SMC/Institutional Trading E-book

INDEX

 What is SMC and why is it so important ?

 What is Liquidity and how to identify Liquidity Grab Zones ?
 What is market structure and how to draw it ?
 How to identify conversion of market structure and mark it ?
 Fair Value gaps and its mitigation.
 What is supply, demand and Order blocks ?
 How to identify strong order blocks and refine them ?
 Three Strategies to achieve high Risk to Reward Ratio
 What is SMC and why is it so important ?

“Smart Money” in trading refers to the investments made by experienced and

knowledgeable investors or institutions. These investors have a good understanding
of the market and usually make informed decisions based on thorough analysis and
research. Smart money concepts or institutional trading is nothing but how big
institutions or banks trade in the market.

Now why is this concept important in trading ? Well, its because of smart money
investors often have a lot of influence on the market. When they buy or sell assets, it
can cause the prices to move significantly. They are the real market movers.

We as a retail traders think we are a big part of financial markets and we can make
profits by using retail concepts like chart patterns, candlestick patterns, support-
resistance and indicators. But I am sorry because this is a bullshit. You cant make
consistent profits with these techniques. You end up losing money.

SMC is the only way to make big and consistent profits in trading. We need to
understand how market actually works. Whether you want to accept it or not but
Banks or Big institutions have the liquidity provider and everyone else is liquidity for
them.

So, paying attention to what smart money investors are doing can give traders
valuable insights into market trends and help them make better decisions about
when to buy or sell. Its like following the footsteps of experienced players in the
game to improve your own chances of success.
 What is Liquidity and how to identify Liquidity
Grab Zones ?

Liquidity means money or available cash. Smart money perspective is everybody else
is liquidity in the market. Liquidity for banks/institutions is retailer’s stop losses. They
know where the stop losses placed in the market and their main task is to hunt
retailer's stop losses. Before taking any big move, they hunt all stop losses and move
market in it’s actual direction. This is the main reason retailers keep losing and
institutions keep earning.

Now to identify liquidity in the market. So, there are four major types of liquidity
grab zones :

1. Trend line liquidity :

One of the most common technique retailers use for trading. Imagine drawing a line
on a chart that connects the lows or highs of the price of any asset over time. That’s
a trend line. Tight stop losses hunt by big players and then they go in own direction.
2. Equal highs and Equal lows :

When we talk about ‘equal lows,” we mean that the price of the asset has dropped
to the same level multiple times in the past. Similarly, “equal highs” means that the
price has risen to the same level multiple times.

If there’s good liquidity on equal lows or equal highs, it means there are plenty of
buyers and sellers interested in trading the asset at those price levels. But most of
the time Smart money investors manipulate these levels and hunt stop losses of
retailers.
3. Swing highs and Swing lows :

Retailers use swing lows as a support price and swing highs as resistance price. They
think market cannot go below support and above resistance so they plan their sell
entry on swing high and buy entry on swing low price.

There is nothing wrong in that but if there is good liquidity on swing lows and swing
highs, it means there are plenty of buyers and sellers willing to trade the asset at
those level. So, before going in actual direction smart money traders manipulate the
market and hunt retailer’s stop losses first and grab all the liquidity on those levels.
4. Session highs and Session lows :

There are four sessions in the forex market during a day : Tokyo Session, London
Session, New York Session and Sydney Session.
We never check sydney session because there is no liquidity and volume in this
session.

Session lows are the lowest prices that a asset reaches during a single trading session
and session highs are the highest prices that a asset reaches during a single trading
session. And there are liquidity grab zones above highs and below lows of sessions.
 What is Market Structure and
How to draw it ?

Market structure in trading refers to how the market is organized. Understanding

market structure helps traders navigate the market more effectively by analyzing
who’s buying and selling. What prices they are willing to pay, and how much volume
is being traded. It also helps traders identify trends and make informed decisions
about when to buy or sell assets.

There are three types of market structure :

1. Uptrend/Bullish Market :

Bullish market structure in trading refers to a situation where the overall trend of the
market is going up. It’s like when the market is in a positive mood, and prices are
generally rising. Prices are making higher highs and higher lows. It shows a pattern of
upward movement.

Overall, a bullish market structure is characterized by rising prices, optimistic

sentiment, increased buying pressure, and positive news, all of which indicate a
healthy and upward-moving market.
2. Downtrend/Bearish Market :

Bearish market structure in trading refers to a situation where the overall trend of
the market is going down. It’s like when the market is in a negative mood, and prices
are generally falling. Prices are making lower highs and lower lows. It shows a
pattern of downward movement.

Overall, a bearish market structure is characterized by falling prices, pessimistic

sentiment, increased selling pressure, and negative news, all of which indicate a
challenging and downward-moving market.
3. Sideways/Consolidation/Range-Bound Market :

Consolidation market structure in trading refers to a situation where the price of any
asset trades within a relatively narrow range without making significant moves in
either direction. It’s like period of rest or pause in the market before the next big
move happens. The Price is stuck within a range, moving back and forth. It shows a
pattern of sideways movement, neither going up nor down in a clear trend.

