ICT Market Maker Primer Course - 16 - The ICT Smart Money Technique or SMT.srt

Last modified by Drunk Monkey on 2021-06-10 06:19
1 00:00:14,070 --> 00:00:21,870 ICT: Hey folks, welcome back. This lesson is gonna be teaching my eye CT SMT divergence or ICT Smart Money technique.
2 00:00:29,130 --> 00:00:43,470 Okay, the focus points on this module are introduction to the ICT SMT. The s&p divergence in bullish conditions and the SMP divergence in bearish conditions.
3 00:00:45,030 --> 00:00:54,870 Okay, folks, we're looking at the Aussie dollars the daily chart, and I'm going to cover the SMT divergence. Specifically, this teachings only be only on the
4 00:00:54,870 --> 00:01:07,770 USD x SMT divergence. Now there's many different concepts for SMT that I teach.  But just to keep things simple and easy to understand, one of the most powerful
5 00:01:07,770 --> 00:01:17,940 ones that I use is the relationship between the dollar index itself versus foreign currency pairs. Alright, so we're gonna take a look at the Aussie daily,
6 00:01:18,420 --> 00:01:29,880 and we're gonna highlight this little area right in here. Okay, and what went on before the big move up. Now I'm gonna cover some things you've already been
7 00:01:29,880 --> 00:01:38,550 exposed to see can see how things start to more or less dovetail together. And it helps you give you a better understanding what price action should do in the
8 00:01:38,550 --> 00:01:50,400 coming sessions and days. The SNP divergence or SMT Smart Money technique is something I've discovered by studying relationships between correlated assets
9 00:01:50,400 --> 00:02:01,830 and correlated markets, and actually developed it in the understanding between the commodity markets and also commodity futures trader. Before FX, I would look
10 00:02:01,830 --> 00:02:11,040 at the grain markets and I would look at the currency markets. And I look at the bond markets, the 10 year, five year and 30 year notes respectively. And I would
11 00:02:11,040 --> 00:02:20,310 compare their price action with one another. And I started seeing a setup that would always be there when significant price moves would occur. And I think that
12 00:02:20,370 --> 00:02:28,050 if we were in a room together, and I asked them one by raising their hand, if they felt this move here, and the Aussie dollar was significant, and a
13 00:02:28,050 --> 00:02:36,810 worthwhile study, in terms of what made this price action movement, I think everyone would raise their hand or at least the majority of them in the room
14 00:02:36,840 --> 00:02:46,710 would raise your hand and agree that this was a significant price. Maybe this is a daily chart. So it's over 150 pips, so it's respectable. So I want to go in
15 00:02:48,030 --> 00:02:58,050 and do some breakdown on this low in here and show you some of the things that takes place and how Also, you can use the s&p divergence for both scenarios. And
16 00:02:58,050 --> 00:03:07,320 that's we're going to cover now. Okay, so I have a crude diagram up here. And this is going to more or less, help me illustrate what it is that makes an SMT
17 00:03:07,320 --> 00:03:16,620 divergence. And for the sake of this specific bullish scenario, we're going to refer to the blue line up here, okay, that's going to represent the Aussie
18 00:03:16,620 --> 00:03:29,100 dollar and the red line is going to represent the dollar index, okay. So, in a symmetrical market, where everything is as it should be, when the market creates
19 00:03:29,130 --> 00:03:43,260 a lower low, for instance, in the Aussie dollar, the dollar index should make a comparable higher high. So, while the foreign currency makes a lower low, it
20 00:03:43,260 --> 00:03:55,350 should be reasonably expected to see the dollar index make a higher high, this is what this is. This is referred to as a symmetrical market. Sometimes you will
21 00:03:55,350 --> 00:04:12,780 see the market create this, the market will fail to make a higher high at the time when the foreign currency makes it lower low. So if the dollar index fails
22 00:04:12,780 --> 00:04:23,490 to make a higher high, at the same time, that the Aussie dollar makes a lower low, this is a cracking correlation. So that means there's something going on
23 00:04:23,610 --> 00:04:32,010 underlying behind the price action that's showing heavy distribution in the dollar index because it's failing to make a higher high when it should
24 00:04:32,010 --> 00:04:44,700 reasonably do so. If this is a lower low in authy. Conversely, another scenario might be this and it would mean the same thing. Okay, so what I'm giving you two
25 00:04:44,700 --> 00:05:00,420 examples here, that will give you the same analysis, that mean there's a cracking correlation. Okay, so now we have the dollar index making a higher Hi.
