Decoding the Market: 9 Smart Money Concepts
Smart Money Concepts (SMC) help traders analyze markets by tracking large institutions. These "smart money" players leave clues on price charts. Understanding these nine concepts can lead to more informed trading.
1. Order Blocks: A zone of concentrated institutional orders, often seen as the last opposite candle before a strong move. These areas can become future support or resistance
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2. Fair Value Gaps (FVG): An imbalance caused by a rapid price move. The market often returns to "fill" these gaps, making them price magnets.
3. Supply and Demand Zones: Key price areas with heavy selling pressure (Supply) or strong buying interest (Demand). Price often reacts at these levels.
4. Change of Character (ChoCH): The first sign a trend may be reversing. In an uptrend, for example, it's the creation of a lower low, hinting at a momentum shift.
5. Break of Structure (BOS): Confirms a new trend is forming. It happens when price breaks a prior high or low, continuing in the new direction.
6. Liquidity Pools: Areas with a high concentration of orders, mainly stop-losses. These pools exist above recent highs and below recent lows.
7. Stop-Loss Hunting: The intentional act of pushing price to liquidity pools. This triggers stop-losses, allowing institutions to fill large orders.
8. False Breakouts: When price breaks a key level only to reverse quickly. It often happens during a stop hunt and traps breakout traders
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9. Kill Zones: Specific high-volume trading hours, like the London and New York opens. SMC patterns are most effective during these times.
Connecting these concepts helps traders understand price action, allowing them to anticipate moves rather than just reacting.