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Mastering SMT Divergence

SMT Divergence occurs when two correlated assets begin to behave differently, indicating potential market reversals. It serves as a confirmation tool aligned with higher timeframe biases, highlighting bearish and bullish divergences based on price movements. Additionally, it can be utilized with Fair Value Gaps (FVG) to enhance trading strategies and understanding of market liquidity.

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Ruchika Aggarwal
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58 views4 pages

Mastering SMT Divergence

SMT Divergence occurs when two correlated assets begin to behave differently, indicating potential market reversals. It serves as a confirmation tool aligned with higher timeframe biases, highlighting bearish and bullish divergences based on price movements. Additionally, it can be utilized with Fair Value Gaps (FVG) to enhance trading strategies and understanding of market liquidity.

Uploaded by

Ruchika Aggarwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

What is SMT DIVERGENCE ?

SMT shows up when two assets that usually move together start acting differently.
An SMT divergence happens when we reach an objective in one instrument, but fail
Look for a “failure swing” — when one tries to move but can’t.

Markets turn in two ways: liquidity grabbing (breaker) or failing to grab them (failure).

USING SMT

SMT divergence are most relevant when inline with higher timeframe bias
Not necessary rushing to look for SMTs to call tops or bottoms

SMT is a confirmation tool that can be used to confirm a high prob change of direction in line
with a higher timeframe bias .

TYPES OF SMT DIVERGENCE

Bearish SMT Divergence


-​ After reaching a premium HTF level NQ makes a higher high but ES makes a lower high,
this a sign of FDistribution. It is very likely that we get a false break higher in NQ and
push lower in both markets .

EU GU
Bullish SMT Divergence
-​ After reaching a Discount HTF level NQ makes a higher low but ES makes a lower low,
this a sign of Accumulation. It’s very likely that we get a false break lower in ES and push
higher in both markets .

GU EU

FVG SMT DIVERGENCE

When we have an FVG in 2 correlated markets and we reach the FVG in a market but not the
other and then it moves away from it, that is a SMT Divergence .
It can be used with FVGs, here we failed to take both a high and FVG while the other we took
both before reversing.

Example EU & GU chart ;


TYPES OF CORRELATION

Direct Correlation
-​ When two markets usually move in conjunction, in the same direction like NQ and ES.

Inverse Correlation
-​ SMT divergence when 2 markets usually move in opposite directions, inversely
correlated like DXY and EURUSD

ASSETS CORRELATIONS
This is a quick list of examples of directly and inversely correlated assets.

Directty Correlated Inversely Correlated


Assets Asset

NQ - ES DXY - EU
NQ - YM DXY - GU
BTC - ETH DXY - NQ
EU - GU DXY - ES
DXY - UJ DXY - YM
GC - SI
Closing thought, SMT Divergence is good for adding confluences on already existing bias, can
be matched with understanding liquidity properly, using FVG to confirm SMT,a whole different
level .

Now you’ve learned all these freely, I would like you to go practice this repeatedly, till you
become good at it. Don’t forget to follow me @ Cemiforex on X . Do well to also join my
telegram channel t.me/Cemiforex

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