26 00:05:00,960 --> 00:05:09,690 But now in this case, if this was representing the Aussie dollar, the Aussie dollar is failing to make a lower low. So this is suggesting that Aussie dollar
27 00:05:10,170 --> 00:05:18,090 is being bought up because it's failing to make a lower low. Otherwise, it should have made a lower low as the dollar index made a higher high. So when
28 00:05:18,090 --> 00:05:27,510 we're looking at SMT, what we're doing is we're looking at exactly the same timeframe, at exactly the same reference points, or candles. Either one of these
29 00:05:27,510 --> 00:05:30,090 scenarios means the same thing.
30 00:05:31,560 --> 00:05:41,610 What we just shown was earlier, the dollar index was failing to make a higher high while the Aussie dollar made a lower low, that is weakness on the part of
31 00:05:41,610 --> 00:05:51,510 the dollar. So that would be bullish for Aussie dollar. Here, we see the dollar index making higher high, and the Aussie dollar failing to make a lower low,
32 00:05:51,690 --> 00:06:03,210 that still is bullish for Aussie dollar. Okay, it takes just this relationship to be the president price action, for you to see when there will be most likely
33 00:06:03,210 --> 00:06:15,180 a turning point, or in this case, accumulation in Aussie dollar. So we're gonna go into this idea. And I'm gonna show you how we can take this information.
34 00:06:23,430 --> 00:06:35,820 So I'm gonna take this idea and flesh it out using the Aussie dollar. Okay, and I want you to take a look at the overall price structure on the daily. Okay, so
35 00:06:35,880 --> 00:06:46,380 obviously, we see Aussie dollar has been trading lower for a long period of time, basically, since September of 2017. had several months of bearish prices.
36 00:06:47,010 --> 00:06:48,630 So if we go out to a weekly chart,
37 00:06:56,190 --> 00:07:05,640 okay, and we have this really nice dynamic price movement here. So we have to go right to the down close candles in both these candles here back to back down
38 00:07:05,640 --> 00:07:16,020 close candles. So we're going to use the top of the most highest candle, it's going to be our bullish order block. And you'll learn more about these in coming
39 00:07:16,350 --> 00:07:30,330 tutorials. So the high comes in at 7517. And 7517 is our level. So we're gonna take that level, keep it there, and we'll drop back down into the daily. Okay,
40 00:07:30,330 --> 00:07:39,510 so we have our level here. And also notice that we have equal lows. Okay, so we have equal lows here on the daily. And we'll look at that when we get down to an
41 00:07:39,510 --> 00:07:48,000 hourly chart. And we also have equal lows here as well. So we'll reference both of those liquidity pools, but we want to keep this level in mind because it's
42 00:07:48,000 --> 00:07:55,440 going to be significant in a couple of minutes. If we drop down into an hourly chart,
43 00:08:06,330 --> 00:08:18,960 okay, so we can see the hourly price action dips below that weekly bullish order block. Okay, you can see that actual accumulation taking place rallies up
44 00:08:19,410 --> 00:08:31,050 retracements optimal trade entry and then nice expansion on the upside. We're going to take a look at a few things. Over here, we have our liquidity pool.
45 00:08:34,380 --> 00:08:54,420 Okay, so we have this area here. Okay, there's 30 pips below that. And then we have another area over here. Okay, so 30 pips below that it takes us down below
46 00:08:54,420 --> 00:09:04,980 into the daily into the weekly bullish order block. So we have two liquidity pools, that price had reached four, and then we went inside of a weekly bullish
47 00:09:04,980 --> 00:09:17,190 order block. Okay, so we have a lot of things going for us in this particular pair. But I want you to take a look at this overall price structure in here. And
48 00:09:17,190 --> 00:09:28,080 I can see accumulation based on the price action itself. But what if we had an opportunity to use not an indicator, but price action of the dollar index itself
49 00:09:28,440 --> 00:09:37,290 to measure whether there's really smart money buying when the Aussie dollar here, or if it's just noise. Now again, we're assuming that we don't know this
50 00:09:37,290 --> 00:09:44,280 portion of the price action is taking place yet. We're just looking at this whole area right in here the consolidation right before the start of the move
51 00:09:44,280 --> 00:09:58,560 higher. So let's take a look at this price action, bringing in the dollar index one an hourly chart as well. All you have to do is take your chart and open up
52 00:09:58,560 --> 00:10:15,720 an hourly chart. chart, open up an hourly chart of the dollar index and plot it with your window feature here on Windows tab at the top of Mt force platform.
