Hey whats up guys, in this post I want to show you how I use SMT divergence in my own trading to filter fake breaks and catch precise reversals. This is one of those things most traders never really dig into. Once you see it properly, you will not be able to unsee it.
It was popularized by ICT, but it is essentially Dow theory through a bit different perspective.
📌 What is SMT (Smart Money Tool )
It's a crack in correlation between two markets that normally move together.
One market takes the high or low. The correlated market does not. That difference is SMT divergence. And that why sometimes it's enough if only one instrument from those two highly correlated takes low and other doesn't.
Before SMT we need correlation.
Some markets like to move together. They will never be perfectly identical, especially on the lower timeframes, but the general swing structure is similar.
- EURUSD & GBPUSD
- AUDUSD $ NZDUSD
- XAUUSD & XAGUSD
- BTCUSD & ETHUSD
- NQ & ES & YM
You can find some more variations like EURJPY & GBPJPY etc.. But if you want to focus on precision your watchlist should contain just a few instruments. Not 20 unless you are position trader and your entry timeframe is Daily.
📌 Bearish SMT on positively correlated instrument's
One market makes a higher high. The other prints a lower high or equal highs.
📌 Bullish SMT. on positively correlated instrument's
One market makes a lower low. The other makes a higher low or equal low.
📌 Negative SMT Correlation
Its same only one pair is inverted which is DXY.
We could say that in the Forex it would basically every currency with DXY. But No !!
‼️ Dont use DXY for correlation with AUDUSD and NZDUSD. Yes obviously they are affected by the DXY (Dollar) movement, but as these two are not included in the DXY. They are lagging. Yes at some point DXY affects them too, but just don't use them for the SMT. as
SMT is like a quiet signal from smart money. One market shows the truth. The other is used as a trap. After this trap mostly sharp expansion happens. Its a signal for a timing that its ready.
📌 EURUSD and GBPUSD Example
GU - just shallow manipulation but creates clean OB
EU - Deeper manipulation but OB created later.
‼️SMT is not a strategy
On its own that does not give you an edge. The key is what it says about the willingness of big players to push price. If DXY runs above a previous highs and EUR and GBP refuses to take out its opposite lows , that is lack of commitment to continue that move. Someone is offside. Dumb money sells late or buys late, smart money quietly positions on the other side.
📌 EURUSD and DXY Example
DXY makes higher high above monthly highs, EUR fails to take lows. Correlation disconnected. EUR is stronger and if its within CLS range reversal can occur.
what does GBP at the same moment? 
also failed to make a lower low hence is stronger than USD. If it aligns with the strategy reversal is confirmed.
📌 This is how I traded this setup below.👇 Click to the chart to see how it played out
📌 SMT is a way to read who is actually in control. It helps me see if a break of structure is real continuation or just a liquidity raid dressed as a breakout.
📌Where to use it for efficiency
You can find small SMT differences all day on lower timeframes. Try to trade every one and you will bleed slowly. I care about SMT only at important areas.
- CLS ranges - Weekly , Monthly , Daily
- Previous week low, previous week high, clear swing extremes.
- Key levels from my higher timeframe analysis
- HTF Fair value gaps and order blocks that fit my narrative.
📌 XAU & XAG Example
Both in the uptrend and created nice CLS range. Gold made a just shallow manipulation but is it enough ? Let's have a look to the silver
we can see that silver made much deeper manipulation so it can confirm our Gold trade. Also notice that how exactly after the temporary correlation disconnection the expansion move started. These disconnections are trap and mostly followed by strong expansion move. 📌 Here is the setup I posted here and traded 👇 
📌 Which pair I choose to trade
When I see SMT between two correlated markets, I decide which one I want to use.
The weaker market is the one that takes the high or low and disrespects the level. That is where late traders are stuck. This market has advantage for tight stop just beyond the stop hunt.
⁉️So which one would you chose on the SMT signal bellow the range ?
let me know in the comments.
The stronger market is the one that respects the level and refuses to sweep the extreme and you need to have conviction in the HTF trend so you can confidently place SL below un-manipulated lows. This one usually respects fair value gaps and order blocks better and often gives cleaner candles and stronger pushes.
📌 SMT Fills
Two correlated markets are moving together. One fills its fair value gap, the other leaves a part of it open. That difference can give you an extra reason for a reaction. It is like one chart did the work of cleaning up inefficiency, the other did not, and price tends to respect the one that is cleaner.
📌BTC & ETH Timing and Gap fills
We can see SMT on the top where BTC made higher highs but ETH failed to do so = crack in correlation. Now focus on ETH it has created on Order block which signaled reversal, while BTC didnt had it yet = Your advantage seeing what is not seen yet.
📌 GAP fills
Look at the FVG on the BTC it was not filled fully and BTC made higher high, while ETH filled gap full and made lower low. Also BTC gave you Order block while ETH not yet again you have
📌The SMT trap and how I avoid it
A lot of traders get hurt by SMT because they treat it like a magic reversal button.
