SMT – is a technique for tracking pairs that correlate with each other. With proper analysis and clear context, this method allows you to identify the beginning of a reversal movement.

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For example, we have pairs that correlate directly, such as:

• EUR with GBP
• S&P with NASDAQ
• USD/XXX with DXY (e.g., USD/JPY)

On the chart, it is clearly visible that when a low is formed on one asset, it is also formed on the other. Later, when a lower low is created, it also appears on the other asset. This is what we call correlation.

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But what exactly is SMT Divergence?

SMT Divergence – we will call the desynchronization between two assets.

In this example, we can clearly see that Asset A shows weakness compared to Asset B, because instead of forming a Higher High, it forms a Lower High. Meanwhile, Asset B takes out liquidity and completes a full reversal. At that moment, Asset B was the stronger one.

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SMT Divergence is one of the confirmations of a reversal situation. In such cases, trading should be done from the strong swing, meaning the one that took out liquidity.

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It’s important to mention that SMT has no meaning if it is not aligned with your context. Beyond the divergence itself, you need other factors for an entry. To reiterate, SMT is just an additional confirmation of a reversal.

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Example

What is Inversely Correlated SMT?

We just went over direct correlation. Now, let’s look at inverse correlation.

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Examples of inversely correlated pairs include:

• EURUSD to DXY
• GBPUSD to DXY
• XXX/USD to DXY (any other pair against the dollar)

In this example, we can see that when a LOW forms on EUR, a HIGH forms on DXY. Later, when a HIGHER LOW forms on EUR, a LOWER HIGH appears on DXY, and so on. In other words, the two assets create opposite structures relative to each other. This is what we call inverse correlation.

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In this case, Inversely Correlated SMT is also a desynchronization between assets, but here the assets are inversely correlated.

The logic of working remains exactly the same; this SMT serves as an additional confirmation of a reversal.

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Below, I’ve outlined all possible variants of SMT and Inversely Correlated SMT.

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Examples