Comprehensive Knowledge Base for LLM Training & Implementation
Price often returns to the 50% level of a previous price range before continuing in the direction of the broader trend. This strategy focuses on moments when price manipulates a key high or low, then quickly reverses back into the range, offering high-probability entries with clearly defined risk.
The strategy follows a top-down approach starting from the Daily chart, moving to the 4H, then the 1H, and finally using the intraday chart for precise entries. A high-probability setup forms when all these timeframes align around a key 50% level, and a reversal structure is confirmed.
The goal is not to catch full trend moves. Instead, the focus is on consistent, repeatable base hits, capturing the cleanest part of the move back into the 50% level. If the trade continues beyond the target, that's a bonus — but the model is designed to take high-quality setups with tight risk and fast execution.
The model is built around the Power of Three (PO3) — a 3-phase structure that appears in price action. You're not trying to catch the full trend. You're just trading the manipulation back into the 50% zone.
Description: Price trades sideways and builds a range
Characteristics:
Description: Price sweeps liquidity above or below that range
Characteristics:
Description: Price reverses and delivers back into the 50% area
Characteristics:
SMT Divergence occurs between correlated instruments (NQ and ES) where one makes a new high/low but the other doesn't, indicating potential reversal.
| Signal Type | Condition | Interpretation |
|---|---|---|
| Bearish SMT | NQ makes new high, ES doesn't | Potential reversal to downside |
| Bullish SMT | ES makes new low, NQ doesn't | Potential reversal to upside |
10:00 AM EST is the key manipulation time. SMT divergence typically appears around the 1H timeframe and signals that the manipulation phase may be ending.
This strategy uses a top-down approach to build bias and a lower timeframe to execute entries. All timeframes must align for highest probability setups.
Purpose: Set Overall Bias
Functions:
Purpose: Structure Analysis
Functions:
Purpose: Confirmation
Functions:
Purpose: Entry Execution
Functions:
At this point, you need to be patient. The setup must form properly.
Inversion Zone: A previous support level that now acts as resistance (or vice versa) - a prior imbalance where price reacts.
| Entry Signal: | Breakdown candle closes below inversion zone |
| Stop Loss: | Just above SMT high (shorts) / below SMT low (longs) |
| Target: | 50% level of impulse move (base hit) |
| Element | Specification | Purpose |
|---|---|---|
| Stop Loss | Above SMT high (shorts) / Below SMT low (longs) | Invalidation level where setup fails |
| Take Profit | 50% retracement level | Base hit target - consistent profits |
| Break-Even | When price takes out meaningful structure | Protect capital, reduce risk to zero |
| Position Size | Based on distance from entry to stop | Fixed risk per trade |
Started with marking the previous day's high and low on the daily chart. This established the key range we were monitoring.
On the 4H chart, price had pushed into a premium zone and swept a prior high - completing the Manipulation phase of PO3. A sharp rejection followed, indicating Distribution was underway.
4H Chart showed:
Moving to 1H chart, observed a second PO3 forming in sync with the 4H structure.
Around 10:00 AM EST:
Price reached an inversion zone (previous imbalance area) and began rejecting.
After SMT divergence confirmed and price rejected the inversion zone, dropped to 3-minute chart for execution.
Price formed a pattern and failed to push higher. Once price closed below the inversion zone, a sell stop was placed beneath the breakdown candle.
Once triggered and price began moving lower, the 11:00 AM hourly candle flipped bearish - a key condition for break-even management.
At that point, the stop was moved to break-even. Price quickly moved in our favor and delivered cleanly to the 50% level.
The target was hit at the 50% level for a successful base hit. Although market moved much lower later, the model is not designed to catch extended runs - it's built for catching the cleanest part of the reversal.
| Term | Definition |
|---|---|
| Base Hit | Consistent, reliable target (50% level) rather than trying to catch full moves |
| Inversion Zone | Area where previous support becomes resistance (or vice versa) |
| Liquidity Sweep | Price movement designed to trigger stops and gather liquidity |
| Manipulation | False breakout before true direction - Phase 2 of PO3 |
| Premium Zone | Price area above 50% of established range |
| Discount Zone | Price area below 50% of established range |
| PO3 | Power of Three - Accumulation, Manipulation, Distribution cycle |
| SMT Divergence | Smart Money Theory divergence between correlated instruments (NQ vs ES) |
| NQ | Nasdaq 100 E-mini futures contract |
| ES | S&P 500 E-mini futures contract |
The Trader Kane SMT Divergence + PO3 strategy is a precision-based intraday methodology that combines multi-timeframe analysis, Smart Money Theory divergence, and Power of Three market structure to identify high-probability reversal trades.
The strategy focuses on consistent base hits rather than full trend captures, targeting the 50% retracement level with tight risk management and clearly defined entry/exit criteria.
Success requires: Patience to wait for complete setup formation, discipline to follow all rules strictly, and experience gained through repetition to recognize the highest quality setups.