They see euro taking a low and dollar failing to take a high, or Bitcoin taking a high and Ethereum failing to match it, and they jump in without any extra confirmation. Sometimes it works. Many times price just keeps pushing, prints another leg, and wipes them out.
Use it only at specific levels to confirm your strategy and give you extra edge in seeing confirmation on highly corelated pairs before it plays out.
SMT alone never gives me permission to trade. I want at least one strong confirmation candle at my level and, for bigger trades, a clear Change in order flow.
Adapt useful, reject useless.
David Perk - Aka Dave FX Hunter
It was popularized by ICT, but it is essentially Dow theory through a bit different perspective.
📌 What is SMT (Smart Money Tool )
It's a crack in correlation between two markets that normally move together.
One market takes the high or low. The correlated market does not. That difference is SMT divergence. And that why sometimes it's enough if only one instrument from those two highly correlated takes low and other doesn't.
Before SMT we need correlation.
Some markets like to move together. They will never be perfectly identical, especially on the lower timeframes, but the general swing structure is similar.
- EURUSD & GBPUSD
- AUDUSD $ NZDUSD
- XAUUSD & XAGUSD
- BTCUSD & ETHUSD
- NQ & ES & YM
You can find some more variations like EURJPY & GBPJPY etc.. But if you want to focus on precision your watchlist should contain just a few instruments. Not 20 unless you are position trader and your entry timeframe is Daily.
📌 Bearish SMT on positively correlated instrument's
One market makes a higher high. The other prints a lower high or equal highs.
One market makes a lower low. The other makes a higher low or equal low.
Its same only one pair is inverted which is DXY.
‼️ Dont use DXY for correlation with AUDUSD and NZDUSD. Yes obviously they are affected by the DXY (Dollar) movement, but as these two are not included in the DXY. They are lagging. Yes at some point DXY affects them too, but just don't use them for the SMT. as
📌 EURUSD and GBPUSD Example
GU - just shallow manipulation but creates clean OB
EU - Deeper manipulation but OB created later.
On its own that does not give you an edge. The key is what it says about the willingness of big players to push price. If DXY runs above a previous highs and EUR and GBP refuses to take out its opposite lows , that is lack of commitment to continue that move. Someone is offside. Dumb money sells late or buys late, smart money quietly positions on the other side.
📌 EURUSD and DXY Example
DXY makes higher high above monthly highs, EUR fails to take lows. Correlation disconnected. EUR is stronger and if its within CLS range reversal can occur.
📌 This is how I traded this setup below.👇 Click to the chart to see how it played out
📌Where to use it for efficiency
You can find small SMT differences all day on lower timeframes. Try to trade every one and you will bleed slowly. I care about SMT only at important areas.
- CLS ranges - Weekly , Monthly , Daily
- Previous week low, previous week high, clear swing extremes.
- Key levels from my higher timeframe analysis
- HTF Fair value gaps and order blocks that fit my narrative.
📌 XAU & XAG Example
Both in the uptrend and created nice CLS range. Gold made a just shallow manipulation but is it enough ? Let's have a look to the silver
When I see SMT between two correlated markets, I decide which one I want to use.
The weaker market is the one that takes the high or low and disrespects the level. That is where late traders are stuck. This market has advantage for tight stop just beyond the stop hunt.
⁉️So which one would you chose on the SMT signal bellow the range ?
The stronger market is the one that respects the level and refuses to sweep the extreme and you need to have conviction in the HTF trend so you can confidently place SL below un-manipulated lows. This one usually respects fair value gaps and order blocks better and often gives cleaner candles and stronger pushes.
📌 SMT Fills
Two correlated markets are moving together. One fills its fair value gap, the other leaves a part of it open. That difference can give you an extra reason for a reaction. It is like one chart did the work of cleaning up inefficiency, the other did not, and price tends to respect the one that is cleaner.
📌BTC & ETH Timing and Gap fills
We can see SMT on the top where BTC made higher highs but ETH failed to do so = crack in correlation. Now focus on ETH it has created on Order block which signaled reversal, while BTC didnt had it yet = Your advantage seeing what is not seen yet.
📌 GAP fills
Look at the FVG on the BTC it was not filled fully and BTC made higher high, while ETH filled gap full and made lower low. Also BTC gave you Order block while ETH not yet again you have
A lot of traders get hurt by SMT because they treat it like a magic reversal button.
They see euro taking a low and dollar failing to take a high, or Bitcoin taking a high and Ethereum failing to match it, and they jump in without any extra confirmation. Sometimes it works. Many times price just keeps pushing, prints another leg, and wipes them out.
Use it only at specific levels to confirm your strategy and give you extra edge in seeing confirmation on highly corelated pairs before it plays out.
SMT alone never gives me permission to trade. I want at least one strong confirmation candle at my level and, for bigger trades, a clear Change in order flow.
Adapt useful, reject useless.
David Perk - Aka Dave FX Hunter
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.