Origin and Educational Resources
Key Concepts and Terminology
Order Blocks
Refers to the discussion of supply and demand, with some SMC traders considering order blocks a more refined concept in comparison to traditional supply and demand analysis.
Breaker Blocks and Mitigation Blocks/Flip Zones
These terms pertain to order blocks that have been flipped, similar to break and retest zones.
Fair Value Gaps
Describes an imbalance in the market, occurring when the price leaves a specific level with minimal trading activity and exhibits one-directional price movement.
Liquidity
A fundamental aspect of SMC, liquidity refers to specific price points where orders accumulate in the market, making an asset class “liquid.” Liquidity can manifest in various forms, such as highs and lows, equal highs/lows, and trend line liquidity.
Understanding Market Structure
In SMC trading, one significant aspect of market analysis is the focus on the “break of structure” (BOS) in the market. This concept involves recognizing breaks of previous highs and lows, as well as changes in character (ChoCH) when the price drops below established lows. By understanding these patterns, SMC traders aim to make informed trading decisions based on the market’s behavior, often mapping them out using terms such as higher high (HH), higher low (HL), lower low (LL), and lower high (LH).
Trading Perspective and Key Takeaways
It is important to note that SMC traders do not replicate the actions of banks and major market participants. Instead, their approach is an interpretation of how they believe these entities might trade. While SMC may not mirror the precise actions of market makers, it provides traders with valuable insights and a framework to develop effective trading strategies tailored to their individual styles.
Key Takeaways:
- Smart Money Concepts (SMC) trading strategy is an alternative approach to price action in Forex, incorporating classic principles under new names and descriptions.
- SMC focuses on emulating the trading patterns of market makers to gain an edge in trading.
- The Inner Circle Trader (ICT) and Michael J. Huddleston are prominent figures in teaching SMC, but caution should be exercised when selecting educational sources.
- Familiarize yourself with SMC terminology, including order blocks, breaker blocks, fair value gaps, and liquidity.
- Market analysis in SMC involves recognizing breaks of structure and changes in character.
- SMC traders interpret the actions of market makers rather than directly replicating them.
In conclusion, the Smart Money Concepts trading strategy offers a unique perspective on price action in Forex. While it may not precisely mirror the actions of banks and major market participants, it provides traders with valuable insights and a framework to develop effective trading strategies. By understanding the key concepts and terminology associated with SMC, traders can enhance their decision-making process and potentially improve their trading results.