53 00:10:16,320 --> 00:10:24,450 And you want to click on horizontal, okay, when you click on horizontal, you have two charts open one time, it'll plot it just like this, that may put the
54 00:10:24,450 --> 00:10:31,470 dollar index on the bottom side, or it may put on the top, in this case, it has it on the top doesn't make a difference, because we're gonna be able to look at
55 00:10:32,430 --> 00:10:45,570 everything as we would regard to what orientation is. So we have the dollar index, okay, you always want to check your little data here, it's showing the
56 00:10:45,570 --> 00:10:59,730 fifth of December 2017. And we're gonna have to roll back that by zooming in, so that way, we have the same reference markers. Okay. And I want you to take a
57 00:10:59,730 --> 00:11:07,170 look at closely and see what you see here. I'm not gonna say anything yet, I want you to take a look at what you can spot on price action alone.
58 00:11:12,779 --> 00:11:25,799 Okay, we've have the Aussie dollar, failing to make lower lows here. At the same time, the dollar index was making higher highs. Okay, see that, so there's the
59 00:11:25,799 --> 00:11:37,739 start of accumulation in the Aussie dollar, then we have the Aussie dollar making a higher high, relative to this high here. So if we draw a straight line
60 00:11:37,739 --> 00:11:50,129 down from that, we're gonna reference this low. Okay. And if we draw a straight line imaginary from this high, straight down, that represents this low. Okay, so
61 00:11:50,129 --> 00:12:05,099 what we have a graphic depiction of Rio cumulation. And the Ozzy. And,
62 00:12:12,149 --> 00:12:20,639 okay, we can see, the higher high in the dollar index, we should see a lower low in the Aussie dollar, we don't we don't see that. So that means we have
63 00:12:20,639 --> 00:12:31,739 accumulation in Aussie dollar distribution in the dollar index. Not surprisingly, this is exactly the same time when we saw the dollar index trade
64 00:12:31,739 --> 00:12:49,769 up into its daily resistance point. Okay, that old high. Look at this level here. And this level here. This is distribution, because we do not see the
65 00:12:49,769 --> 00:13:00,029 Aussie dollar making a lower low. So everything works like a teeter totter, okay. If one side goes down, the other side goes up. If one side goes up, the
66 00:13:00,029 --> 00:13:07,469 other side goes down. If we put the dollar index on one side of the teeter totter, and the Aussie dollar on the opposite end, what's being suggested here
67 00:13:07,469 --> 00:13:20,819 is there's more buying in the Aussie than there is buying on the dollar index.  Even though the dollar index made a higher high here, it looks like one outward
68 00:13:22,169 --> 00:13:31,559 base value only. It looks like it's broke out and it's bullish. But if we start bringing in other correlated assets, like inverse relationship between Aussie
69 00:13:31,559 --> 00:13:39,899 dollar and the dollar index, we can see that there's actually massive accumulation coming in at that very moment. And we've already seen early signs
70 00:13:39,899 --> 00:13:48,089 of it back here, because the Aussie dollar was making no attempt to make a lower low when the dollar index was making a higher high. Okay, then we had a really
71 00:13:48,089 --> 00:13:58,799 nice intermediate term high relative to the hourly chart, and failure to go lower again on Ozzy so now we can look for optimal trade entry Long's at the
72 00:13:58,799 --> 00:14:10,439 same time that the market was getting ready to sell off with an optimal trade entry. So here, so I'll give you an example what that looks like. Again,
73 00:14:10,439 --> 00:14:29,819 sticking to the bodies of the candles, the bulk of the volume, right. There's the lowest body bone 70.5 level and then down she goes. Here. similar idea just
74 00:14:29,819 --> 00:14:49,079 in reverse. Okay, we have the lowest body here. Drag it up to the highest body.  Perfect 79% and I'll zoom in on that you guys can see it. Perfect delivery. Make
75 00:14:49,079 --> 00:15:04,769 sure I got to read only cuz I don't wanna cheat. Very on top of this body delivery of 79% on the Fed three 100 extension nails that beautifully SMT
76 00:15:04,769 --> 00:15:14,789 divergence gives us an X ray view of what accumulation and distribution may be taking place in price action. It admittedly is a little confusing if you have
77 00:15:14,789 --> 00:15:30,179 not seen it before, or studied it. Because it's, well, it's one of those things that you, you have to study for a while to get a couple examples of its use. But
78 00:15:30,179 --> 00:15:42,809 this would be a bullish example of it with distribution in the dollar and accumulation in the Aussie dollar. So let's take an example of it being used any
79 00:15:42,809 --> 00:15:43,829 bearish scenario.
