ICT FOR DUMMIES | SMT Divergence EP. 9 transcript

Welcome to ICT for Dummies episode 9 SMT dive. Oh I forgot about that part. I forgot about that part. You ignore the all white background and maybe the potentially low camera quality. All right, we're done with our typical setup and we are currently in the psych ward. So, we're in those white boxes right now, forced to simply do nothing but talk about trading all day. But that being said, we're going to make a video on something trading related. keep keeping you guys profitable and all that good stuff.

So high doesn't take it. Now we have a divergence and I can't take it. You can't take it. Correlated assets. So correlated. Sometimes it only correlates. Then it's not. That's when you get what do you get? an SMT, but I'm an S. I'm an M. I'm a T. I'm an SMT E. That was so private. It was fire. All right, everyone. This is going to be episode 8. We're going to be covering SMT divergence. Yes, sir. Weirdly enough, this is probably one of the most commonly asked questions when it comes down to ICT concepts.

SMTs are considerably one of the easiest things to understand. Every single time Blake and I are streaming, I was like, "What's an SMT? What's an SMT?" Maybe every other six chats. Yeah. Like, it's actually ridiculous. Um, so hopefully after this video, we'll just be like, "Watch the damn video, Bozo." Uh, but yeah, we're going to get into SMT divergences today. We're going to be talking with mainly two assets that being NASDAQ futures NQ and then the S&P 500 futures ES.

Uh these are the two main assets we use to determine SMTs. There are others that you can use like YM, but to be honest, we just stick to these two. It's really all you need. So yeah, we'll get into this and explain you what an SMT is. So an SMT is going to be an indication in reversal in price. For example, here on the left, this is what a bullish SMT will look like. And you can switch this around. This can either be NASDAQ over here.

This can be S&P 500 over here. All right. So for this example, let's just use this as being NASDAQ. We have a low put in place. We then have a high. We then have a higher low and then we have a new high that gets made. Right? Versus here on ES, what happens is we have a low. Then we have a high. Then we have that lower low. So this is where the divergence between assets takes place and then we get that newer high. Now this is an indication and reversal, right?

Because when we have these sweeps of liquidity that are necessary for price to move higher or for price to move lower, right? This can happen first on ES or this can happen first on the NASDAQ and it will show since they are a correlated asset that price is ready to reverse. And then on the right side you have a bearish SMT which is simply vice versa, right? You have a high put in place, a low and then a high that sweeps this previous high and then we deliver lower.

But if you look at let's say the ES chart in comparison to NQ, you can see that you have a high, a low, and then a high that fails to take this high and then a new low. But although this might look like a failure swing, you have an SMT there because NASDAQ actually took that high. So you might be thinking, oh, I need to wait for a liquidity sweep at this high without realizing that, you know, NASDAQ might have taken that high already and therefore you have an SMT.

That's why it's really important to always be paying attention to both because sometimes you might be trading and you're like sitting over here uh waiting for maybe like some sellside to get taken down here and you're not paying attention to NASDAQ which might have already probably taking that sell side and you have an SMT there without realizing. So, always be paying attention to both assets just in case you have a liquidity sweep on one while the other one might not have one and you know you don't miss out on any opportunities and you're confused.

Why didn't NASDAQ just start delivering higher after edging this low? Well, you probably had an SMT there. That happens very very often. You sometimes again will hear things like YM SMT. Don't really be paying attention to YM in my opinion. I only use ES and NQ. And what you can do to kind of help you um is to have ES and NQB pulled up at the same exact time while you're trading. This is something that you will always see me and Patrick do when we're live trading.

I'll have ES on one side of my chart and then I'll have the NASDAQ on the other side of my chart. Right? So, this will kind of just help me. For example, like what Patrick was saying, like maybe there's a low that I want to see get swept and maybe it doesn't happen on NASDAQ and then we start ripping up and I'm like, why is this happening? Oh, well, there's an SMT in place. So, yeah. So, utilize this feature. It's super helpful and it's definitely necessary when you're when you're trading.

All right, so now we're going to show you guys some examples. First, a bullish SMT, then we'll show you that bearish SMT. All right, guys. So, right now, we're going to show you an example of a bullish SMT, right? So, if we're just simply looking at the significant highs and lows in the current price action we have, right? We can detect that we have a clear buy side level up here and a clear sellside level right here.

