if
• 03:00 - 03:30 I already have a pre-existing idea or a higher time frame level I can look for smt to confirm that reversal so let's say here I was looking for a reversal or a downside move to sell-side liquidity here and then we get a Judas up after midnight open London puts in a high a day and we also have an smt here well then I can anticipate price moving in continuing lower to sell-side liquidity trusting that this smt will confirm the reversal and this high will not be
• 03:30 - 04:00 touched so let's see if we go Reach For Those lows and there we do Reach For Those lows so you can see this smt was not the main reason that we reversed here however it is a Confluence to the reversal now one thing I'll talk about here just cuz it's a good example is if we're looking at the higher time frames you can also see lower time frame smts now remembering that all an smt is is a Divergence let's take a look at this Wick right here this is our 11 o00 low
• 04:00 - 04:30 now if we Mark that out we know there is a low there now if we Mark out our 11:00 low here it is right here you see how on ES we go and take this low here on NASDAQ we do not that is going to be a lower time frame smt let's drop down to the 5 minute chart and you can see here on the 5 minute chart with my cursor and the vertical lines matching up we have a low right here es makes a lower low and NQ makes a higher low and that is a
• 04:30 - 05:00 Confluence to this reversal here I just wanted to throw that in there because that is how I look forts on a lower time frame from a higher time frame chart now if you go searching for smts you're going to find them everywhere now not all smts are important if they don't align with some sort of higher time frame level or idea now spots where I generally look for smts are on session highs and lows previous days high and lows and at higher time frame levels on a lower time frame when I'm searching
• 05:00 - 05:30 for a reversal so for example here I've marked out our London High here on both es and inq so let's let this play out and see what happens so you can see we have taken London high on ES here have we taken London high on NQ not yet does this mean I'm going to short it right away no because smt is just a Confluence I need this structure and everything else to
• 05:30 - 06:00 align to use it as confirmation let's let this go ahead you can see are we going to take this high now if we take this high on NQ there is no smt anymore so let's see what happens we don't take the smt now we have a bullish PD array let's see if it is respected it is not and we are likely to continue lower from from here and you
• 06:00 - 06:30 can see how that smt was the reversal point there and ideally we'd want to run this low and there we go we do run that low so ideally when I'm searching for smts it's not at a random level or just random time I'm looking for session highs and lows previous days highs and lows and then if I have a point of Interest let's say I'm looking at an hourly fair value Gap then I'm going to use a 5 minute chart and if I have an smt on the 5 minute time frame I'll use
• 06:30 - 07:00 that as a confirmation to my entry model for the reversal so now let's take a look at an example of a Forex smt so take a moment here and look at the two charts compare the structure and what do you see well if you're taking a look at this low here and draw that out what do we see well we see that EU made a lower low while gu made a higher low so we have an smt does this mean I'm going to just long it right right here no I'm
• 07:00 - 07:30 going to wait for some confirmation or for structure to align so letting this play out I don't see any displacement up or a reason to be long now we get an aggressive move lower now what else do we notice about this move lower what did it take out well it took out a low here marking out that same low on EU did it take it out no so now we have multiple smts here right so
• 07:30 - 08:00 getting rid of this first one so you can see this a little easier we have gu here making a lower low while EU is making a higher low so now let's see if we get any displacement out of here we do get displacement out of here what do we have with these up closed candles here we have a low high lower low higher high now looking to take this entry going to look to enter this unicorn on the breaker block my stop
• 08:00 - 08:30 below the breaker and the fair value Gap if it wants to trade back into it and then my target is on these failure swings here for a 3.2 R so looking to enter a trade here let's see how this works out we get tagged in here we get a sweep now displacement out now if this is going to continue higher I want to see what down close candles support price higher so let's see now we have down
• 08:30 - 09:00 Clos candles close over want to see it support it higher another down close candle supporting it higher and there we go we hit our take profit so you can see this is how I would use it in a reversal I don't just blindly long something because of an smt I'm going to wait for an actual setup and then use this smt to confirm it let's take a look at another example of smt here here we have NASDAQ reaching into a daily fair value Gap and
• 09:00 - 09:30 displacing lower now why am I not interested in taking a short here well what do we have coming up at 8:30 we have CPI I'm going to wait for post CPI to be looking for an opportunity so here we get CPI release and what do we notice about the highs here into the fair value Gap well NASDAQ takes the high es does not take the high so they are
• 09:30 - 10:00 diverging from one another creating an smt so now I'm anticipating this High to hold so I'm going to be looking for a short entry now if we have a high low higher high lower low what does this down close candle become well that is a breaker block so looking to take an entry on the breaker block why would I swamp My Stop on this High instead of just by the breaker block well this
