Smart Money Concepts (SMC)

Retail traders chase indicators. Smart money hunts liquidity. SMC flips your view: instead of asking "what does my indicator say?", you ask "where are the stops, and where will price go to grab them?"

1. Market structure — BOS & CHoCH

Structure is the sequence of highs and lows. An uptrend makes higher highs and higher lows; a downtrend the opposite.

• Break of Structure (BOS): price breaks the most recent high (uptrend) or low (downtrend) — the trend continues.
• Change of Character (CHoCH): price breaks structure in the opposite direction — the first clue the trend may be turning.

2. Liquidity

Liquidity is simply resting orders — clusters of stop losses. They sit above obvious highs (buy-side liquidity) and below obvious lows (sell-side liquidity). Price is repeatedly drawn to these pools because that's where big orders can be filled. A liquidity sweep is price spiking through a high/low to trigger those stops, then reversing.

3. Order blocks

An order block is the last opposing candle before a strong, impulsive move — the area where institutions likely placed orders. When price returns to that block, it often reacts, giving you a precise entry zone with a tight stop.

4. Fair value gaps

A fair value gap (FVG) is an imbalance — a three-candle pattern where price moved so fast it left a gap that often gets "rebalanced" later. FVGs are powerful entry and target zones. We cover them in depth in the Fair Value Gap guide.

Putting it together — the SMC flow

1. Identify higher-timeframe bias from market structure.
2. Find the liquidity price is likely targeting (a recent high or low).
3. Wait for the sweep of that liquidity.
4. Look for a CHoCH on a lower timeframe confirming the reversal.
5. Enter at the order block or FVG; stop beyond the swept extreme; target the next liquidity pool.