Now, the reason you want to be monitoring both ES and NQ when you're trading is to see if one of these assets takes out this lower high um while the other one doesn't. So, if we play price action forward here and we see, okay, NQ is selling off, it's selling off. Okay, we got a sweep of this low. If we go to ES, we can see that ES actually never swept this low, right? It's not even close to it. It's about still, you know, seven handles away.

Now, that being said, we have an SMT in place at this low. The reason it's important to know that we have an SMT in place here is because SMTs are typically a good sign of a potential reversal. Obviously, right here, we can see that there's very bearish price action. But if we sweep this low and then we get an SMT at this low, we can start expecting a reversal in price. So, if you notice here, after we got this SMT, we start getting some delivery higher and then we go and maybe run this buy side or whatever liquidity there is to target.

If you look at ES, you're going to see that ES being the asset that failed to take this low and we got an SMT in place because NASDAQ took this low, it most likely delivered towards this buy side faster, right? This would have make ES the stronger asset. That's just something you should know. Typically, the asset that fails to take the lower high with the SMT in play is going to be the one that delivers faster. So, you can see that ES being the stronger pair since it failed to sweep this low, it swept this buy side before NQ could get there.

And that usually happens typically with the asset that doesn't take the higher low and there's an SMT in play. So, this is an example of a bullish SMT. Once again, I'm going to show you one more time what that looks like. There's a significant low right here. NASDAQ delivers lower, sweeps this low, while ES fails to take that low, therefore creating an SMT between these two swing lows. And then you get ES deliver towards this buy side faster.

NQ eventually hits it, too. It's just not delivering as fast. All right, so we just showed you what a bullish SMT looks like, guys. I'm going to now show you what a bearish SMT looks like. All right, so I have this level of buy liquidity marked out here, right? So this is your intermediate high that is inside of a F value gap. This is a great liquidity pool right here. Super sexy, super nice. And we also, if you see down here, we have some low resistance liquidity.

So, I can go down to the lower time frame here, right? We have a bunch of failure swings here on the lower time frame. Low here that didn't get swept. Low here that didn't get that didn't sweep this low. And then another low that didn't sweep this low. And just a lot of these failure swings are going to be areas is a great liquidity pool, right? We talked about that in our liquidity video. And then overall, we have this external liquidity being the sell side liquidity.

All right. So looking at this chart, I would like to see happen is this. I want to see price sweep out this high to then get a reaction from here from this intermediate high inside that gap and then we can go down and target this low. Right? So what ends up happening is NASDAQ trades up here and we don't sweep out the high but we start getting some bearish displacement lower. Why' that happen? Because ES ends up taking out that high, right?

So ES takes out this high and in the last example guys we showed ES being the leading pair or ES being uh the stronger pair right because it didn't take out that high here in this example NASDAQ is that stronger pair where it doesn't take out that high and we're a lot more bearish in the scenario. And now if we go down to the lower time frame we get that lower time frame confirmation that price actually does want to go lower.

Why do we get that? Because price starts disrespecting for value gaps. As you can see here to the left of us we have a bullish valley gap that gets disrespected right? So where can we expect price to go if we have this SMT in play? We start disrespecting these bullish falic gaps. Right now this gets inverted. Well, we can expect price to go to that low resistance liquidity and also this sellside liquidity down here. Right?

So we can get a little short off of this inversion for valley gap and price dumps towards that low. And guys, you do not want to just be, you know, entering the second we get that inversion for valley gap, right? want to wait for structure on the lower time frame to actually confirm that that SMT is valid. Last thing I want to give you guys is a little piece of advice. SMTs are happening nearly all the time. There might be days where price is very correlated between NQ and ES.

Um, but days that aren't, you'll be seeing SMTs happen very often. So, like now you're probably thinking, what S&Ts do I focus on? Well, there's really two types of S&Ts you want to focus on. You want to focus on SMTs at significant liquidity pools, which are going to be like previous session highs and lows. And you want to focus on SMTs inside, right? Those are going to be the SMTs that actually deliver. So, we can see here that previously before this SMT, we had price trade up into this 15-minute bearish for gap and we got a reaction off it, right?

