Overview
This lecture covers the concept of SMT (Smart Money Technique) in trading, focusing on its identification, types, confirmation methods, and practical applications for distinguishing real versus fake signals using correlated assets and strength switching.
SMT Basics and Core Concepts
- SMT (Smart Money Technique) occurs when correlated markets diverge at key price levels, suggesting a potential reversal.
- It is most commonly identified when one correlated asset makes a new high or low while the other does not.
- Waiting for a swing point (a price reversal candle) helps confirm possible SMT setups.
- A true SMT reversal requires expansion (directional movement) away from the sweep in both correlated assets.
Strength Switching and Correlations
- "Strength switching" is when the asset that lagged or led reverses its relative strength after the SMT event.
- Confirmation of SMT comes from observing the previously stronger asset weakening or vice versa.
- Strength switching can be observed by: differing gap sizes, gap fills, retracement depths, or the order in which assets make new highs/lows.
Lagging Asset and Fake SMTs
- A "lagging asset" is when, after an SMT, the swept asset consolidates and does not expand, indicating a possible fake SMT.
- Fake SMTs are identified by a lack of reversal or expansion after the sweep.
- In case of a fake SMT, traders may target the high/low of the supposed SMT as it is likely to be breached.
Failure Swing SMTs and Low-Probability Setups
- Failure Swing SMTs occur in consolidating markets and usually do not result in sustained reversals.
- Wicks or lack thereof on candles at significant highs or lows can indicate lower-probability SMTs.
Two-Stage SMTs
- Two-stage SMT involves an initial SMT on a higher time frame, confirmed by another SMT on a lower time frame (or in close proximity).
- Confirmation is strongest when a strength switch is observed after both SMTs.
- Two-stage SMTs provide higher probability of successful reversals, especially when both time frames show aligned signals.
Practical Application and Examples
- Use swing points, strength switches, and two-stage confirmations for higher-probability trades.
- Target expansion when all correlated markets confirm SMT via strength switching.
- Adjust targets in counter-trend or low-probability scenarios, as full reversals may not occur.
- Intraday and higher time frame SMTs follow similar principles; always look for confirmation via strength switching.
Key Terms & Definitions
- SMT (Smart Money Technique) — A pattern where one correlated asset makes a new high/low and the other does not, hinting at a reversal.
- Swing Point — A candle or price level representing a short-term reversal in trend.
- Strength Switching — When the leading asset becomes weaker (or vice versa) after an SMT, confirming directional intent.
- Lagging Asset — The asset that does not immediately participate in the SMT reversal, often consolidating.
- Failure Swing SMT — A fake SMT occurring in consolidation, typically not leading to reversal.
- Two-Stage SMT — Sequential SMTs on different time frames or price levels, increasing confirmation strength.
Action Items / Next Steps
- Review recent trades and charts for examples of SMT, strength switching, and lagging asset behavior.
- Practice identifying two-stage SMTs and confirming reversals with strength switching on your preferred assets.
- Prepare questions or topics for the next lecture or bootcamp session as suggested.