SMART MONEY CONCEPT

Steps for SMC Trade are as below:

1. Structure Mapping
2. Identification of Inducement (Liquidity / Pull Back)
3. Finding POI / OB
4. LTF CHoCH / Flip / Sweep / SCOB Setup Identification
5. Identification of Inducement in LTF
6. Identification of OB in LTF

1. STRUCTURE MAPPING
Structure Mapping is started from the point where a fall or rise is observed.
Following points are identified in Structure Mapping:

a. HH/HL & LL/LH

b. Break of Structure
c. Change of Character

a. HH/HL & LL/LH

A “higher high” occurs when the price of a currency pair reaches a

new high that is higher than the previous high, without being preceded by a
lower low. Lower Low is opposite to the Higher High.

A “higher low” occurs when the price of a currency pair reaches a

new low that is higher than the previous low, without being preceded by a
lower low. Lower High is opposite to HL. Fig 1.1 is relevant.
 Fig. 1.1 Showing HH HL LH LL

b. Break of Structure

The order is important. It's a break of structure (BOS) only when a

higher high is formed on an uptrend without first breaking the low. In a
downtrend, it is only a break of structure when the price forms a lower low
before breaking its most recent high. Candle closure above HH/LL is
important for valid BOS.

Fig 1.2 Showing BOS and Inducement in Structure Mapping.

 c. Change of Character

Change of Character is confirmed when market break the last major

high or low against the trend. CHoCH is a sign of trend reversal.

Fig 1.3 Showing CHoCH in Structure Mapping.

2. IDENTIFICATION OF INDUCEMENT (LIQUIDITY / PULL BACK)

a. Inducement: Inducement occurs when smart money reaches out to buy
from traders who have set their stop-loss orders, indicating a potential shift
in market direction. The concept of inducement in SMC trading involves
using liquidity to manipulate prices and lure traders into entering trades.
BOS in invalid without inducement. Inducement is a Smart Money Trap.
Inducement only take place when major high or low is broken. Inducement
is a sign of trend continuation.

In simple words first pull back after or before the structure break is used for
inducement. Fig 2.1 is showing Inducement after BOS.
 Fig 2.1 Showing Inducement

b. Liquidity: Liquidity means the number of people buying or selling in a

particular area of the market, whether they are buying or selling. The Market
Movers needs liquidity to fill their orders. It’s like knowing where the busy
spots are in a market so you can make smarter trades. Liquidity has
different types. These are Engineering Liquidity, Trend Line Liquidity, Equal
Highs and Lows Liquidity, Old Highs and Lows Liquidity, Double Top or
Bottom Liquidity, Sell Stop & Buy Stop Liquidity, Support & Resistance
Liquidity, Flag Pattern Liquidity, Session Highs & Lows Liquidity, Previous
Day Highs & Lows Liquidity.

Fig 2.2 Showing Liquidity Examples.

 Fig 2.3 Showing Engineering Liquidity Examples.

c. Pullback: A pullback occurs when the price of a stock or commodity pauses

or goes against a prevailing trend in the stock market. It is a temporary dip
in a generally upward trending asset price. Pullback is only valid when
current candle break or sweep the last candle’s high or low. 40-50%
Pullback is considered good in case of Structural Pullback.

Fig 2.4 Showing the correct Pullback in Bullish Trend.

 Fig 2.5 Showing the correct Pullback in Bearish Trend.

3. FINDING OB / POI
An Order Block / Point of Interest is refer to a specific area on a chart where
institutional or Smart Money Traders are believed to have placed significant buy or sell
orders. These blocks are considered important because they can influence price
movements and are often used by traders to make informed trading decisions.
Only 02 Order Blocks are important in SMC. First is Decisional Order Block / POI
which is after inducement and second is Order Block / POI is at extreme level. High
Probability OB / POI has some conditions:
a. FVG created by OB.
b. Liquidity taken out by OB/ POI (Previous Candle’s High / Low Sweep /
Break).
c. OB/ POI is in Premium or Discount Zones.
OB Shifted

Fake OB
Fake OB

Fig 3.1 Showing Right and Wrong Order Block Examples

3.1 Order Block Shifting
If high or low of last bullish or bearish candle is taken out by next candle
then order block is shifted to the next candle which took the liquidity. Fig 3.1 is
showing the OB shifting.

3.2 Identifying Fake Order Block

If an OB / POI doesn’t follow any condition is considered Fake OB.
Conditions for high probability OB / POI are already explained. Don’t mark OB/POI
before taking inducement. Fig 3.1 is showing the Fake Order Blocks.

3.3 Identifying Hidden Order Block

If all the OBs are mitigated in a structure then we need to find the hidden
Order Block or POI. For this purpose we have to find a candle’s wick which must
not be mitigated by any other candle. This wick can act like Order Block / POI.

Point B in Fig 3.3.1 is showing an example of a hidden Order Block. Point

A is a normal Order Block but wick of Point B is also unmitigated. So Point B is
also considered a valid Order Block. After Point B all other Order Blocks are
mitigated.

Fig 3.3.1 Showing Hidden Order Block at Point B.

