Smart Money Concept (SMC) Trading Guide
Introduction to Smart Money Concept (SMC)
Smart Money Concept (SMC) is an institutional trading strategy that focuses on market structure,
liquidity,
and order flow. Unlike retail trading strategies, SMC aims to follow the actions of institutional traders
(banks, hedge
funds) to identify high-probability trading opportunities.
Market Structure
Market structure in SMC consists of Break of Structure (BOS) and Change of Character (CHOCH).
- BOS: Confirms trend continuation when price breaks a previous high or low.
- CHOCH: Signals potential trend reversal when market structure shifts.
Liquidity Concepts
Liquidity is where traders' stop-loss orders accumulate. Institutions manipulate price to grab liquidity.
- Stop Hunts: Institutions push price to trigger stop-loss orders.
- Liquidity Grabs: Price moves beyond key levels to absorb orders before reversing.
Order Blocks & Institutional Trading
Order Blocks (OBs) are price zones where institutions place large orders.
- Bullish OB: The last bearish candle before price moves up strongly.
- Bearish OB: The last bullish candle before price drops sharply.
Traders use OBs as entry zones in alignment with market structure.
Mitigation Blocks & Fair Value Gaps (FVG)
Mitigation blocks occur when institutions return to previous liquidity zones to execute pending
orders.
Fair Value Gaps (FVG) are imbalances in price caused by inefficiencies, often filled later as price
seeks equilibrium.
SMC Trading Strategies
1. Identify market structure (BOS & CHOCH).
2. Look for liquidity zones (stop hunts, FVGs).
3. Wait for price to enter an order block.
4. Confirm with an entry trigger (e.g., engulfing candles, lower time frame BOS).
5. Manage risk with proper stop-loss and take-profit levels.
Risk Management & Trade Execution
- Use 1-2% risk per trade.
- Place stop-loss below/above order blocks.
- Use multiple time frame analysis for better accuracy.
- Ensure a minimum risk-to-reward ratio of 1:3.