Due to the highs and lows are relatively close to each other, indicating that there is
not much volatility or excitement in the market. Traders and investors are unsure
about whether the price will go up or down next.
Overall, a consolidation market structure is characterized by equal lows and equal
highs, indecision among traders and trading range in the market.

Now, how should we draw market structure on charts ?

For that, you need to understand there are two characteristics of market namely :

1. External Market Structure :

Connect only swing points in higher time frames. No need to focus on internal price
noises.
2. Internal Market Structure :

Go candle by candle and try to connect all the internal noises in lower time frames.
 How to identify Conversion of Market Structure
and how to mark it ?

Conversion of market structure in trading refers to a change in the way the market
behaves over time. It’s like when the market goes from being in a certain type of
trend or pattern to a different one. The market is transitioning from one type of
behavior to another. For example, it might shift from a bullish trend to a bearish
trend.

1. Change of Character (CHOCH/CH) :

This occurs when the established pattern or trend in market are disrupted or broken.
2. Flip :

This occurs after CHOCH indicating the strong confirmation of trend change.

3. Break of Structure (BOS):

This occurs after Flip indicating the continuation of new trend.

Practice it on live market and understand the market structure.
 Fair Value Gaps and its mitigation

Imbalance or Fair Value gaps occurs when the price of an asset jumps significantly
from one level to another. Its like a sudden jump or leap in the price chart. This is the
situation where orders of buyers and sellers don’t match. Our definition is unhealthy
price action. Why ? because banks put in orders and shift the market heavily in one
direction.

An imbalance can be seen where there a candle leaves gap between the two wicks of
the previous candle and the following candle. The candle is usually big and depicts
that price is heavily favoring one direction. News events usually can cause this.

Now what is FVG mitigation ? so price always come to cover those gaps after certain
period of time.
 What is Supply, Demand and Order Blocks ?

Supply refers to the price zone of any asset that sellers are willing to sell and
Demand refers to the price zone of any asset that buyers are willing to buy. When
demand exceeds supply, prices tend to rise, and when supply exceeds demand,
prices tend to fall.

Orders blocks are areas on a price chart where significant buying or selling activity
has occurred. SMC traders place their orders in these zones and push market in
opposite direction. There will be a sudden rise or fall movement.

There are two types of orders blocks in the market :

1. Bullish Order Block (Demand) :

Last sell to buy candle before buying pressure. Candle body and wicks both are
important. The downtrend market converts into uptrend.
2. Bearish Order Block (Supply) :

Last buy to sell candle before buying pressure. Candle body and wicks both are
important. The uptrend market converts into downtrend.

Price always come to retest those order blocks after certain period of time.
Understanding these concepts can help traders make informed decisions about
when to enter or exit trades and anticipate potential price movements.

But never depend on candles colour, focus on price movement, observe where
exactly prices reverse and then mark those candles as an order blocks on chart.
 How to identify strong order blocks and refine
them ?

Strong order blocks typically have high trading volume, meaning there was a lot of
buying or selling activity creating imbalances in the chart. Look for areas on the chart
where the volume bars are larger than usual, indicating increased trading activity.
Strong order blocks often coincide with liquidity grab zones where the price garb all
the liquidity and sharply reverses direction or experience significant volatility.

Order Block Refinement :

Refinement of order block is necessary in order to reduce stop losses and improve
risk to reward ratio.
 Three Strategies to achieve High Risk to Reward

So, now I am going to share you three powerful SMC strategies which can be useful
in any financial market for trading and for making big profits. Our entries are purely
based on Supply demand. Don’t enter in trade, if price breaks the OB zone.

Strategy 1 :

Step 1 - Look for market structure and actual market trend in H4.
Step 2 - Mark OB in H4.
Step 3 - Mark CHOCH, Flip and BOS in H4.
Step 4 - Refine OB from H4 to M15.
Step 5 - Wait for market to come our order block zone.
Step 6 - Check for CHOCH in M5 or M15.
Step 7 - Wait for price to come again on responsible supply/demand of CHOCH.
Step 8 - Now Enter in the trade.
Step 9 - SL will be high/low of OB. Add some spread in SL.
Step 10 - TP will be last high/low of M15.
Note : Good Strategy for full time traders.
Strategy 2 :

Step 1 - Look for market structure and actual market trend in H4.
Step 2 - Mark order block in H4.
Step 3 - Draw fib level on H4 OB.
Step 4 - Place pending order on fib 50% level price.
Step 5 - SL will be high/low of OB. Add some spread in SL.
Step 6 - TP will be last high/low of M15.
Note : Good Strategy for job or business persons. No OB refinement rule needed.
Strategy 3 :

Step 1 - Look for market structure and actual market trend in H4.
Step 2 - Mark OB in M15.
Step 3 - Mark CHOCH, Flip and BOS in M15.
Step 4 - Refine OB from M15 to M3.
Step 5 - Wait for market to come our order block zone.
Step 6 - Check for CHOCH in M5 or M3.
Step 7 - Wait for price to come again on responsible supply/demand of CHOCH.
Step 8 - Now Enter in the trade.
Step 9 - SL will be high/low of OB. Add some spread in SL.
Step 10 - TP will be last high/low of M15.
Note : Good Strategy for full time traders. But low winning ratio in this.