How to Trade SMT Divergence (HUGE PROFITS)

Summary

In this video, Justin explains the concept of SMT (Symmetry Divergence) in trading, specifically between the ES and NQ indices. He walks viewers through the identification of both bullish and bearish SMTs, demonstrating how a divergence between these two indices can indicate market trends. By using real-time chart examples, Justin shows how traders can spot SMTs, use fair value gaps, and enter trades based on these divergences. He also shares tips for trading on different time frames and emphasizes the importance of practice and confidence-building with SMTs for effective trading strategies.

Takeaways

• 😀 SMT (Smart Money Techniques) involve spotting divergences between different markets, such as ES (S&P 500 Futures) and NQ (NASDAQ Futures).
• 😀 A divergence occurs when price movement in one market doesn't align with the other, signaling a potential shift in direction.
• 😀 A **bearish SMT** happens when ES makes a higher high while NQ makes a lower high, suggesting a potential sell-off.
• 😀 A **bullish SMT** occurs when ES makes a lower low and NQ makes a higher low, often signaling a market bounce or reversal to the upside.
• 😀 To trade SMTs, look for market structure shifts (breaks in structure) or fair value gaps (FVG) after spotting a divergence.
• 😀 After an SMT, you can target previous highs or lows as exit points once the price starts moving in the anticipated direction.
• 😀 **15-minute and 5-minute charts** are ideal for spotting SMT divergences, offering a broader view with less noise compared to lower time frames.
• 😀 **Be cautious with 1-minute charts**: while SMTs appear here, they can often lead to false signals due to increased noise.
• 😀 Use SMTs in combination with other trading models to enhance your strategy and improve your trade decisions.
• 😀 Building confidence with SMTs requires practice—draw them on your charts regularly to get a better understanding of their behavior.

Q & A

What is an SMT (Smart Money Technique) divergence?

An SMT divergence is a difference in price action between two markets or indices, such as the ES and NQ futures contracts. It typically refers to a situation where one market makes a higher high or lower low while the other market shows the opposite, signaling potential price reversals.

What is the difference between a bullish and bearish SMT?

A bullish SMT occurs when one market (e.g., ES) forms a lower low, while the other market (e.g., NQ) forms a higher low, indicating a potential upward price movement. A bearish SMT happens when one market (e.g., ES) forms a higher high, but the other market (e.g., NQ) forms a lower high, signaling a potential price decline.

How do you use an SMT in trading?

To use an SMT in trading, first spot a divergence between two markets, such as ES and NQ. Once identified, look for a liquidity sweep or a market structure shift and then enter the trade after a pullback into a fair value gap. The next target is often the previous high or low.

What is the 'Turtle Soup' model in relation to SMT?

The Turtle Soup model refers to a strategy where, after identifying an SMT, traders enter a position following a sweep of liquidity or market structure shift. They trade the pullback into a fair value gap and target a previous price level (e.g., previous high or low).

What does it mean when ES and NQ form a bearish SMT?

A bearish SMT occurs when ES forms a higher high while NQ forms a lower high, indicating a divergence at the highs. This often leads to a price sell-off, as the market shows signs of weakness in one of the indices compared to the other.

What is a fair value gap, and how is it used in SMT trading?

A fair value gap refers to an area on the chart where there is a significant price move, leaving behind a 'gap' that can be filled when the price pulls back. In SMT trading, after spotting a divergence, traders look for a pullback into the fair value gap as an entry point for their trade.

Can SMTs be used on smaller timeframes, like the 1-minute chart?

Yes, SMTs can be used on smaller timeframes, like the 1-minute chart. However, be cautious as this timeframe may produce false signals due to market noise. Larger timeframes, like the 5-minute and 15-minute charts, are generally preferred for more reliable signals.

What should a trader do after spotting a bullish SMT divergence?

After spotting a bullish SMT divergence, a trader should wait for a liquidity sweep or a market structure shift, then enter the trade once a pullback occurs into a fair value gap. The target is typically the previous high or buy-side level.

How can an SMT be used to confirm a broader trading model?

An SMT can be used to confirm a broader trading model by providing additional confidence in a trade. For example, within a buy model, an SMT can confirm a potential reversal or continuation after liquidity has been swept, reinforcing the trader's market bias.

How does volume play a role in SMT trading setups?

Volume plays a crucial role in SMT setups. After an SMT divergence and liquidity sweep, large volume can indicate strong buying or selling pressure, signaling the potential for a trend reversal or continuation, depending on the direction of the divergence.