Unleash the Power of Smart Money: Building Your Own SMT Divergence Indicator

Smart Money Technique (SMT) has gained significant traction among traders for its ability to identify potential market turning points. By detecting divergences between correlated assets, SMT can provide valuable insights. This article will guide you through the process of creating a custom SMT Divergence indicator using Pine Script.

Understanding SMT Divergence Before diving into code, it's crucial to grasp the core concept of SMT Divergence. Essentially, it involves comparing the price action of two correlated assets. When these assets exhibit divergent behavior, it may signal a potential market reversal. For instance, if the price of asset A makes a higher high while asset B makes a lower high, it could indicate a bearish divergence for asset A.

Building Blocks of Your Indicator To create an SMT Divergence indicator, we'll need to:

1. Select Correlated Assets: Choose two assets that exhibit a strong correlation.
2. Identify Swing Highs and Lows: Determine the highest and lowest points within a specified period for both assets.
3. Compare Swing Points: Analyze the relationship between the swing points of the two assets.
4. Calculate Divergence: Quantify the divergence between the assets.
5. Plot the Indicator: Visualize the divergence on the chart.

Pine Script Code Structure Here's a basic outline of the Pine Script code:

Pine Script

//@version=5
indicator("SMT Divergence")

// Input parameters for assets, lookback period, etc.

// Function to identify swing highs and lows
function get_swings(src) =>
    // Code to calculate swing highs and lows

// Function to compare swing points and calculate divergence
function calculate_divergence(asset1_swings, asset2_swings) =>
    // Code to compare swings and calculate divergence

// Main code to call functions and plot the indicator
// ...

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Key Considerations and Enhancements

• Correlation Strength: Evaluate the correlation between the selected assets to ensure reliable divergence signals.
• Divergence Types: Consider both regular and hidden divergences.
• Confirmation Signals: Combine SMT divergence with other indicators for increased confidence.
• Alert Functionality: Implement alerts for significant divergence occurrences.
• Customization: Allow users to adjust parameters like lookback period and divergence threshold.

Advanced Features To create a more sophisticated SMT Divergence indicator, you can explore:

• Multiple Timeframe Analysis: Incorporate data from different timeframes for a comprehensive view.
• Dynamic Lookback Period: Adjust the lookback period based on market conditions.
• Divergence Strength: Calculate the magnitude of divergence to prioritize signals.
• Filter Noise: Implement filters to reduce false signals.

Conclusion Building a custom SMT Divergence indicator empowers you to gain a deeper understanding of market dynamics. By combining technical analysis with programming skills, you can create a powerful tool to identify potential trading opportunities. Remember to thoroughly test your indicator using historical data and refine it based on your trading strategy.

Additional Tips:

• Start with a simple version of the indicator and gradually add complexity.
• Leverage existing Pine Script libraries and functions to streamline development.
• Join the TradingView community to learn from other traders and share your creations.
• Continuously refine your indicator based on market feedback and performance.

By following these steps and investing time in development, you can create an SMT Divergence indicator that becomes an invaluable asset in your trading arsenal.