In the trading world using the SMC (Smart Money Concepts) methodology, there is a set of key terms that any trader must understand well. Here are the most important of these terms with a brief explanation for each:
✅ 1. Liquidity
Refers to the money left by traders at support and resistance levels.
"Smart Money" (banks and institutions) hunts this liquidity by breaking these levels to attract traders and then reverse the trend.
✅ 2. Order Blocks
Areas where financial institutions may have placed large buy or sell orders.
Often used as a potential price retracement or reversal area.
Two types:
Bullish Order Block
Bearish Order Block
✅ 3. Break of Structure (BoS)
Occurs when a major high or low in the current trend is broken.
Indicates trend continuation.
✅ 4. Change of Character (ChoCH) – Change in Behavior
Turning point from one direction to another (e.g., from up to down).
Early signal of trend reversal.
✅ 5. Imbalance / Fair Value Gap
Areas on the chart where there has been no balance between buyers and sellers.
Price typically returns to fill these gaps before completing the trend.
✅ 6. Liquidity Grab
Institutional move to break through support or resistance areas to gather individual trader orders before reversing the trend.
✅ 7. Premium & Discount Zones
Used to determine whether the price is in a good area for selling (Premium) or buying (Discount) based on the trading range.
✅ 8. Mitigation
Price return to previous order blocks to close institutional positions before continuing the move.
✅ 9. Internal & External Structure
Internal Structure: Smaller movements within the overall trend.
External Structure: The larger overall trend analyzed from larger time frames.