When I first heard about Smart Money Concepts (SMC), it changed the way I look at markets. Instead of guessing where price might go next, I started following the footprints of the big players like banks, hedge funds, and institutional traders who move the market with real power. This approach helped me understand how smart money operates, where liquidity hides, and how to set up trades with better reward-to-risk ratios.
In this guide, I’ll walk you through the basics of SMC, how I identify key market structures like order blocks and fair value gaps, and how I use Fibonacci zones to find premium and discount areas. Whether you trade forex, crypto, or synthetic indices, these concepts will help you trade smarter and control your emotions better.
The course provides a comprehensive basic understanding of how to follow the footprint of institutions, also known as Smart Money, and teaches how SMC positions itself and how SMC finds liquidity. It is designed to transform losing traders into profitable traders by teaching them about Smart Money Concepts, an advanced trading strategy that combines Key level strategy and Traditional Supply Demand with Market structure to optimize win rate, reward per risk ration, and help traders control their emotions better (Dawson, 2024).
1.Understanding Smart Money Concepts
Smart Money Concepts taught me to think like an institutional trader. Rather than following every indicator or signal, I focus on the market’s structure and liquidity flow. Key elements like order blocks, fair value gaps, and breaks of structure tell me where the smart money is positioning.
1.1 Key terms in SMC include:
Order blocks: are areas where institutions have placed big orders. I watch for potential reversals.
Fair value gap: show me where price moved quickly, leaving “imbalances” I expect the market to fill later.
1.2 Liquidity: Liquidity refers to price levels where orders accumulate typically stop-losses and pending buy/sell orders. These areas make an asset “liquid” because they offer enough volume for institutional traders to execute large orders without significant slippage.
One of the most common patterns where liquidity builds is around Double Tops and Double Bottoms.
Double Top = Buy-Side Liquidity
When retail traders see a double top, they often expect a reversal. Many place sell orders or stop-losses above the second high, but smart money knows this-so they push price just above the highs to trigger those stops and grab liquidity before reversing the market.
Double Bottom = Sell-Side Liquidity
Similarly, a double bottom traps traders expecting the market to bounce. Stop-losses are usually set just below the structure. Institutions will often pierce the low, collect sell-side liquidity, and then reverse price back up, leaving retail traders confused.
🎯 Why This Matters
Understanding how smart money exploits these liquidity zones can help you:
- Avoid false breakouts
- Anticipate institutional entries
- Time your own trades with tighter stops and better precision
Instead of trading against the trap, you learn to wait for the sweep, then follow the real move.
1.3 Break of structure (BOS): Occurs when the price surpasses the previous high, signaling a change in the market's behavior.
1.4 Change of character (ChoCH): Indicates a potential change in the market's character when the price drops below previously established lows.
SMC is derived from Wyckoff's Theory, introduced by Richard D. Wyckoff, which aims to reveal the intentions of "smart money" in the market through price and volume analysis. The Wyckoff Price Cycle consists of four main phases: accumulation, markup, distribution, and markdown. Smart money refers to capital placed in the market by institutional investors, market mavens, central banks, funds, and other financial professionals who often conduct in-depth fundamental analysis, including analyzing financial statements, management teams, and market trends.
I also pay special attention to order blocks and breaker blocks, these are where big players accumulate or break market levels to trigger stops and grab liquidity. Watching these structures helps me avoid false breakouts and ride genuine moves.
If you want to understand more about market structure and price action, check out my guide on Mastering Price Action.
2. Identifying Key Market Structures:
Market structure is a fundamental concept that guides understanding of upward, downward, and sideways trends in various markets, acting as a guide for understanding price movement and identifying trading opportunities. It highlights support and resistance levels, swing highs, and swing lows, illustrating who is in control and identifying trends (Lee, 2024)
2.1 Key components of market structure include:
- Higher highs and higher lows: Indicative of an uptrend.
- Lower highs and lower lows: Indicative of a downtrend.
- Support: A price level that can halt a downtrend due to a concentration of demand or buying interest.
- Resistance: A price level that repels an uptrend due to the emergence of an increased number of sellers.
Market structure analysis is distinct from price action analysis, offering a unique perspective on the market . It is crucial for improved risk management and developing a real edge in the markets, and can be applied to any market, including Forex, futures, and stocks.
2.2 Additional key market structures in Smart Money Concepts (SMC) include:
- Order Blocks (OB): Market conditions where central banks, governments, and large financial institutions accumulate or distribute large quantities of an asset through several big orders.
- Breaker Blocks: Order blocks that fail to hold the price level in a given trend, representing price levels where market makers intentionally break through support or resistance levels to trigger stop-loss orders from retail traders.
