SMT Divergence ICT 01 [TradingFinder] Smart Money Technique

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🔵Introduction

SMT Divergence (short for Smart Money Technique Divergence) is a trading technique in the ICT Concepts methodology that focuses on identifying divergences between two positively correlated assets in financial markets.

These divergences occur when two assets that should move in the same direction move in opposite directions. Identifying these divergences can help traders spot potential reversal points and trend changes.

Bullish and Bearish divergences are clearly visible when an asset forms a new high or low, and the correlated asset fails to do so. This technique is applicable in markets like Forex, stocks, and cryptocurrencies, and can be used as a valid signal for deciding when to enter or exit trades.




Bullish SMT Divergence: This type of divergence occurs when one asset forms a higher low while the correlated asset forms a lower low. This divergence is typically a sign of weakness in the downtrend and can act as a signal for a trend reversal to the upside.





Bearish SMT Divergence: This type of divergence occurs when one asset forms a higher high while the correlated asset forms a lower high. This divergence usually indicates weakness in the uptrend and can act as a signal for a trend reversal to the downside.






🔵How to Use

SMT Divergence is an analytical technique that identifies divergences between two correlated assets in financial markets.

This technique is used when two assets that should move in the same direction move in opposite directions.

Identifying these divergences can help you pinpoint reversal points and trend changes in the market.

🟣Bullish SMT Divergence

This divergence occurs when one asset forms a higher low while the correlated asset forms a lower low. This divergence indicates weakness in the downtrend and can signal a potential price reversal to the upside.

In this case, when the correlated asset is forming a lower low, and the main asset is moving lower but the correlated asset fails to continue the downward trend, there is a high probability of a trend reversal to the upside.




🟣Bearish SMT Divergence

Bearish divergence occurs when one asset forms a higher high while the correlated asset forms a lower high. This type of divergence indicates weakness in the uptrend and can signal a potential trend reversal to the downside.

When the correlated asset fails to make a new high, this divergence may be a sign of a trend reversal to the downside.




🟣Confirming Signals with Correlation

To improve the accuracy of the signals, use assets with strong correlation. Forex pairs like EURUSD and GBPUSD , or cryptocurrencies like BTCUSD and ETHUSD , or commodities such as gold (XAUUSD) and silver (XAGUSD) typically have significant correlation. Identifying divergences between these assets can provide a strong signal for a trend change.


🔵Settings

Second Symbol: This setting allows you to select another asset for comparison with the primary asset. By default, "XAUUSD" (Gold) is set as the second symbol, but you can change it to any currency pair, stock, or cryptocurrency. For example, you can choose currency pairs like EUR/USD or GBP/USD to identify divergences between these two assets.

Divergence Fractal Periods: This parameter defines the number of past candles to consider when identifying divergences. The default value is 2, but you can change it to suit your preferences. This setting allows you to detect divergences more accurately by selecting a greater number of candles.

Bullish Divergence Line: Displays a line showing bullish divergence from the lows.
Bearish Divergence Line: Displays a line showing bearish divergence from the highs.
Bullish Divergence Label: Displays the "+SMT" label for bullish divergences.
Bearish Divergence Label: Displays the "-SMT" label for bearish divergences.


🔵Conclusion

SMT Divergence is an effective tool for identifying trend changes and reversal points in financial markets based on identifying divergences between two correlated assets. This technique helps traders receive more accurate signals for market entry and exit by analyzing bullish and bearish divergences.

Identifying these divergences can provide opportunities to capitalize on trend changes in Forex, stocks, and cryptocurrency markets. Using SMT Divergence along with risk management and confirming signals with other technical analysis tools can improve the accuracy of trading decisions and reduce risks from sudden market changes.