• 10:00 - 10:30 isn't a super clean breaker block for me but also with CPI there's more volatility I'd prefer to have my stop on a high that ran another high creating High Resistance liquidity now that also leads me into a question of which one do I choose with an smt do I choose the one that made the higher high or do I choose the one that didn't showing its weakness and really this depends on the higher time frame setup in relative strength it kind of comes down to personal opinion and what you think is going to be
• 10:30 - 11:00 stronger or weaker in this case with a high news release I prefer the one that swept liquidity giving High Resistance liquidity so I'll be looking for Nasdaq here then looking to Target the lows here let's go ahead and zoom into NASDAQ you can see we have some equal lows resting down here so looking to take an entry here targeting those lows let's see how this works out
• 11:00 - 11:30 so here we get tagged in and you can see why I have my stop on high resistance liquidity you can also see how the body did not close over this breaker block and it is respecting it just has a lot of volatility and a lot of range you can see quite a bit of range in this move we displace lower now if we do retrace back up to up close candles an order block I'd expect that to push it lower and there we go so if I was to miss this
• 11:30 - 12:00 first entry I could be looking for a lower time frame entry in here and so we can actually hop down and do that real quick we have a 15-minute PD array going to drop down to a one minute chart and then I'm going to be looking for some sort of one minute setup we reach into that PD array displace close below this series of up close candles here changing the state of delivery I could even look to just take an entry here if I stop on this high or I could look for a premium or this fair value Gap really anywhere
• 12:00 - 12:30 in here looking to take an entry I then could look to Target this low but ideally reaching for our original draw on liquidity now with a 1.65 R I prefer to have 2 R so I'd likely put my entry on this fair value got here to get me two R so that is how I would do it if I miss this initial entry or if I wanted to wait for a confirmation entry so going back to the 15minute Chart you can see how that worked out there now for inversely correlated pairs or assets we
• 12:30 - 13:00 want to see the same structure but just flipped over so for example here if we have Euro USD versus the dollar those are going to be inversely correlated but we want to see the same structure so for example if we create a high we want to see a low if we create a higher high we'd want to see a lower low and then for example if we have a high and a lower high I'd want to see a low and a higher low now if one of these is diverging so if we see a high we want to see a low but we we have a higher high I'd want to see a lower low but we have
• 13:00 - 13:30 a higher low similarly over here we have a high and a low here we have a lower high we'd expect to see a higher low but we see a lower low this would be the smt so let's hop into the charts and look at a few examples of identifying this so here we are with a Euro USD chart and a dollar chart which are inversely correlated so if you notice right here when we put in this low we did anticipate a high being put in we put in
• 13:30 - 14:00 a higher low we'd want to see a lower high this is the correlation between those so you can see we have a low right here and then a high right there as well so let's mark out this range and see if we can find any smts occurring so here I have the same highs and same lows marked out on each one so if we create a high here on the dollar we'd want to see a new low on Euro and vice versa let's move ahead and see what happens so here you can see we're just still
• 14:00 - 14:30 inside the range and now you see our first smt so you see this low here we have a higher low relative to that but with the dollar we'd anticipate a lower high but we get a higher low so we have an smt here and a potential reversal here we get that reversal let's see what happens next
• 14:30 - 15:00 so you can see here do we take this High we do not but over here on the Euro chart we do so now we have an smt on this low as well so I could be looking for a reversal to the downside here on the dollar or upside with the Euro and we do get that and then the next low I'm looking at is here this 10: a.m. so here we do have an smt however
• 15:00 - 15:30 Euro has caught up so we'll see if it takes this high or not does not currently take the high potentially a reversal here and it does not and it does go take that high and we continue lower on the dollar so that is an example of just spotting smts on inversely correlated assets you kind of have to do the opposite so if you see a new high then you want to look for a new low on the other asset and vice versa it definitely takes some practice and some getting used to but hopefully this video will
• 15:30 - 16:00 help you out the last thing we're going to talk about is an smt within a fair value Gap marking out the same fair value Gap here on Es as well as on NQ how do we form an smt into a fair value Gap well as we let this play ahead you can see that price on eses reaches back into this fair value Gap while on NQ it doesn't so is this an smt yes and now let me explain why if you understand internal range liquidity you you know this fair value Gap is made up of a low
• 16:00 - 16:30 right here and a high right here so if price reaches back up into this fair value Gap it's reaching Above This High here while on NQ it's not reaching Above This high so then as we let it continue we get a reaction to move lower now let's drop down to a lower time frame so this makes more sense so down here on the one minute chart you can see this is the high that creates that 15-minute fair value Gap and similarly right here this is the high that makes that 15-minute fair value Gap here on ES we reach Above This High into
• 16:30 - 17:00 the fair value Gap and then on NQ we can't reach Above This high so basically looking for an smt within a fair value Gap or a PD array is just utilizing the smaller time frames smt without dropping down to the lower time frame now I hope you learned something in this video and found it helpful if you did please consider liking and subscribing and I'll see you guys next time have a good one