ICT SMT Divergence - Everything to Know About (Secrets)

Summary

This video explores the concept of Smart Money Concepts (SMC) and how to use Smart Money Traps (SMT) to identify reversal points in forex trading. The speaker emphasizes analyzing correlated currency pairs, like EU and GU, to spot divergences, indicating potential market reversals. Key techniques include observing liquidity sweeps, breakaway gaps, and fair value gaps. By combining higher and lower timeframe SMTs, traders can refine their entries and increase trade success. The video provides valuable insights into identifying market structure changes and creating high-probability setups for successful trading.

Takeaways

• 😀 SMTs (Smart Money Traps) are key indicators of reversal points in the market, identifying when one currency pair moves differently than its counterpart.
• 😀 External SMTs involve higher timeframes and identify major trend differences between related pairs, while internal SMTs refine these signals using lower timeframes.
• 😀 An SMT occurs when a liquidity zone (like London low/high) is taken in one pair but not in the other, signaling a potential market shift.
• 😀 Liquidity sweeps in one currency pair without mirroring the movement in a related pair (like EUR/USD vs GBP/USD) suggest a stronger market direction.
• 😀 FVGs (Fair Value Gaps) are essential in confirming market behavior, as unfilled gaps in one pair while filled in another can indicate strength or weakness in the market.
• 😀 Stronger currency pairs tend to have cleaner price action, making them better for trades compared to weaker pairs, which might show inconsistent behavior.
• 😀 When a pair creates a fair value gap (FVG) on a lower timeframe, it can signal a continuation or reversal, especially when accompanied by rejection blocks.
• 😀 A market reversal is more likely when an external SMT aligns with an internal SMT, providing a higher probability for successful trades.
• 😀 Traders should look for external SMTs first to identify potential reversal points and then use internal SMTs for precise entry timing on lower timeframes.
• 😀 The presence of a reversal point often coincides with an SMT, allowing traders to predict price action direction and adjust their strategies accordingly.

Q & A

What is the significance of Symmetry (SMT) in trading?

SMT refers to the discrepancy between correlated currency pairs. When one pair takes a liquidity level (like a high or low) and the other does not, it signals a potential reversal. This is an important tool for identifying market reversals.

How do liquidity levels affect price action in correlated pairs?

Even though two pairs may be correlated, their behavior around liquidity levels may differ. One pair might move aggressively past a liquidity level, while the other might leave that level untested, suggesting a potential reversal.

What role do rejection blocks play in identifying market reversals?

Rejection blocks are areas where the price rejects a certain level, indicating strong resistance or support. These areas can signal that the market is preparing to reverse direction, particularly when combined with SMT and fair value gaps.

Why is it important to analyze both higher and lower time frames when using SMT?

Higher time frames are used to identify external SMTs, which provide the context for a reversal. Lower time frames are used to spot internal SMTs, which refine the trade entry, offering a more precise signal for executing trades.

How does the concept of external SMT differ from internal SMT?

External SMT refers to discrepancies between currency pairs on higher time frames, often indicating a broader market reversal. Internal SMT, on the other hand, occurs on lower time frames and is used to fine-tune the entry based on price action and liquidity sweeps.

What is the strategy for entering a trade based on SMT?

The strategy involves identifying an external SMT on a higher time frame, then refining the trade using an internal SMT on a lower time frame. Key tools like fair value gaps and rejection blocks help confirm trade entries.

Why is the stronger pair considered cleaner for trades?

The stronger pair typically has cleaner price action because it respects price levels (like PD arrays and fair value gaps) more reliably. It offers more predictable moves, making it easier to spot and execute trades.

What is the role of fair value gaps in trading with SMT?

Fair value gaps are areas where price has moved without filling a particular level. These gaps act as important areas for trade entry or confirmation. If a gap is filled in one pair but not in the other, it adds validity to the SMT signal and suggests a potential reversal.

How can one confirm an entry after spotting an SMT?

Once an SMT is identified, confirmation can be made through price action, such as rejection candles, fair value gap fill, and other price structures. This helps confirm that the market is following through on the reversal suggested by the SMT.

What is the significance of backtesting the SMT strategy?

Backtesting the SMT strategy helps traders validate its effectiveness over time. By reviewing past market behavior using the SMT model, traders can gain confidence in its reliability and refine their trading approach.