3.4 Understanding Order Flow

Last selling move before the buy is called Bullish Order Flow. Bearish Order
Flow is opposite to it. Order Block is the refined version of Order Flow. Mitigated
Order Flow is Smart Money Trap.

Fig 3.4.1 Showing Unmitigated & Mitigated Order Flows.

3.5 Understanding Fair Value Gap

FVG's are like errors in the market; price mostly tends to back and fill the
gap. FVG is identified by the difference between the high and low of the first and
third candle (in Bullish Market). FVG keeps an Order Block Unmitigated. Absence
of FVG causes mitigation of Order Block. FVG is also termed as Imbalance or
Inefficiency.

Fig 3.5 Showing FVG with OB.

4. LTF CHOCH / FLIP / SWEEP / SCOB SETUP IDENTIFICATION

4.1 CHoCH Entry Setup Identification

In Lower Time Frame if price hit on Higher Time Frame’s Order Block and
break the recent high/low in LTF then it becomes a valid CHoCH. Fig 4.1.1 is
showing this type of CHoCH. Inducement is important for the market to take before
planning the entry.
 Fig 4.1.1 Showing LTF CHoCH after taking the HTF OB/POI

In the fig 4.1.2, we can observe that market tap on the High Time Frame’s Order
Block and take a small pull back but unable to take Inducement but break the recent high.
After breaking the recent high inducement is shifted on the next recent low. Market didn’t
take inducement at any point and not created a valid CHoCH. In this case High Time
Frame’s Order Block is mitigated without getting any reaction. Now this Order Block is not
valid for any future trade. Fig 4.1.3 is showing successful CHoCH & BOS Entry setup.

Recent High

HTF OB

IND

Fig 4.1.2 Showing LTF CHoCH Entry Setup Failure.

 Fig 4.1.3 Showing LTF CHoCH & BOS Entry Setup.

4.2 Entry Without Inducement

If a candle sweep the liquidity of the last candle then inducement is not required.
As we can see in the fig 4.2.1 that in Lower Time Frame after CHoCH we didn’t wait for
the inducement and mark the Order Block and take the direct entry at Order Block. Its
reason is that the Order Block’s candle sweep the liquidity of the previous candle and
now inducement is not important.

Fig 4.2.1 Showing LTF Entry without Inducement.

4.3 Flip Entry Setup Identification
If market tap on any Supply / Demand Area and take a Pullback and then
break the Supply / Demand Area. We will find the OB / POI for the new entry based
on Flip Entry Setup.

In Fig. 4.3.1 market tap on the Bullish Order Block and indicate some
reaction. But fail to keep the momentum and break the Order Block’s Supply Zone.
After breaking the supply zone market created a Demand Zone a Bearish Order
Block. Market tap on the Demand Zone and moved toward the target.

Fig 4.3.1 Showing Flip Entry Setup in Demand to Supply Zone.

4.4 Sweep Entry Setup Identification

If market grab liquidity of last high or low and get some rejection then we
switch into lower time frame and wait for the proper entry setup. In fig 4.4.1 we
marked our CHoCH on the first Pullback and wait for the market to take
inducement. After taking inducement the market closed below the inducement
level, then we took the sell entry because Order Block was not available.
 Fig 4.4.1 Showing Sweep Entry Setup.

4.5 SCOB Entry Setup Identification

Trading in LTF after taking inducement if market doesn’t tap on Order Block
and move in the direction of the trend then we have to find the Single Candle Order
Blocks to take entry in the trend. This type of setup is observed when the candle
take the inducement but doesn’t close below the inducement level. Inducement is
not mandatory in this setup while taking entry in Lower Time Frame because
inducement is already swept by the wick of the candle.

Fig 4.5.1 showing that first candle take inducement and the second candle
take liquidity of the first candle. Second entire candle can act as Order Block if the
third candle close above the second candle. But in this case we can marked the
wick of the second candle as the Order Block for refinement purpose and shift into
Lower Time Frame.

After shifting into Lower Time Frame refine the Order Block. After marking
the valid refined Order Block in Lower Time Frame wait for the entry and place the
stop loss at safe point as shown in fig 4.5.2. This Order Block will act as Decisional
Order Block. Now we can take multiple entries base on this setup if applicable.
Fig 4.5.1 Showing Market Taking Inducement in HTF.

Fig 4.5.2 Showing OB & Entry in LTF.

Fig 4.5.3 Showing Multiple Entries in LTF.

4.6 Entry Without Order Block
If market take inducement and doesn’t find any Order Block then we look
for a candle in the structure where liquidity is swept. If market tap on that candle
then we switch into LTF and find any Entry Setup if available.

Liquidity Swept

Fig 4.6.1 Showing Entry Setup without OB.

5. Identification of Inducement in LTF

Process of identification of inducement in LTF is same as in HTF.

6. Identification of OB in LTF
Process of identification of Order Block in LTF is same as in HTF.

7. Reasons of Failure in SMC Trading

Few reasons of failure in SMC Trading are as below:

a. Trading against the trend.

b. Don’t know how to mark Market Structures, Inducement, and Order Block.
c. Unable to identify presence of Liquidity.
d. Not having real knowledge.

Good Luck!!