SMART MONEY CONCEPTS (SMC)

THE INS-AND-OUTS OF EZSMC

Introduction

Welcome to Smart Money Concepts (SMC). This guide will provide you with the
core concepts and practical strategies to align your trading with the so-called
"smart money" - the large institutions, funds, and wealthy individuals who
dominate market order flow.

By understanding how the smart money operates and leaving clues through
their massive market moves, retail traders can gain valuable insights into
emerging opportunities and trade setups. The key is to analyze their behavior
through the lens of order flow, structure, and liquidity.

This guide covers the essential foundations of Smart Money Concepts, or SMC.
You'll learn actionable techniques to spot signs of the smart money through
concepts like order flow tracking, identifying liquidity, trading market structure,
and more. We'll also walk through real chart examples and trade setups applying
these principles.

The goal is to help you better understand how markets behave based on the
footprint of the "whales" and position your own trading to move in sync with
their ripples. Aligning yourself with smart money order flow translates into
higher probability trades.

So let's begin dissecting the ways of the whale!

First things first, you’re going to want to download the FREE EzSMC indicator if
you haven’t already done so: https://www.ezalgo.co/smart-money
Order Flow

Order Flow refers to the constant stream of buy and sell orders being transacted
in the market by participants. It provides a real-time glimpse into the actions of
traders through their transaction record.

In SMC, carefully tracking order flow reveals information about the behavior of
large institutional traders. It shows how they are distributing their orders and
capital across key market areas over time. Monitoring order flow gives unique
insight into emerging areas of demand versus supply.

Here are some key characteristics of Order Flow analysis:

● Order Flow tends to precede price action - large orders will often impact
support and resistance levels before the price chart reflects it.
● Increases in buying order flow typically precede upside breakouts, while
surges in selling order flow can foreshadow breakdowns.
● Order Flow that displaces key support or resistance levels indicates strong
conviction in the move. The market structure is being reshaped.
● Areas where significant order flow has occurred in the past (known as
Order Blocks) become liquidity magnets where the smart money returns.
● By watching order flow at support and resistance zones, traders can gauge
if the level will hold or break. High volume suggests a level break.
● During pullbacks and retracements, monitor if order flow favors bids
(buyers) or offers (sellers) to anticipate if the trend will resume.
● Imbalances in buying or selling order flow often signal short-term
mismatches in supply and demand that can be exploited.
Order Blocks (OB)

Order Blocks (OBs) represent significant areas on the chart where large amounts
of orders were filled by the market at certain price levels.

They essentially act as key support and resistance zones that the smart money
continuously monitors and returns to.

Here are some key characteristics of Order Blocks:

● They form when high volume orders push price aggressively up or down
for a period. This indicates significant order flow and potential
accumulation or distribution.
● The resulting support or resistance zone becomes a liquidity pool that the
smart money will revisit to buy or sell more.
● Order Blocks hold as reliable S/R until heavily traded through or flipped by
order flow. Breaks often signal trend shifts.
● Faded or incomplete retests of Order Blocks can serve as entry signals in
the direction of the original break.
● Larger Order Blocks on higher timeframes tend to be more significant due
to the increased order flow required.

(continued)
Order Blocks (OB)

Let's examine some trades using Order Block concepts:

Here we can see the power of watching for Order Block breaks, breakdowns, and
rejected retests. The surges in volume show increased order flow is overrunning
these liquidity areas, allowing perfectly timed entries.
Market Structure

Market structure refers to the sequencing of higher highs and lower lows that
establish uptrends, downtrends, ranges, and other patterns. It provides context
on the current state of the market.

In SMC, breaks of structure often signify shifts in momentum driven by changes

in order flow. For example:

● In an uptrend, a break below a recent swing low indicates buyers may be

losing control and the trend is weakening.
● In a downtrend, a break above a swing high suggests selling pressure may
be waning and the trend could reverse upward.

These structural breaks happen due to increased order flow from large
participants that overwhelms the existing dynamic. It signals a momentum shift
may be kicking off.

Here are some key points for trading market structure:

● The larger the structure breakout or breakdown, the more significant it

tends to be.
● Backtest structure trades to refine entries and understand market
tendencies.
● Use volume surges to confirm structural breaks before reacting. No volume
suggests a fakeout.
● Structure-based entries are taken after confirmation of the new structure
forming, such as a retest of broken support now resisting as new
resistance.
Liquidity Hunts and Reversals

Liquidity refers to the available buy and sell orders at a given price level in the
market. Increased liquidity is found at areas such as round numbers, previous
swing points, FVGs, OBs, and other zones.

Smart money will aggressively hunt liquidity by driving price to these areas in
order to fill large orders and accumulate shares. This creates trading
opportunities by anticipating sharp reversals or breakouts.

