ICT Insight™

🧠 SMT – Understanding Institutional Divergences #

📌 What is SMT? #

The Smart Money Tool (SMT) is a core concept in the ICT methodology. It’s based on comparing two assets to detect liquidity divergences — situations where one asset taps into a liquidity level while the other doesn’t.

That level can be:

  • A major level, like a Previous High/Low or an Asian High/Low
  • Or simply a swing, formed naturally by market structure

💡 Why is this useful?

These divergences help assess the relative strength between two assets and identify which one is more favorable for buying or selling.

If Asset A taps a high liquidity level (e.g., the Previous Day High) and Asset B does not, then A is considered stronger.

Here’s a second example, this time based on structural swings, without involving major levels:

If Asset A doesn’t take a swing low, while Asset B does, then A is considered stronger.

This type of analysis helps you determine which asset to prioritize for long or short positions.


📚 How does it work? #

SMT relies on comparing two highly correlated assets, usually tied to the same underlying component.

Examples:

  • EURUSD vs GBPUSD
  • US100 vs US500
  • BTCUSD vs ETHUSD

👉 The key is that both assets share a common component (e.g., USD) and operate within the same economic or structural environment (e.g., US markets, cryptocurrencies), so that their movements can be compared in a meaningful way.

The SMT can detect divergences from several types of liquidity levels:

  • Major levels:
    • Asian Session High / Low
    • Previous Day / Week / Month High / Low
  • Structural swings:
    • Natural swing highs and lows formed by price, even if they don’t match any major level

🎯 These levels serve as references to highlight behavioral discrepancies between assets.

Here’s a classic example based on a major level:

And here’s another example based purely on a swing (no major level involved):


🧭 Practical Interpretation #

  • An asset that takes a high (AH, PDH, swing high…) is considered stronger → good candidate for buying
  • An asset that takes a low (AL, PDL, swing low…) is considered weaker → good candidate for selling
  • The asset that doesn’t take any level serves as a neutral reference
  • The greater the contrast, the stronger the SMT divergence

⚠️ SMT signals should always be combined with other tools: structure, context, and timing.

Was this page helpful?
⇣ On this page