- Fair Value Gaps (FVG): Gaps on price charts that occur when the market moves quickly from one price level to another, indicating significant shifts in market sentiment.
- Break of Structure (BOS): Shifts in the market's overall trend, identified when the price sets a new high or a new low while breaking the former ones.
- Change of Character (Choch): Abrupt shifts in market behavior, indicating a weakness in the current trend and a possible reversal.
- Liquidity: A point in the price of an asset where orders are either sitting above or below, waiting to be collected.
3.Application of Fibonacci and Discounted Zones:
The Fibonacci retracement tool is a valuable asset in Forex trading, used to identify premium and discount zones (PD zones). In a bullish trend, the discounted zone lies below the 50 level, while the premium zone is above it. Conversely, in a bearish trend, the discounted zone is above the 50 level, and the premium zone is below .
3.1 PD zones offer several benefits, including:
- Formulating setups in trend continuation markets
- Filtering out low probability trade setups
- Improving risk to reward ratio
These zones are most effective on higher time frames, such as daily, H4, and H1 . To locate PD zones, traders use the Fibonacci retracement tool to measure the magnitude of retracement or pullback against the expansion. The 50% level serves as the equilibrium point, where there is no premium or discount.
Traders can utilize PD zones to catch trend continuation by waiting for the price to enter the discounted zone before executing a trade . Additionally, they can look for order blocks, fair value gaps, or demand and supply zones within the discounted area when the price revisits this zone.
3.2 The Fibonacci retracement levels are drawn between the high and low of an uptrend, with the following key levels:
0% level: High of the trend
38.2% to 0% levels: Premium area
50% level: Equilibrium
68.1% to 100% levels: Discount area
The strategy involves buying from the discount area and selling from the premium area to secure the best possible price . While the Fibonacci tool can also be used for setting targets, its primary use is to identify the creation of new demand or supply zones. The highest probability is for price to enter the premium or discount area for buying or selling.
Fibonacci retracements are crucial for identifying key levels of support and resistance in the forex market. They are calculated after a market has made a significant move either up or down and appears to have stabilized at a specific price level. The key Fibonacci retracement levels are 38.2%, 50%, and 61.8%, which are considered especially important when a market has approached or reached a major price support or resistance level. The 50% level, although not part of the Fibonacci number sequence, is included due to the widespread trading experience of a market retracing about half a major move before resuming its trend.
4.The Complete Smart Money Concepts Guide is a comprehensive resource that includes:
7 strategies used by top smart money players, understanding of levels of liquidity sweeps for trading, mastery of order blocks, Break of Structure, Change of Character, Fair Value Gaps, Equilibrium, and daily bias determination, and knowledge of the Daily SMC strategy:
4.1 Section 4: Putting It All Together - My Trading Process
The Smart Money Concepts course is structured in depth, covering definitions, main strategy, and extra knowledge. The main strategy includes trading follow trend and trading break trend, with theory and examples provided . Traders should follow a top-down approach, starting analysis from higher time frames to identify larger market trends. The course covers SMC techniques for various trading styles, including swing, intraday, and BTSD trading.
To apply SMC in real trading scenarios, consider the following examples:
Best Learning Video : Smart Money concepts
Applying Smart Money Concepts takes discipline. I use multiple timeframes and closely watch market conditions. The strategies I share are powerful, but it’s important to practice and gain real experience to fully understand how to use them. With dedication and the right approach, Smart Money Concepts can help you sharpen your skills and move closer to your trading goals.
5. Final Thoughts
Smart Money Concepts gave me a way to trade that feels less random and more strategic. While it takes time to master, applying these ideas has improved my win rate and my confidence.
If you want to dig deeper into these strategies, I recommend starting with my full Price Action Trading eBook where I cover these concepts in even more detail.
If you want a detailed guide, check out my eBook on Smart Money Concepts.
6. Further Reading
Mastering Price Action: An In-Depth Guide
How to Draw and Trade with Trendlines
"Smart Money Trading: How to Trade Like the Market Makers" by Alex Dawson (2024)
A practical guide that explains how institutional traders think and how retail traders can use Smart Money Concepts to their advantage.
"Institutional Trading and Price Action Mastery" by Samantha Lee (2024)
This book dives deep into market structure, liquidity, and order blocks, offering actionable strategies based on real institutional behavior
7. FAQs
Q: Can Smart Money Concepts guarantee profits?
A: No strategy guarantees profits, but SMC helps you understand how big players move markets, improving your edge.
Q: Is SMC better than price action trading?
A: They’re complementary. I use SMC alongside price action for a fuller picture.
Q: How long does it take to master SMC?
A: Like any trading style, it takes practice and patience-expect months of study and demo trading
Last updated: July 31, 2025
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