It delivered price lower. It then traded up into this 15-minute bearish for gap. We got a reaction, traded even lower than this low, and then what happens? We retrace higher and we get an SMT inside of what? the 15-minute bearish fair value gap. Not only are we getting a sweep of liquidity on ES, we're getting a sweep of liquidity inside a key level, which is going to be this 15-minute bearish fair value gap. So, we know that this is going to give us a stronger reaction than just a simple sweep of liquidity, not paired with any PDRA.

And if you don't know what I'm saying when I say PDR, I'm just typically referring to any ICT concept, right? Fair value got breaker block, order block, whatever it is. So, always try to find the SMTs inside significant levels because if you simply just look at SMTs at any given swing higher and swing low and you just roll with that, you're most likely not going to be catching those significant moves and you're probably going to get stop rated.

Simply put, SMTs inside of fair value gaps. Those work great. Those are the ones that are going to deliver. SMTs inside of fair value gaps. Also, like Patrick was saying, those previous session highs and lows is going to be really, really significant. Basically, everything that we went over in that liquidities pool video, right? So if there's going to be like previous day high or low also that's going to be really significant.

So you want to be focusing on again those SMTs at key levels. And most of the time just focus on that higher time frame SMTs when you're actually trying to figure out you know your bias. And then when it comes down to entries there's a lot of the times where I'll get you know some more confidence if we get some sort of lower time frame SMT aligning with the higher SMT that's put in play. Also when else should you be focusing on SMTs at your takerit levels. you always got to make sure that there's not an SMT where you're looking to take profits because if there is, chances are price doesn't need to go to that level anymore, right?

So, let's say you're in this trade on ES for some reason and not NQ, right? And you're in this trade and NQ takes this sellside while ES is now trading around here, but it hasn't taken that sellside. Well, it doesn't matter. We don't need to take that sellside anymore on ES because there's an SMT in play. Therefore, you have an SMT at your take-profit level and you should be taking profits on ES. It's pretty unfortunate scenario to be in, but hey, it happens pretty often and you can't disregard it.

There's going to be a thousand times, I bet you, during your trading career where you're thinking to yourself, damn, there's an SMT, I might take profit, but maybe maybe NQ will still take it. Maybe ES will still take it. Maybe I'll be fine and the SMT will get invalidated and you end up getting and it reverses and hits your break even and then you want to go drop off a well, I shouldn't get too deep into that. So, right, not only do did we have an SMT to help build narrative for this short, but then once the short played out, we get an SMT at this low.

So, now the ES trade would probably look something like this, while the NQ trade would look something like this. And this goes to show that obviously the pair that fails to take, you know, the higher low is going to have better delivery in comparison to that that actually takes it. Two main takeaways there. SMTs inside significant PD rays and then always be careful for SMTs aggra take profit levels. All right, guys. Guys, I want to show you an example of what some overnight session SMTs look like.

This is going to be with session liquidity. Okay, so first off, I want to show you this bullish SMT that gets put into play to then take out Asia highs. So, we have Asia highs resting right here. And if we just remove this noise that we have on our chart, can you guys spot the bullish SMT that we have right now? Give you a few seconds here. Bang bang bang bang bang bang. Okay, so the bullish SMT that we have here that is significant is what we were just talking about, right?

So we have this bullish 15-minute fal gap right here. And we have this intermediate low that is inside of this feral gap. Again, just like that last example that we showed, right? The intermediate low inside of that fell gap. It's going to be a great reversal point and a really strong liquidity pool. So we can see here that ES ends up taking this out and as we see here on the left, the NASDAQ does not take this out. And then if we go down now to the lower time frame, right, to see if we can actually get that entry, we can see that there's a little internal SMT that's put into play, right?

If we look at this swing low right here, which is at 2 a.m., you can see here on ES, that ES ends up taking out this low and that NASDAQ doesn't, right? So, there's that external SMT getting put into play, right? With that higher time frame key level being right here. And then on the lower time frame, we're getting lower time frame confirmation as well that price wants to go higher. We end up getting that displacement. we start disrespecting these bearish for rally gaps.

We start respecting these bullish for rally gaps here and then price ends up running towards Asia highs. Okay, so now there's this bearish SMT that gets put into play, right? So now we're going to wait for confirmation. Maybe by disrespecting this bullish for rally gap here. If we start disrespecting it, right? Then we can anticipate that price wants to head where? Well, we have sellside liquidity liquidity resting right here.