Here are some key characteristics of liquidity:

● High liquidity areas allow large participants to enter and exit substantial
positions.
● Stop orders and limit orders cluster around liquidity zones, further
incentivizing driving price there aggressively.
● Volume, time spent, and volatility signals suggest higher liquidity at a level
as traders jockey for position.
● After a strong trend move, fading and filling unfinished business tends to
unfold before any deeper reversal.
● Monitoring order flow helps spot imbalances heading into liquidity, such as
surging selling pressure.

(continued)
Liquidity Hunts and Reversals

Let's examine trading scenarios where we'll anticipate and react to the hunt for
liquidity.

Here you can see we are able to gain an edge by appreciating how the smart
money pushes prices towards key liquidity areas. As selling pressure picked up
into support, we timed our entry for the impending bounce and swing reversal.
Having a liquidity framework drastically helps anticipate turns and entries.
Fair Value Gaps (FVG) / Imbalances

Fair Value Gaps (FVGs) refer to empty spaces left on the chart between price
highs or lows where no trading took place. These gaps represent an imbalance
between buying and selling pressure.

Key characteristics of FVGs:

● They show order flow was unable to reach equilibrium between bulls and
bears.
● FVGs often become future support and resistance levels upon filling.
● The larger the gap, the more order flow was required to form it, signaling
strong momentum.
● Price returning to fill gaps after trends provides trade entry signals.

In SMC, FVGs are used to:

● Identify imbalances and areas untouched by order flow to exploit.

● Gauge conviction behind moves based on the gap size. Larger FVGs imply
increased momentum.
● Trade pullbacks as gaps fill, often leading to reversals out of the gaps.

(continued)
Fair Value Gaps (FVG) / Imbalances

Trading gaps in sync with order flow provides great risk/reward setups. Here’s an
example of two large FVGs being taken out both ways:

As you can see, combining order flow with FVG analysis allows timing high
probability entries, anticipating where buyers or sellers may return to fill
unfinished business.
Displacement

Displacement refers to price moving out of an established range or past key

support/resistance due to increased order flow. It signals a potential trend
change.

Characteristics of displacement include:

● It is typically preceded by order flow imbalance - increased buying or

selling by the smart money.
● For displacement to occur, key areas known as Order Blocks must be taken
out, shifting market structure.
● Initial displacement is usually followed by a pullback, providing a safer
trend entry point.
● The size of the displacement indicates the conviction behind the move.
Bigger displacements signal larger players.

Trading rules around displacement:

● Use order flow to anticipate potential displacement moves brewing.

● Ensure volume aligns with breakout moves to confirm conviction.
● Time entries on retests of broken support/resistance after displacement
occurs.

(continued)
Entries and Trade Setups

Now that we've covered the key concepts of SMC, let's run through some
approaches to combining them into high-probability trade setups.

Here is an example workflow for identifying trades based on higher timeframe

trend bias:

1. Analyze the daily and weekly charts to gauge overall market structure and
bias.
❏ If both are in clear uptrends, the bias is bullish.
2. Identify key support/resistance zones on the daily/weekly aligned with
Order Blocks and liquidity.
❏ These become target entry areas on lower timeframes.
3. Check the 4hr chart for existing or emerging market structure.
❏ If also uptrending, it confirms bullish daily/weekly bias.
4. Look for potential displacement moves breaking out of consolidation or
ranges.
❏ Upside breakouts confirm bullish bias.
5. Wait for 4hr retest of broken resistance Order Blocks aligned with daily
support.
❏ Validates high probability long entry with tight risk management.
6. Ensure volume and order flow aligns with retest. Watch for buying spikes.
7. Enter long position on retest completion, with stop under recent swing
low.
❏ Target Order Blocks and liquidity levels above in line with
daily/weekly areas.

This top down approach combines higher timeframe context with lower
timeframe setups to enter high conviction trades aligned with the smart money.
Patience and timing is critical - don't force trades.
Conclusion

Those are some of the core Smart Money Concepts. By tracking order flow,
structure, and liquidity dynamics driven by the influential market participants,
you gain insights into some pretty spicy trade setups. Mastering these
foundations will dramatically sharpen your ability to interpret markets.

I encourage you to dig deeper into these principles and make them your own.
Keep studying examples and sample charts to cement your knowledge. Start
tracking these elements in live markets and practice applying them. Over time,
you will internalize the smart money concepts and be trading right alongside
the whales.

Remember, order flow is the lifeblood. Market Structure frames the bias.
Liquidity magnets draw price. Follow the massive market flows, swim in sync
with the whales, and your trading will reach new depths.

Here's to your trading journey!

Questions / Comments?

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