Ideas in Smart Money Concept
The Smart Money Concept introduces several foundational ideas that provide traders with a framework to interpret market movements through the lens of institutional activities.
1️⃣ORDER BLOCK
➡️Order Blocks: 📦 Key zones where institutions place large orders, often triggering strong market moves. Price tends to reverse on revisits, acting like support/resistance.
➡️Tip: 🔍 Spot consolidation before sharp moves and wait for a retest to trade in the same direction. 📈📉
2️⃣Breaker Blocks
➡️Failed Order Blocks: 📉 When an order block fails to hold, price breaks through, signaling a potential shift in "smart money" direction. These zones often flip roles, acting as resistance if broken upward or support if broken downward.
➡️Tip: Watch for breakouts from order blocks to identify trend reversals or key barriers. 🔄📊
3️⃣Break of Structure
➡️Break of Structure (BOS): 📈📉 Happens when price surpasses a key high or low, signaling a potential trend change. It marks the transition between market phases and reflects “smart money” influence.
➡️Tip: Use BOS to confirm trend direction and align your trades with market momentum. 🔍✨
4️⃣Change of Character (ChoCH)
This concept refers to a notable alteration in the market's behaviour, often seen through an abrupt increase in volatility or a shift in price direction. A ChoCH usually follows a BOS, confirming a potential trend reversal and suggesting a new phase of market sentiment driven by institutional activities.
5️⃣Fair Value Gaps (Imbalances)
These gaps represent areas on the chart where price moves quickly through, leaving a gap that indicates an imbalance between supply and demand. Institutional traders often target these gaps for potential returns, so prices tend to move back to fill them over time.
➡️Steps to Trade Smart Money Concepts in Forex⬅️
1️⃣Determining the Trend Using Breaks of Structure (BOS)/Change of Character (ChoCH)
Traders can identify the market trend by observing BOS and ChoCH. A trend is typically recognised by a series of higher highs/higher lows (uptrend) and lower lows/lower highs (downtrend).
Trend continuation is seen when there's a clear BOS, where the price surpasses a significant high or low, signalling a shift in market direction. Following this, a ChoCH, an abrupt change in market behaviour, may confirm the new trend. Identifying these elements allows traders to align with the market's momentum, providing a strategic framework for setting a direction.
2️⃣Identifying an Order Block
The next step involves pinpointing areas where institutional traders are likely participating, often signalled by a BOS or ChoCH. Traders look for the range that initiated this shift (marking an order block), with increased odds of accuracy if there's a pronounced move away from the range to create a fair-value gap or if it aligns with a breaker block.
3️⃣Finding an entry point
Once an order block is identified, finding a strategic entry point becomes the focus. Traders typically either position limit orders at the edge of the block or await specific candlestick patterns, such as hammers, shooting stars, or engulfing candles. These signals suggest a possible continuation of the trend, providing a cue for entry. However, other tools, like Fibonacci retracements or indicators, can also be used to identify an entry point within SMC.
The Bottom Line
The Smart Money Concept bridges the gap between retail traders and the elusive strategies of institutional investors, offering a structured approach to deciphering market movements. By understanding and applying SMC principles, traders can navigate the forex market with potentially greater insight and confidence
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