Smart Money Concept: A Focus on Liquidity and Trade Execution
Smart Money Concepts (SMC) empower traders to understand the invisible hand of institutional players ("smart money") in markets. By analyzing liquidity, the lifeblood of price movements, SMC equips you to anticipate potential breakouts and identify high-probability entry points. Let's dive into key concepts:
Liquidity Types:
● ERL (External Range Liquidity): Areas of past significant price swings (highs and lows), attracting orders and potentially acting as support/resistance. Look at Previous Day/Week/Month H/Ls and Previous Trading Sessions H/Ls (Aisa, London, & NY)
● IRL (Internal Range Liquidity): Areas within the current trading range where the price paused or reversed, indicating potential order clusters, like FVGs.
Price moves from one Liquidity Zone (ERL) to the other (IRL) & vice versa!
Price Zones:
● Premium/Discount Array: Based on the recent price leg, calculate the 50% midpoint (fair value) and extend 50% above and below to create a high-probability trading zone in regards to where the price should be going next, for example, if the price is in the lower part of the recent leg, then we should expect a move back into the Premium Array.
Highs & Lows:
● LTH/LTL (Long Term High/Low): Turning points over longer timeframes, often acting as strong magnets for price.
● ITH/ITL (Intermediary Term High/Low): Significant swing points, usually highest / lowest point when the price reaches an imbalance zone.
● STH/STL (Short Term High/Low): Recent swing points within the current trading range, acting as potential pivots, you will find those on both sides of the ITL/L.
Identifying Imbalances:
● Gaps: Unfilled price spaces suggest imbalanced supply/demand, potentially leading to price retracements to fill the gap.
● FVG (Fair Value Gaps): Areas where price gapped through support/resistance, leaving an "unfair" imbalance, attracting corrective moves to rebalance price.
Trade Execution:
● OTE (Optimal Trade Entry): Look for confluences of various SMC elements (liquidity zones, imbalances, price patterns) for high-probability entry points that match the 61.8 / 70 Fibonacci levels.
● Kill Zones: Increased volatility during major market openings (London, New York) can offer high-risk, high-reward opportunities. This is when you should be trading!
Remember:
● SMC is a complex framework, master each element before combining them for strategic analysis.
● Backtest and paper trade your SMC strategies to build confidence before risking real capital.
● Market dynamics are fluid, adapt your analysis and trade execution based on evolving price action.
By understanding these SMC concepts and their interplay with liquidity, you'll gain a good understanding of market movements and improve your trade execution. Remember, practice, patience, and disciplined risk management are crucial for success in any trading strategy.
Liquidity Types:
● ERL (External Range Liquidity): Areas of past significant price swings (highs and lows), attracting orders and potentially acting as support/resistance. Look at Previous Day/Week/Month H/Ls and Previous Trading Sessions H/Ls (Aisa, London, & NY)
● IRL (Internal Range Liquidity): Areas within the current trading range where the price paused or reversed, indicating potential order clusters, like FVGs.
Price moves from one Liquidity Zone (ERL) to the other (IRL) & vice versa!
Price Zones:
● Premium/Discount Array: Based on the recent price leg, calculate the 50% midpoint (fair value) and extend 50% above and below to create a high-probability trading zone in regards to where the price should be going next, for example, if the price is in the lower part of the recent leg, then we should expect a move back into the Premium Array.
Highs & Lows:
● LTH/LTL (Long Term High/Low): Turning points over longer timeframes, often acting as strong magnets for price.
● ITH/ITL (Intermediary Term High/Low): Significant swing points, usually highest / lowest point when the price reaches an imbalance zone.
● STH/STL (Short Term High/Low): Recent swing points within the current trading range, acting as potential pivots, you will find those on both sides of the ITL/L.
Identifying Imbalances:
● Gaps: Unfilled price spaces suggest imbalanced supply/demand, potentially leading to price retracements to fill the gap.
● FVG (Fair Value Gaps): Areas where price gapped through support/resistance, leaving an "unfair" imbalance, attracting corrective moves to rebalance price.
Trade Execution:
● OTE (Optimal Trade Entry): Look for confluences of various SMC elements (liquidity zones, imbalances, price patterns) for high-probability entry points that match the 61.8 / 70 Fibonacci levels.
● Kill Zones: Increased volatility during major market openings (London, New York) can offer high-risk, high-reward opportunities. This is when you should be trading!
Remember:
● SMC is a complex framework, master each element before combining them for strategic analysis.
● Backtest and paper trade your SMC strategies to build confidence before risking real capital.
● Market dynamics are fluid, adapt your analysis and trade execution based on evolving price action.
By understanding these SMC concepts and their interplay with liquidity, you'll gain a good understanding of market movements and improve your trade execution. Remember, practice, patience, and disciplined risk management are crucial for success in any trading strategy.
