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Smart Money Techniques Overview

Sep 30, 2025

Overview

This lecture covers Smart Money Techniques (SMT), focusing on identifying SMT divergences between related indices, their implications for trade entries, and practical trading strategies.

Understanding SMT (Smart Money Techniques)

  • SMT compares the structure of related assets (e.g., S&P 500, Dow, NASDAQ) for price divergence.
  • Typically, related assets create similar highs and lows; divergence occurs when one deviates.
  • A bullish SMT is when one index makes a higher low while another makes a lower low, suggesting a possible upward reversal.
  • A bearish SMT is spotted when one index makes a lower high while another makes a higher high at similar levels, suggesting a downward reversal.

Identifying SMT Divergences

  • SMT is marked when one asset breaks a significant high or low, while the other does not.
  • Example: If NASDAQ does not break a certain low while S&P does, this is a bullish SMT, indicating a possible move up.
  • Similarly, an SMT at the highs may indicate a bearish reversal if one asset breaks the high and the other doesn’t.

SMT in Trading Practice

  • SMT is used as a confluence to an existing trading model, not as a standalone signal.
  • Look for SMT divergences at key levels (e.g., near highs or lows) before entering trades.
  • Confirm entries with lower time frame setups or confirmation patterns (e.g., order blocks, fair value gaps).
  • Targets can be set at prior swing lows/highs or when another index hits a key level aligned with the SMT.

Examples of SMT Application

  • Assess charts for SMT by comparing highs and lows of correlated indices.
  • Enter trades when SMT is supported by other technical tools (e.g., fair value gaps, order blocks, volume profile range).
  • SMT within a fair value gap strengthens the confluence for a trade.

Key Terms & Definitions

  • SMT (Smart Money Techniques) — Method of analyzing divergences in price action between related assets to predict reversals.
  • Bullish SMT — A divergence at lows, indicating potential upward movement.
  • Bearish SMT — A divergence at highs, indicating potential downward movement.
  • Fair Value Gap — A chart area where price moved rapidly, creating an imbalance.
  • Order Block — A price level where significant trading volume occurred, often causing reversals.

Action Items / Next Steps

  • Review your charts and practice identifying SMT divergences between correlated indices.
  • Apply SMT as a confluence to your existing entry strategies.
  • Study fair value gaps and order blocks to increase trade entry accuracy.

Full transcript