Overview
This lecture explains how to identify and use SMT (Smart Money Technique) Divergence in trading indexes, with practical chart walkthroughs and execution strategies.
What is SMT Divergence?
- SMT Divergence uses two correlated indexes, commonly ES (S&P 500) and NQ (NASDAQ), to spot trading opportunities.
- It occurs when one index makes a higher high (or lower low), while the other fails to do so, indicating a lagging index.
- SMT Divergence is most reliable on ES and NQ, sometimes works on BTC/ETH or EUR/USD–GBP/USD but less tested there.
Identifying SMT Divergence
- A bearish SMT Divergence: NASDAQ makes a higher high as ES makes a lower high; ES is starting a downtrend while NASDAQ lags.
- A bullish SMT Divergence: NASDAQ makes a higher low, ES makes a lower low; ES is lagging, NASDAQ indicates a trend higher.
- Look for divergence at key areas such as liquidity sweeps or high time frame fair value gaps (imbalances).
- SMT Divergence can be detected on all time frames; 5-minute is preferred for entries.
Using SMT Divergence for Trade Entries
- Always determine your daily bias first (bullish or bearish) before taking trades based on SMT Divergence.
- Do NOT trade against your bias (e.g., don’t take bearish setups in a bullish market).
- Use the lagging index for trade execution; for a bearish setup, if ES is already dropping, look to short NASDAQ.
- Confirm SMT Divergence with additional confluences like break of structure, fair value gap fills, or order blocks.
- Wait for confirmation on lower time frames before executing trades.
Practical Examples
- The lecture included live chart walkthroughs showing both bearish and bullish SMT Divergence on intraday setups.
- Examples emphasized the need to combine divergence with liquidity sweeps, market bias, and execution models for reliable trades.
Key Terms & Definitions
- SMT Divergence — A mismatch in swing highs/lows between two correlated indexes, signaling a potential reversal/trade opportunity.
- Lagging Index — The index that fails to confirm a new high/low, often predicting future movement.
- Liquidity Sweep — Price movement that takes out significant highs/lows where liquidity is concentrated.
- Fair Value Gap (FVG) — A price imbalance between candles, often acting as target or support/resistance.
- Break of Structure (BOS) — When price breaks a key swing high/low, indicating a trend change.
Action Items / Next Steps
- Review daily bias and confluences before using SMT Divergence.
- Backtest SMT Divergence setups on ES and NQ in different time frames.
- Watch related videos on daily bias, liquidity concepts, and entry models for better understanding.