And we also have Asia lows resting all the way down there. Right? So as we can see here, price ends up disrespecting this bullish for rally gap here to the left of me and we end up creating this bearish for valley gap. Now a lot of you might be, you know, waiting for an entry for a pullback maybe into this for valley gap to then get a short off of maybe on the lower time frame, right? But price ends up edging it and then runs lower.

Why do you guys think that this happened? There was an SMT, right? So fair value gap SMTs guys are actually a thing. You can see right here that we have this bearish for valley gap here on the S&P 500 and the same for valley gap here on NQ. Right? So, it's not only at swing highs and swing lows. This also does occur with fair for valley gaps. And you want to be paying attention to this because in this example, ES ends up hitting that fair value gap.

NASDAQ doesn't and we end up getting that bearish SMT which ends up sending us lower and price delivers towards the sellside liquidity and it also eventually hits Asia lows. And then just to reiterate what Blake was talking about and to sort of bring everything together that we've talked about, right? I want you guys to pay attention to what's happening here one more time. As you can see, we have Asia highs up here. And more importantly, where is this liquidity resting?

It's resting inside of this new day opening gap, right? A new day opening gap operates very similar to a fair value gap. You can see here that this new day opening gap was actually filled completely by NQ. Therefore, ES isn't required to fill this new day opening gap completely anymore. And when using new day opening gaps, that is one thing that you do want to know. Typically, before price reacts from a new day opening gap, it wants to fill it completely.

But since we know that NQ did that, ES doesn't have to. Therefore, if we were to get an SMT anywhere inside of this new day opening gap, we know that we have an SMT inside of a higher time frame PDRA. So this isn't just a SMT at a liquidity level, but it's also inside a significant PRA. So now looking at price, we can see that NQ delivered up to Asia highs and swept Asia highs while ES is lagging behind. And then if we're solely trading inversions here, right, we have this 15-minute bullish for value gap.

Price reacts off of this SMT inside that higher time frame key level. Inverses 50-minute bullish for value gap. If you're trading inversions, this would be an entry right here where you're going to put your stop loss. Stop loss at the swing high where that SMT is targeting maybe Asia lows. This sellside side could be your break even. Right? This is your internal low. Getting a little bit more technical with the concepts here.

But this is pretty much how we trade. Now if we play price forward, right, we get this inversion. We have all the confluence we need to be entering shorts here. We enter shorts. We get some delivery lower. Eventually we have NQ take this sellside. We go break even here. And then we leave, of course, price running down to Asia lows. And we want to make sure that we're always monitoring ES. If ES takes this takerit before NQ because if that's the case, we'll have to close uh a little bit early.

But it seems like towards Asia lows, the assets seem to be pretty correlated. Therefore, we get a nice delivery and nice full TP at Asia lows without any SMT in place forcing us to close earlier. But yeah, this is sort of tying together a lot of the concepts we've taught you. One being time, another being liquidity, right? This is session liquidity involved. We talked a lot before about, you know, notice how price reacts off of Asia highs, Asia lows, London highs, London lows.

And now we're bringing together SMTs. We have an SMT at a previous session high. We have an invalidation of a fair value gap, which means what? An inversion. We have an inversion giving us confirmation that there's a flip in order flow. Then we have some liquidity resting down here. This is going to serve as a TP1 or break even. And then we have our external liquidity over here being Asia lows. And this is really what an A+ inversion trade would look like.

All this happening after we filled this new day opening gap completely, which we know and or maybe you know now that when a new day opening gap gets filled completely, price typically will then react and deliver. So a lot a lot a lot of confluences in this trade. And so now if you want like that final extra confirmation, let's say you're not someone who likes to enter off of inversions and you're someone who trades for value gaps and you're looking to see a pullback into like this fiveminute fair value gap.

Well, you can see that damn ENQ edges it here, but ES did trade into the fivem minute. Therefore, you have an SMT now inside of this fair value gap. And in case you were waiting for ENQ to hit that 5m minute for your entry, well, maybe you should have paid attention to ES because ES actually traded in there. Uh, so ENQ no longer needs to correct that imbalance because it has been corrected on a different asset, right?

They're correlated assets. Something I really want you to think with SMT is like SMTs is like having like a twin. You know what I mean? Like if you have a twin, you know, your twin can go take a test for you. And if he takes that test for you, you don't need to take the test anymore. You know what I mean? You can get bro to sub in for you, go take the test for you, and now you don't have to take the test. It's more if it's like if you have like a like a a clone of you or a twin back to the twin thing and your twin hooks up with a bad girl, but that girl doesn't know that you guys are twins, then you can both flex that you the same shorty to other people as long as people don't know you're twins type You know what I mean?

