The Smart Money Concept (SMC) is a trading strategy that focuses on following institutional investors' movements to capitalize on market trends. This method is based on liquidity, market structure, and order flow. Below are the five key steps to implementing the Smart Money Concept Model in trading:
1. Identify Market Structure
- Analyze the trend (bullish, bearish, or ranging).
- Use higher highs (HH), higher lows (HL) for an uptrend and lower highs (LH), lower lows (LL) for a downtrend.
- Mark key support and resistance zones where price reacts.
2. Liquidity & Stop Hunts
- Institutions target liquidity pools (areas with many stop-loss orders).
- Look for equal highs/lows, which are often targeted before major price moves.
- Fakeouts and stop hunts occur before price moves in the actual direction.
3. Institutional Order Blocks
- Identify areas where big moves originated (last bullish candle before a strong drop or last bearish candle before a strong rally).
- These zones act as support/resistance levels.
- When price returns to these areas, institutions often step in again.
4. Imbalances & Fair Value Gaps (FVG)
- Imbalances occur when price moves too fast, leaving unfilled orders (visible as large candles with little to no wicks).
- Fair Value Gaps (FVG) act as magnet zones where price tends to return.
- Look for price to react at these levels for trade entries.
5. Entry, Stop Loss & Take Profit (Risk Management)
- Entry: Wait for confirmation (e.g., a rejection at order blocks or liquidity sweeps).
- Stop-Loss: Place it below/above liquidity zones to avoid market manipulation.
- Take-Profit: Use imbalance zones, previous highs/lows, or institutional levels.
Bonus: Confirmation Strategies
- ChoCh (Change of Character): Sign of trend reversal.
- Break of Structure (BOS): Confirms a continuation in trend.
- Divergences (RSI, MACD): Helps validate trade setups.
By mastering these steps, traders can align themselves with institutional moves and improve their trade accuracy.