SMT Divergence For Entry

Summary

In this video, the concept of SMT Divergence (Smart Money Technique) is explained, focusing on its use in trading entries. SMT Divergence occurs when two correlated assets, like GBP/USD and DXY, move in unexpected directions. The video outlines how traders can spot discrepancies in these correlations and use them to predict market movements, especially during liquidity grabs or fake-out moves. The presenter shares a practical example of using SMT Divergence to enter a trade on GBP/USD, securing a 20-pip profit, and encourages viewers to join the community for more insights.

Takeaways

• 😀 SMT Divergence stands for Smart Money Technique Divergence, which involves identifying variations in the correlation between two assets.
• 😀 It is primarily used to spot divergence between positively and negatively correlated assets, such as EUR/USD, GBP/USD, and AUD/USD.
• 😀 DXY, the Dollar Index, is a common reference asset used in trading SMT Divergence, as it tracks the performance of the U.S. dollar.
• 😀 Positively correlated assets generally move in the same direction (e.g., EUR/USD and GBP/USD), while negatively correlated assets move in opposite directions (e.g., GBP/USD and DXY).
• 😀 When SMT Divergence occurs, it indicates a potential fakeout or liquidity grab in one of the correlated assets, which is useful for identifying entry points.
• 😀 A higher high in one asset and a lower low in another asset are signals of divergence, suggesting the market may soon correct.
• 😀 The divergence can be used for trade entries, particularly when one asset seeks liquidity in the opposite direction of its usual correlation.
• 😀 An SMT Divergence signal was shared with the community when the GBP/USD formed a higher high while DXY was forming a lower low, indicating a potential short entry.
• 😀 The practical use of SMT Divergence is to monitor the behavior of correlated assets and take positions when a liquidity grab or fakeout occurs.
• 😀 The trader used SMT Divergence to secure a 20-pip profit on a GBP/USD short position, which was shared with the community as an example of successful application.
• 😀 For those interested in learning more, the creator recommends watching a detailed YouTube video on SMT Divergence available on the channel.

Q & A

What does SMT stand for in the context of trading?

SMT stands for Smart Money Technique. It refers to a method used to spot market manipulations or fake-outs by analyzing the correlation between two assets.

How does SMT Divergence work in forex trading?

SMT Divergence works by observing the correlation between two assets. When one asset behaves contrary to its correlated counterpart (e.g., a higher high in GBP/USD while DXY forms a lower low), it signals a potential market manipulation or fake-out, allowing traders to anticipate a reversal.

What is an example of positively correlated assets in forex?

An example of positively correlated assets is EUR/USD, GBP/USD, and AUD/USD. These assets tend to move in the same direction; when one rises, the others often do too.

What is an example of negatively correlated assets in forex?

An example of negatively correlated assets is GBP/USD and DXY (Dollar Index). When GBP/USD rises, DXY typically falls, and vice versa.

How can DXY be used in conjunction with SMT Divergence?

DXY, the Dollar Index, is commonly used as a reference asset when trading with SMT Divergence. Since DXY typically has a negative correlation with assets like GBP/USD, observing its movement can help traders identify when a divergence occurs, signaling a potential market reversal.

What does a higher high in GBP/USD and a lower low in DXY indicate in terms of SMT Divergence?

A higher high in GBP/USD and a lower low in DXY indicate a divergence. This suggests a market manipulation or fake-out, where GBP/USD is moving in one direction while DXY is moving in the opposite direction, potentially signaling that the market will soon correct itself.

How does the concept of liquidity play a role in SMT Divergence?

In SMT Divergence, liquidity refers to the market orders that are picked up by large players (smart money). The divergence often occurs when one asset (e.g., GBP/USD) is targeting liquidity above a high or below a low, which can lead to a fake-out before the market reverses.

What should a trader look for when identifying an SMT Divergence?

A trader should look for a break in the typical correlation pattern between two assets. This includes instances where one asset forms a higher high while the correlated asset forms a lower low, or when price movements deviate from the expected pattern based on their usual relationship.

What is a 'break of structure' in trading, and how does it relate to SMT Divergence?

A 'break of structure' occurs when price breaks key support or resistance levels, indicating a shift in market sentiment. In the context of SMT Divergence, traders look for a break of structure to confirm that a divergence is valid and the market may soon reverse.

What are the practical steps for using SMT Divergence in a trade?

To use SMT Divergence, traders should monitor correlated assets for divergences, such as when one asset moves in the opposite direction of the other. Once a divergence is identified, traders should wait for a break of structure, look for liquidity runs, and then enter trades at key levels, such as retracements into order blocks.