The SMC (Smart Money Concept) strategy is an approach in technical analysis that relies on understanding how smart money (such as financial institutions and major banks) moves in financial markets. This strategy focuses on studying price movements based on market structure, market liquidity, and institutional orders.
Key principles of the SMC strategy:
1. Market Structure
Determine the overall direction (uptrend or downtrend).
Understand trend changes through consecutive highs and lows.
2. Supply and Demand Areas (Supply & Demand Zones)
Areas where prices are expected to reverse due to the presence of large buy or sell orders.
3. Market Inefficiency (Imbalance or Fair Value Gap - FVG)
Price gaps indicate areas that have not been sufficiently tested, and prices often return to them.
4. Market Liquidity
Target stop loss hunt areas where large institutions enter to collect liquidity before moving the market.
5. Breaks of Structure (Break of Structure - BOS & Change of Character - CHoCH)
BOS: When a major high or low is broken, confirming the continuation of the trend.
CHoCH: A change in structure indicating a potential trend reversal.
6. Accumulation and Distribution Areas (Accumulation & Distribution - Wyckoff Theory)
Study how institutions accumulate assets before pumping prices or distributing them before a drop.
How to use the SMC strategy in trading?
Identify market structure to know the direction.
Look for supply and demand areas where the price may bounce back.
Wait for a break of structure (BOS or CHoCH) to confirm the movement.
Monitor areas of inefficiency (FVG) as potential entry levels.
Identify liquidity areas where the price may move to target them.
Place stop-loss orders below/above liquidity areas for protection.
Advantages and disadvantages of the SMC strategy
✅ Advantages:
Provides deeper insight into price movement compared to classical analysis.
Enhances understanding of how smart money and major institutions move.
Can be used with other strategies like Wyckoff and ICT.
❌ Disadvantages:
Requires expertise to accurately understand and analyze market structure.
Need patience and avoid rushing into trades.
If you are considering using it in the cryptocurrency market like Solana, it is best to combine it with understanding the market cycles you want to learn about, such as Bull Run, to determine the best entry and exit points.
