Hello traders, welcome to our blog in today's article, we gonna be explaining Smart Money Concepts in forex trading inorder for you to understand what this term means in forex trading. So without wasting much of your time, let's proceed with the article.
Hope this article explained some of the questions you had about smart money concepts, this was just a hint of what the concepts mean, remember forex trading is risky and ensure you obtain the right knowledge first before you involve in this business.
What is Smart Money Concepts?
Smart Money Concepts is a term given a style of trading that was introduced and popularised by a famous trader by the names of Richard D. Wyckoff, He also developed the Wyckoff Method , which emphasizes understanding the intentions of the "smart money" in the market through price and volume analysis.
The modern Smart Money Concepts has however been modified and popularised by a famous trader and youtuber Iman Akil also often known under his pseudonym "ICT" which is short for the Inner Circle Trader.
Smart Money Concepts is drawn along the lines of the market is allogrithmically manipulated by big players who have enough capital to move prices in the markets such as the banks, hedge funds and big financial institutions. Therefore Smart Money Concepts traders use specific concepts to track down the foot prints of the big players(Smart Money) and trade along side them to fill high risk to reward ratio trades.
Terms used in smart money money concepts.
1. An order block
An order block refers to a specific area on a price chart where a significant concentration of buy or sell orders has occurred. These orders are typically believed to be placed by institutional traders(smart money) who are trying to accumulate or distribute large positions without significantly impacting the market price. Prices often return to these points on the chart and reverse.
2. A Fair Value Gap
A fair Value Gap( FVG) refers to a price gap on a chart that suggests an imbalance between supply and demand. This gap occurs when the price jumps significantly from one level to another, skipping price levels in between. These specific candle sticks that have fair value gaps often have no wicks that fill this gap. In smart money concepts, it's believed that price always has to fill these gaps first before continuing in intended directions.
3. A break of structure.
A break of structure(BOS) refers to a significant shift or disruption of price movement. It typically occurs when the price breaks through key support or resistance levels such as a higher high or lower low, indicating a potential change in the trend or a continuation of the existing trend with increased momentum.
4. Change of character (choch)
A change of character Change of Character (ChoCh) refers to a shift in the order flow, signifying a potential reversal in the prevailing market trend. It essentially highlights the initial point where the market's behavior starts to deviate either market changing from uprend to down trend or vise verser.
5. Liquidity.
liquidity refers to the ease with which a currency pair can be bought and sold without significantly impacting its exchange rate. It essentially reflects the level of trading activity and the availability of buyers and sellers for a particular currency pair. However in smart money concepts, liquidity can also mean areas on the price chart where dumb money stops lie in the market therefore price is manipulated to take out those stops before it continues in its intended direction.
6. Market structure.
Market structure refers to the overall organization and behavior of price movements over a specific time frame in the markets. It encompasses various elements that provide valuable insights into the current market sentiment( direction), potential trend direction, and areas of potential support and resistance.
"The difference between successful people and others is not a lack of strength, not a lack of knowledge, but rather a lack of will." - Vince Lombardi
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