Smart Money Concepts1. Introduction: What is Smart Money Concepts?
Smart Money Concepts (SMC) is a modern price action trading methodology that focuses on how big players — institutions, hedge funds, banks, and market makers — move the market.
The core belief: price is manipulated by "smart money" to accumulate positions before large moves, and if you can track their footprints, you can ride their moves instead of getting trapped like retail traders.
In SMC, you don’t rely on indicators that lag behind price. Instead, you learn to read the raw story of price action: where liquidity lies, where stop hunts happen, and where imbalances push price.
Think of it like this:
Retail trading is reacting to price.
SMC trading is predicting what price will want to do, based on smart money’s needs.
2. Core Principles of SMC
SMC builds around a few non-negotiable principles:
2.1 Market Structure
Price moves in waves (higher highs, higher lows in an uptrend, or lower highs, lower lows in a downtrend).
Smart money manipulates these structures:
Break of Structure (BOS): When price breaks a significant swing point in the direction of the trend.
Change of Character (ChoCH): A shift in market bias — often the first sign of trend reversal.
Example:
If we’re in an uptrend and suddenly a major low is broken, this isn’t “random selling.” It’s likely a smart money signal that distribution has started.
2.2 Liquidity
Smart money hunts liquidity pools — areas where retail traders have stop-loss orders:
Above recent highs → stop-losses of short sellers.
Below recent lows → stop-losses of long traders.
Why? Because triggering these stops provides the volume big players need to enter large positions without causing huge slippage.
2.3 Order Blocks
An Order Block is the last opposite candle before a strong impulsive move.
For example:
In an uptrend: the last bearish candle before a strong bullish push.
In a downtrend: the last bullish candle before a strong bearish push.
Order blocks are institutional footprints — zones where smart money likely placed big orders.
2.4 Imbalance & Fair Value Gap (FVG)
Sometimes price moves so fast in one direction that it leaves a gap between candles’ wicks — meaning no trades happened in that range.
Price often revisits these Fair Value Gaps to “rebalance” the market before continuing.
2.5 Premium & Discount Zones
Using Fibonacci retracement, the 50% level divides the market into:
Premium (above 50%) → expensive zone for buying, better for selling.
Discount (below 50%) → cheap zone for buying, better for selling.
Smart money often buys at a discount and sells at a premium.
3. How Smart Money Operates
Retail traders believe price moves randomly — smart money knows better.
3.1 Accumulation & Distribution
Markets cycle through:
Accumulation → Smart money quietly builds positions at low prices.
Manipulation → Stop hunts and fake breakouts to mislead retail traders.
Distribution → Price moves explosively in their intended direction.
3.2 Stop Hunts
Smart money deliberately pushes price to known liquidity areas:
Looks like a breakout to retail traders → but reverses right after.
This traps breakout traders and activates their stops, providing liquidity.
3.3 Inducement
Before moving toward the main liquidity pool, smart money creates a “bait” level to attract retail orders. This induces traders to place stops exactly where smart money wants.
4. SMC Tools & Key Components
4.1 Market Structure Tools
Swing highs/lows
BOS (Break of Structure)
ChoCH (Change of Character)
4.2 Liquidity Identification
Equal highs/lows (double tops/bottoms)
Trendline liquidity (breakouts)
Session highs/lows (London, New York, Asia)
4.3 Order Blocks
Bullish OB → for buys
Bearish OB → for sells
Refined OB → using lower timeframes for precision
4.4 Fair Value Gaps
Look for large impulse moves leaving gaps between candle wicks.
4.5 Fibonacci Levels
Use 50% as a bias divider, 61.8% & 78.6% for sniper entries.
5. The SMC Trading Process
Here’s a step-by-step method to apply SMC:
Step 1: Higher Timeframe Bias
Start from daily (D1) or 4H charts.
Identify market structure (uptrend, downtrend, or range).
Mark major BOS and ChoCH points.
Step 2: Identify Liquidity Pools
Look for equal highs/lows, trendlines, swing points.
Mark where retail traders are likely trapped.
Step 3: Locate Order Blocks
Find the last opposite candle before a strong move.
Confirm it aligns with your higher timeframe bias.
Step 4: Watch for Imbalance
Mark Fair Value Gaps for potential retracements.
Step 5: Entry Execution
Drop to lower timeframes (5M, 1M) for refined entries.
Wait for a lower timeframe BOS in the direction of your trade.
Step 6: Risk Management
Stop-loss just beyond the order block or liquidity sweep point.
Risk 1–2% per trade.
6. Example Trade Setup
Imagine EUR/USD is in an uptrend on 4H:
4H BOS confirmed bullish bias.
Liquidity found below equal lows at 1.0750.
Bullish order block spotted just below 1.0750.
Fair Value Gap in that same area.
On 5M chart → price sweeps liquidity, taps OB, breaks minor high.
Entry after BOS → SL below OB → TP at previous high.
7. SMC vs Traditional Technical Analysis
Aspect Traditional TA SMC
Indicators Uses RSI, MACD, Moving Averages Pure price action
Focus Patterns (Head & Shoulders, etc.) Liquidity, order flow
Timing Often late entries Precision entries
Mindset Follow trend Follow smart money
8. Common Mistakes in SMC Trading
Over-marking charts → clutter leads to confusion.
Forcing trades without waiting for confirmation.
Ignoring higher timeframe bias.
Not managing risk — precision doesn’t mean perfection.
9. Psychology of SMC Trading
SMC can give very high RR trades (1:5, 1:10), but the patience required can be tough.
You need:
Discipline to wait for setups.
Emotional detachment from market noise.
Confidence to enter when it feels counterintuitive.
10. Final Thoughts: Why SMC Works
SMC works because it aligns your trading with the actual drivers of price — the big money.
Instead of being prey, you become a shadow of the predator.
Key takeaways:
Market is a liquidity game.
Learn where smart money is likely to act.
Trade less, but with sniper precision.
