The Smart Money Concept (SMC) is an advanced methodology in market analysis that relies on understanding how institutional money moves, by reading price action and market structure, rather than relying on traditional indicators.
What the SMC strategy focuses on:
1. Market Structure: Identify the overall trend (bullish, bearish, or sideways).
2. Order Blocks - OB: Areas where institutions enter with large orders.
3. Liquidity Zones - $$$: Points targeted by institutions to gather liquidity.
4. Fair Value Gap - FVG: Price gaps providing trading opportunities.
5. Market Manipulation: False movements to deceive retail traders.
Key concepts in SMC:
1. Market Structure
Bullish trend: Higher highs & Higher lows.
Bearish trend: Lower highs & Lower lows.
Break of Structure - BOS: Breaking a major high or low indicating trend continuation.
Change of Character - CHoCH: A break indicating the beginning of a reversal in direction.
2. Order Blocks - OB
Areas where institutional investors execute large orders leading to strong price movements.
Bullish block: Before a strong bullish candle. Considered a buy area on retest.
3. Liquidity Zones - $$$
Points where a large number of pending buy orders or stop losses are concentrated.
Often found above the peaks or below the troughs.
Targeted by institutions to gather liquidity.
4. Fair Value Gaps - FVG
Resulting from strong price movements without overlapping with adjacent candles.
Price often returns to fill these gaps, providing entry opportunities.
5. Market Manipulation
Institutions may create false movements like false breakouts to gather liquidity from stop-loss orders.
Steps to apply the SMC strategy.
Step 1: Identify the overall trend.
Time frame: for example, 4 hours.
Analyze the highs and lows to determine if the trend is bullish or bearish.
Step 2: Look for order blocks (OB).
Look for strong candles followed by significant price movements.
Wait for a retest of the area to enter.
Step 3: Target liquidity zones.
Identify the high peaks or low troughs.
Expect the price to move towards them.
Step 4: Use FVG as potential entry points.
On smaller time frames (15 minutes - 1 hour), look for gaps.
Wait for the price to return to fill them.
Step 5: Risk management.
Do not risk more than 1-2% of capital on a trade.
Risk-to-reward ratio: at least 1:2.
Place the stop loss below the order block or below the price gap.
Tips for effectively applying SMC:
Continuous training: Use a demo account to understand price action and identify OB and FVG.
Diversify time frames: Determine the trend in the larger frame, and identify entry in the smaller one.
Patience and discipline: Only enter after strong confirmations appear.
Ignore the noise: Do not let news or rumors affect your decisions.
Summary
The SMC strategy provides a professional way to understand market movements based on the actions of large investors. By understanding market structure, order blocks, and fair value gaps, you can improve your entry points and achieve better results.
Start practicing, manage your risks, and stay disciplined for sustainable success.
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