Smart Money Concepts

1. Introduction to Smart Money Concepts
The financial markets aren’t just a free-for-all where everyone has the same chance of winning. If you’ve ever felt like the market moves against you right after you enter a trade, it’s probably not your imagination. This is where Smart Money Concepts come in — the idea that large, professional market participants (banks, hedge funds, institutions) have both the resources and the incentive to move the market in a way that benefits them… and often at the expense of retail traders.

The goal of SMC trading is to stop following the herd and start trading in alignment with the “smart money” — the institutional order flow that truly drives price movement.

2. Who is the Smart Money?
Smart money refers to the participants with:

Large capital (able to move the market)

Market-making power (often acting as liquidity providers)

Insider knowledge (economic data in advance, order book depth)

Advanced tools (algorithms, AI, high-frequency trading systems)

Examples:

Central banks

Commercial banks

Hedge funds

Institutional asset managers

Proprietary trading firms

Market makers

Their advantages:

Access to better information (they see real liquidity and order flow)

Ability to manipulate price to hunt liquidity

Risk management expertise

Patience — they don’t rush into trades, they wait for key liquidity zones.

3. The Core Philosophy of SMC
SMC focuses less on retail-style indicators (like MACD, RSI) and more on:

Market structure

Liquidity

Order blocks

Fair Value Gaps

Breaker blocks

Institutional order flow

Stop hunts (liquidity grabs)

The key principle is:

Price moves from liquidity to liquidity, driven by institutions filling their large orders.

This means:

Market doesn’t move randomly.

Smart money often manipulates price to take out retail stops before moving in the intended direction.

Your job is to identify their footprints.

4. Understanding Market Structure in SMC
Market structure is the skeleton of price movement. In SMC, we read structure to know where we are in the trend and what smart money is doing.

4.1. Types of Structure
Bullish Market Structure

Higher Highs (HH) and Higher Lows (HL)

Smart money accumulates before pushing higher.

Bearish Market Structure

Lower Lows (LL) and Lower Highs (LH)

Smart money distributes before dropping price.

Consolidation

Sideways movement — often accumulation or distribution phases.

4.2. Market Structure Shifts (MSS)
When the trend changes:

In bullish trend: price breaks below the last HL → bearish MSS.

In bearish trend: price breaks above the last LH → bullish MSS.

MSS is often the first sign of a reversal.

5. Liquidity in SMC
Liquidity = resting orders in the market.
Institutions need liquidity to execute large trades without causing excessive slippage.

5.1. Where Liquidity Exists:
Above swing highs (buy stops)

Below swing lows (sell stops)

Round numbers (psychological levels)

Previous day/week highs & lows

Session highs/lows (London, New York)

Imbalance zones

5.2. Liquidity Hunts (Stop Hunts)
Before moving price in their intended direction, smart money will:

Push price above a recent high → triggering buy stops → fill their sell orders.

Push price below a recent low → triggering sell stops → fill their buy orders.

This shakeout removes retail traders and positions institutions in the opposite direction.

6. Order Blocks
An order block is the last bullish or bearish candle before a strong move.

Why they matter:
They represent areas where institutions placed large positions.

Price often returns to these zones to mitigate orders.

Types of Order Blocks:

Bullish Order Block

Last bearish candle before price rises aggressively.

Acts as demand zone.

Bearish Order Block

Last bullish candle before price drops aggressively.

Acts as supply zone.

Rules:

Price should break market structure after forming the order block.

Volume/impulse should confirm institutional involvement.

7. Fair Value Gaps (FVG)
Also called imbalances — when price moves too quickly, leaving inefficiency in the market.

7.1. How to Spot:
On a 3-candle pattern, if candle 1’s high is below candle 3’s low (in a bullish move), a gap exists in the middle.

7.2. Why Important:
Institutions tend to return to fill these gaps before continuing the move.

FVG acts as a magnet for price.

8. Accumulation & Distribution
This is where smart money quietly builds or unloads positions.

8.1. Accumulation
Occurs in ranges after downtrends.

Characterized by liquidity grabs below support.

Goal: institutions buy without alerting retail traders.

8.2. Distribution
Occurs in ranges after uptrends.

Characterized by liquidity grabs above resistance.

Goal: institutions sell to retail buyers before dropping price.

9. The SMC Trading Process
Let’s break down a step-by-step approach:

Identify Bias

Use higher timeframe market structure to determine bullish/bearish bias.

Mark Liquidity Zones

Previous highs/lows, order blocks, FVGs.

Wait for Liquidity Grab

Smart money often sweeps liquidity before the real move.

Look for Market Structure Shift

A break of structure confirms the reversal or continuation.

Find Entry at Key Level

Often inside order block or FVG after MSS.

Set Stop Loss

Below/above liquidity sweep.

Target Opposite Liquidity Pool

Price moves from one liquidity area to another.

10. Example Trade
Scenario:

EURUSD is in bullish higher timeframe trend.

On 1H chart: price sweeps previous day’s low (grabbing sell-side liquidity).

MSS occurs → break above minor high.

Price returns to bullish order block.

Entry placed, SL below OB, TP at previous high (buy-side liquidity).