What is Smart Money Concept
The **Smart Money Concept (SMC) term is getting very popular among all the traders. What is SMC and other terms like BOS, ChoCh, Order Block, Fair value Gap and more. In Today Article, we will learn all these terms. Well, SMC is a trading strategy that follows how big players like FII’s and DII’s, banks, hedge funds, and institutional traders move the market. Instead of relying on retail indicators, SMC focuses on understanding price action and liquidity to predict future movements.
Here are the some most common terms used in SMC:
—
**1. Break of Structure (BOS)**
Break of Structure, in short (BOS) happens when the price breaks a key swing high or low, confirming a trend change. You might be aware about the DOW Theory, when the price during an uptrend make Higher High and retrace from a level and when it break its previous high and close above the previous high and makes a new high. it called higher high formation.
– **In an Uptrend**: Price breaks above the last swing high.
– **In a Downtrend**: Price breaks below the last swing low.
**Why it matters?**
A BOS tells us that the trend is likely continuing. If price breaks structure upward, traders look for buy opportunities.
—
**2. Change of Character (CHOCH)**
Change of Character (CHOCH) indicate that a possible trend reversal. It happens when price fails to make a higher high and higher low combination, and doesnt make new high and fall below the previous low. It means that the trend is likely to change it character.
– **Example**: In an uptrend, if price fails to break higher and drops below a key support, it may mean buyers are losing control.
**Why it matters?**
CHOCH warns traders that the trend might be ending, helping them avoid false breakouts.
—
**3. Fair Value Gap (FVG)**
As its name suggest that Fair Value Gap or (FVG) is a price gap or imbalance among the candles. It consist a series of three candles just like 3 white soldiers and there is a gap between the wicks of first and third candle and the body of second candle. This Gap is known as FVG or fair Value Gap. it is believed that market or price more likely to get reverse from this level.
– **How to spot it?**
– Look for a large candle followed by two smaller candles that don’t fully cover the big candle’s range.
– This creates an area where price may return to “fill the gap.”
**Why it matters?**
FVG acts as support/resistance. Price often retraces to fill these gaps before continuing the trend.
—
4. Order Block (OB)
An Order Block is the most potentioal area. it is the zone where accumulation was stared and it is just below the fair value gap. It is also possible what if price dips below the FVG it is more likely to get demand from this level.
– **Bullish Order Block**: A strong green candle before a drop (support zone).
– **Bearish Order Block**: A strong red candle before a rise (resistance zone).
**Why it matters?**
Price often respects these zones, making them good entry points for trades.
—
5. Liquidity
**Liquidity** refers to areas where many traders place their stop losses or take-profit orders.
– **High Liquidity Zones**:
– Above swing highs (for short stops).
– Below swing lows (for long stops).
**Why it matters?**
Smart money hunts these liquidity zones to trigger stops before reversing the price.
—
6. Liquidity Sweep
A **Liquidity Sweep** happens when price briefly spikes beyond a key level (like a swing high/low) to trigger stop losses before reversing.
– **Example**:
– Price shoots above a resistance, traps buyers, then drops sharply.
**Why it matters?**
Traders can use liquidity sweeps to enter trades in the opposite direction.
—
Final Thoughts
Smart Money Concept helps traders think like institutions. By understanding **BOS, CHOCH, FVG, Order Blocks, and Liquidity**, you can spot high-probability trades before most retail traders.
Would you like to learn Smart Money Concept? Learn our Technical Analysis Course. Call us know! 8287996284🚀