SMT in ICT refers to the Smart Money Technique within the Inner Circle Trader (ICT) trading methodology, a sophisticated approach primarily used in forex trading.
This technique focuses on identifying divergences between correlated assets to pinpoint potential trading opportunities and predict market reversals. In essence, it aims to understand what "smart money" (institutional investors) are doing by analyzing price action discrepancies.
Here's a breakdown of key aspects:
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Core Principle: SMT identifies divergences between assets that are typically correlated (e.g., EUR/USD and GBP/USD, or specific stock market indices). When these assets move in opposite directions, it signals a potential shift in market sentiment.
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Identifying Divergences: This involves closely monitoring price charts and identifying instances where one asset makes a higher high while another makes a lower high (or vice-versa). This divergence suggests that one of the assets is being manipulated by smart money.
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Trading Opportunities: The divergence indicates a possible reversal in the asset that is not aligned with the general market trend. ICT traders use this information to enter trades in the direction of the anticipated reversal.
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Example: If EUR/USD is making higher highs, but GBP/USD is failing to do the same, it suggests potential weakness in EUR/USD and an opportunity to short EUR/USD.
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Importance of Context: SMT isn't a standalone trading strategy. It's typically used in conjunction with other ICT concepts like market structure, fair value gaps, order blocks, and time-based analysis to increase the probability of successful trades.
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Inner Circle Trader (ICT): It is important to note that SMT is part of a broader trading methodology developed by a trader known as ICT (Inner Circle Trader). It emphasizes understanding market dynamics, institutional order flow, and price action patterns.
In summary, Smart Money Technique (SMT) within the ICT trading framework provides a method to potentially anticipate market movements by observing divergences between correlated assets, assuming these divergences reflect the actions of informed "smart money." It requires a good understanding of ICT concepts and market context for effective application.