Cuz you technically both took that dub cuz in that girl's head, you're only one asset, but you're two assets. SMT could also be like you go talk to a girl, you think you're like really rising her up, you think you got it in the bag, and you think you're about to get her number, but right before you get her number, you're like, "Can I get your number?" She goes, "I have a boyfriend. SMT at your take profit." Damn. Reversal.

Reversal. Fat reversal. Fat reversal. That's brutal. Been there a couple times. Yeah. Or like the one time where like I was like, "Damn, I have such awesome loving parents." And then they're like, "We're getting divorced." like okay SMT at my You want me to pause the I can pause. You want to talk about it? No, it's fine. You sure? Yeah. Yeah, I'm good. All right, guys. I'm going to leave you guys with a little bit of sauce.

So, this is what I do a lot of the time when I don't want to have both assets open up, right? I just want to maybe have NQ open um so I can get a bigger picture of what's going on with NQ. So, what I'll do is I'll actually set an alert. So, for example, let's say I want to, you know, take a short here and I'm waiting for this buy side liquidity here to get hit, right? I will set an alert on ES for example and then I can just go back on NQ and I can just show here, right?

I can just wait for this to get hit and then if this gets hit on ES then a little bell will come up. So what I did was I just literally rightclicked and I clicked add alert. And I also do this when I'm in trades. I'll have you know the takerit level. I'll have an alert set on ES where my take profit is just in case it hits right. I want to at least secure some profits or at least go break even. um once that gets hit.

Um but yeah, just super helpful to have that little zesty bell. Um I get made fun of it a lot by Patrick and by a lot of the other Discord members, but it's not the bell, it's the sound it makes. It's like Yeah, it's super zest. Yeah, use the zesty bell, boys. It's helpful. It sounds like that. Yeah, some like that. Guys, I'm tired. But remember, key takeaways. The really the most important thing I want you to know is that SMTs are happening all the time.

So, if you're just going to mark out every single SMT, you're going to get extremely overwhelmed. Mark out SMTs at significant highs and lows. Right? If you go back to our liquidity video, the first one we ever did, we taught you how to identify significant buy side, significant sell side. SMTs there, important SMTs inside a higher time frame PDAs, right? SMTs inside of fair value gaps. Any sort of key level, those are going to be the ones that are typically going to cause the reversals.

Those are going to be the stronger SMTs. Also, another takeaway, the asset that doesn't sweep the high or low and there's an SMT in play is typically going to be the one that delivers faster. And yeah, I mean, I think those are the biggest takeaways really from SMTs. The rest is pretty extra. Uh, we did get pretty technical at the end, so hopefully you learned something and how to just like utilize everything when it's all paired together.

Okay, guys. Well, we'll sit here while this hits and this is going to form an SMT and then we're going to dump to alltime lows. All right, I'll sit here and wait for this SD bell cuz it's really it's it's beautiful. It's a beautiful thing. see if this S&T happens live while we're recording this video. It is Asia session right now, so there's not high hopes on delivery, but All right. All right. Well, I'm not waiting for this.

Maybe it happens. Maybe it happens while we're doing the outro. But thank you for watching ICT for Dummies episode 9 Don. [Music] Oh yeah. Ready. Volume at all time highs. Go. Yes. Go. Go. Yes. Go. Go. Yes. Go. Go. Yes. Go. Go. Yes. Go. Go. Yes. Go. Go. Yes. Go. Go. Yes. Go. Hit that SMT. Bel. I'm going to hit that by side liquidity. Go ES. Go go go go go. What does it mean? Super mega titties all over my face. Go go go go go.

What does it mean? Super mega titties all over Patty. Put them in my face. I'm going crazy. If I'm the lagging ass then I'm f to act lazy. Yeah, I'm chilling watching ESQ's about to hit man is trying it best but ES is delivering behind. If ES hits his high man that will be so fine cuz I love SMTs. I love SMTs. I love SMTs. I love SMTs. Yeah, I love SMTs. I love SMTs. Yeah, I love SMT super go. I'm done. That was so fire.

I'm actually not watching this anymore. you, Asia Session. you. That's the one. Peace out, boys.