The Smart Money Tool

The presence of institutional sponsorship is evident in the dynamics of price action, where algorithms governing various asset classes operate in harmony. This interconnectedness is logical; when one asset class is correlated with another, fluctuations in price inevitably influence its correlated counterpart. This phenomenon, identified by ICT as S.M.T Divergence (Smart Money Tool), becomes apparent when examining the behavior of correlated pairs.

In the provided example, correlated pair 1 experienced a lower low, driving its sell-side liquidity below a previous low. Given the correlation with pair 2, it would be anticipated that pair 2 follows suit by running its sell-side liquidity below its previous swing low. However, pair 2 deviated from this expectation, displaying strength by refusing to dip into its sell-side liquidity. This divergence serves as a distinct marker of smart money and institutional accumulation.

The divergence becomes a significant clue when interpreting market movements. In this scenario, the divergence in correlation suggests that pair 1 is poised to further decline, momentarily tapping into its sell-side liquidity before undergoing a repricing higher. The driving force behind this move is the institutional sponsorship supporting pair 1. (The reverse holds true for sell-side delivery.)

In a contrasting scenario illustrated above, inversely correlated pair 1 failed to extend its sell-side liquidity below a previous low. Consequently, considering its inverse correlation with pair 2, it would be expected that pair 2 refrains from pushing its buy-side liquidity above its previous swing high. Surprisingly, pair 2 defied this expectation by executing a move into buy-side liquidity while pair 1 faltered in its sell-side liquidity.

This divergence implies strength in pair 1, which remains resilient in avoiding lower levels. The crack in correlation signals that pair 2 is destined to ascend, tapping into its buy-side liquidity before undergoing a repricing lower. These intricate movements provide valuable insights into market dynamics, allowing traders to navigate with an understanding of institutional activities and smart money strategies.