Overview
This lecture covers SMT (Smart Money Technique), focusing on its forms, reliable trade setups, and key concepts like strength switching, lagging assets, and two-stage SMTs to filter for high-probability trades.
Introduction to SMT
- SMT stands for Smart Money Technique, commonly used to identify reversals between correlated markets.
- SMT often involves comparing two correlated assets; one sweeps a key high/low, while the other does not, signaling a potential reversal.
- Not all SMTs are valid; filtering is necessary to avoid false signals.
Core SMT Concepts
- Compare highs/lows of correlated markets; a true SMT forms when one asset takes out a level and the other does not.
- True reversals require both assets to reverse and expand in the same direction after the SMT forms.
- The asset that sweeps must switch from being stronger to weaker (or vice versa) to confirm the setup—a process called "strength switching."
Strength Switching & Lagging Asset
- Strength switching: Watch for an asset that was stronger to become weaker right after the SMT event.
- Signs of strength switching include larger price gaps, unfilled gaps, deeper or shallower retracements, or one asset consolidating while the other expands.
- A lagging asset is when an asset fails to reverse after sweeping; this usually indicates a fake SMT and an opportunity to target the SMT level.
Types of SMTs & Filtering
- Failure Swing SMT: Occurs in consolidations where one asset sweeps failure swings; usually not a valid reversal.
- Wicks and Candle Structure: SMTs with wickless candles or no meaningful structure are low probability.
- Always confirm SMTs with strength switching or price expansion.
Two-Stage SMT
- Two-stage SMTs involve a higher time-frame SMT confirmed by a lower time-frame SMT (or vice versa).
- The ideal scenario is when the asset that sweeps switches strength after the second SMT.
- Lower probability if the asset does not reverse immediately after the SMT; only trade after a strength switch.
Practical Applications & Examples
- Always compare the retracement and expansion in both assets after SMT formation.
- Two-stage SMTs are essential for counter-trend trades; less confirmation is needed for pro-trend trades.
- Use fractals and time alignment (e.g., hourly, daily highs/lows) to refine SMT setups.
- Strong confirmation comes from observing expansion in the asset that switched strength post SMT.
Key Terms & Definitions
- SMT (Smart Money Technique) — A trading concept identifying reversals in correlated assets via divergence in key swing points.
- Correlated Markets — Markets/assets that generally move in similar directions.
- Strength Switching — When the relative strength between two assets changes, confirming an SMT signal.
- Lagging Asset — An asset that does not initially reverse after an SMT event, often signaling a fake setup.
- Two-Stage SMT — An SMT on one timeframe confirmed by another SMT on a different timeframe.
- Failure Swing — A minor swing that fails to create a new high/low; often a sign of consolidation, not a true SMT.
Action Items / Next Steps
- Review example charts comparing correlated assets after SMT events.
- Practice identifying valid and fake SMT setups, focusing on strength switching and confirmation.
- Study candle profiles (open, high, low, close) for additional context.
- Prepare for further material on SMT as announced for future lectures.