80 00:15:50,820 --> 00:16:07,650 Okay, so here we have the dollar index on the top hourly chart and the cable our chart on the bottom it see that the dollar index here makes a lower low here. So
81 00:16:08,010 --> 00:16:25,860 face value, it looks like dollars week, at the same time, the cable market you can see is not making a higher high as you would expect it to do. So this is a
82 00:16:25,860 --> 00:16:34,890 cracking correlation, that means that this isn't weakness. This is in fact weakness. Okay, because it failed to make a higher high when it should have with
83 00:16:34,890 --> 00:16:42,570 the dollar making a lower low. This shows underlying weakness in the cable. And this is actually a false move below the old low. So this is going to be
84 00:16:42,570 --> 00:16:55,170 accumulated for longs for the dollar, which is going to relate to what's going to translate into a weaker British pound. And you can take that scenario and
85 00:16:55,170 --> 00:17:04,980 anticipate weakness and start looking for areas of liquidity for cable underneath old lows. And they would be your targets and we have lows over here
86 00:17:04,980 --> 00:17:17,640 equal market trades to there. And then we have equal lows over here. Market trades do it here. And finally below here and it does that as well. Okay, so
87 00:17:17,790 --> 00:17:28,140 this is an example of a bearish SMP divergence when $1 makes a lower low in the foreign currency feels like a higher high the weaknesses in the foreign currency
88 00:17:28,140 --> 00:17:38,490 failing to make that higher high. This is going to be a turtle soup long. And this is going to be a failure sewing or bear scenario. And you can look for
89 00:17:38,490 --> 00:17:56,010 opportunities to get short with an optimal trade entry. So in cable, highest body open or close down to our reactionary low here. Often trade entry here and
90 00:17:56,010 --> 00:18:07,650 start will be above this high, you can see goes to symmetrical price swing rather nicely. And we have smaller ones in here too, you could have used this
91 00:18:07,650 --> 00:18:19,050 range to this range here. Optimal trade entry, again, goes through symmetrical price swing as well. So it's several examples in here that you can use for
92 00:18:19,050 --> 00:18:29,040 optimal trade entry entries on short for weaker British Pound because it failed to make a higher high when the dollar made that lower low. The premise behind it
93 00:18:29,040 --> 00:18:41,130 is this is what makes it work is this movement lower in the dollar upsets the majors, everything is paired with the dollar. What we do is we look for
94 00:18:41,160 --> 00:18:51,870 currencies, okay foreign currencies to fail to show that same prospective pattern but in a mirror image so that the dollar makes that lower low. We go
95 00:18:51,870 --> 00:19:00,270 through all the major currencies and seeing which one fails to make that higher high as you would expect it to do. If it doesn't, it's showing underlying
96 00:19:00,270 --> 00:19:09,690 weakness in that particular foreign currency which is still bullish for the dollar. And what that means is we can be a buyer below this old low and say say
97 00:19:09,690 --> 00:19:18,750 this wasn't $1 up here say say they were reversed basically the lower chart here on the bottom so that was the dollar index. And the top chart was cable. If I
98 00:19:18,750 --> 00:19:27,390 had this scenario here, I would be buying below that low here on cable with the idea they said turtle soup long, false breakout or run on sell stops and now
99 00:19:27,390 --> 00:19:33,300 hold for higher prices as a result. Okay, folks, hopefully you've enjoyed this presentation. If you liked what you saw and you want to find more, you can go to
100 00:19:33,300 --> 00:19:35,970 my website at the inner circle trader.com