The Only SMT Divergence Video You Need

Summary

In this video, the presenter explains SMT (Smart Money Technique) Divergence, a powerful strategy used by traders to identify market opportunities. SMT Divergence occurs when two correlated assets show a discrepancy in their price movements, signaling a potential market shift. The video walks viewers through practical examples using assets like the dollar index (DXY) and GBP/USD, and discusses entry strategies based on price action patterns such as the three-candle rule. The presenter also promotes a trading platform and a paid mentorship program for more in-depth learning.

Takeaways

• 😀 SMT Divergence is a strategy used by smart money to take precise trades in the market.
• 😀 Divergence refers to a crack in the correlation of two positively or negatively correlated assets.
• 😀 A key indicator of SMT Divergence is when one asset creates a break of structure while the other does not.
• 😀 If one asset breaks structure while the other fails to do so, it suggests that the first asset is misleading the market.
• 😀 SMT Divergence typically occurs when there is a distortion in price action, where one asset creates a higher high while the other creates a lower high.
• 😀 You should focus on trading the asset that 'lies' by creating a false price action, as it will soon correct itself.
• 😀 To identify SMT Divergence, monitor the price action on two negatively correlated assets like the Dollar Index (DXY) and GBP/USD or EUR/USD.
• 😀 When SMT Divergence occurs, the asset showing false price action is expected to revert, and this can be exploited for profit.
• 😀 The trade entry point for SMT Divergence involves waiting for a three-candle price action confirmation, where the third candle closes below the previous two.
• 😀 Traders can set a stop loss just above the second candle in the three-candle formation and target liquidity in the market for profit.
• 😀 While the concept of SMT Divergence is effective in most cases, it is crucial to be cautious of major news events that may distort price action and cause deviations.

Q & A

What is SMT Divergence and how does it work?

SMT Divergence, or Smart Money Technique Divergence, is a concept used by smart money to take precise trades. It refers to a crack in the correlation between two positively or negatively correlated assets. When one asset shows a break in structure and the other doesn't, it signals that smart money may be about to make a move. This happens around 80% of the time.

What does a 'break of structure' in the context of SMT Divergence mean?

A 'break of structure' refers to when an asset breaks a previous price point or structure, signaling a potential shift in price action. In the case of SMT Divergence, when one asset breaks structure while another doesn't, it indicates a potential misalignment in the market, often exploited by smart money.

How do negatively correlated assets behave in the context of SMT Divergence?

In the case of negatively correlated assets, they move in opposite directions. If one asset forms a high, the negatively correlated asset should ideally form a low. If this correlation breaks down, it creates SMT Divergence, signaling that one of the assets is lying about the market's true direction.

What should a trader look for when identifying SMT Divergence?

Traders should look for instances where two correlated assets diverge from each other in terms of price action. This could be when one asset creates a higher high while the other forms a lower high, or vice versa. This misalignment often precedes significant market moves.

What role does liquidity play in SMT Divergence?

Liquidity is essential in SMT Divergence because the asset that is 'lying'—not showing true price action—often goes after liquidity. This misaligned asset is likely to correct itself, while the other asset continues its movement, providing a trading opportunity for those who can spot the divergence.

How does news impact SMT Divergence in trading?

News can distort the price action, potentially affecting the reliability of SMT Divergence. For instance, high-impact news may cause price movements that temporarily misalign the correlated assets, but after the news settles, the market often returns to its normal correlation.

What is the significance of a 'three candle price action' in trading SMT Divergence?

The 'three candle price action' is used as an entry signal for a trade. Traders wait for three candles to form—each representing a shift in price—before making a trade. This setup is especially useful when SMT Divergence is observed, as it provides more confirmation that the market is about to move in the expected direction.

How do traders identify which asset is 'lying' in an SMT Divergence scenario?

The asset that breaks above or below its previous structure while the other doesn't is considered to be the one 'lying.' This break in price action indicates that the asset is not showing true price movement and is likely to reverse soon, aligning with the other asset's direction.

What is the purpose of targeting 'draw on liquidity' in trading SMT Divergence?

Targeting 'draw on liquidity' means focusing on areas where price has previously gathered or is likely to gather liquidity, such as price points where stop losses or pending orders accumulate. By targeting these areas, traders can aim for more predictable price movements, maximizing their chances of success in a trade.

How can traders use SMT Divergence for risk management in trades?

Traders can use SMT Divergence to better manage risk by waiting for confirmation from multiple price action signals, such as the three candle formation. By doing so, they minimize the chances of entering a trade prematurely, ensuring they only take positions when the likelihood of success is high, which helps reduce risk.