Key Concepts in Smart Money Trading

Introduction

• Many traders lose money due to a lack of understanding of how "smart money" operates.
• The focus is on ICT (Inner Circle Trader) concepts crucial for serious traders.

1. Imbalance Inefficiency: Fair Value Gap

• Fair Value Gap: Occurs when price moves quickly, leaving a gap between candle wicks.
• Indicators of Gaps:
  • First and third candle wicks that don’t overlap.
  • Represents an area dominated by buyers or sellers.
• Market Dynamics: These gaps attract price back to them due to market's tendency to seek balance.
• Trading Strategy:
  • Use fair value gaps for potential entry/exit points.
  • Focus on zones causing the imbalance.

Liquidity Concepts

• Liquidity: Area where stop-losses are placed; targeted by smart money.
• Liquidity Sweeps: Smart money pushes price beyond swing points to activate stop-losses and create entry points for their positions.
• Equal Highs and Lows:
  • Equal Lows: Multiple lows at the same level, appears as strong support.
  • Equal Highs: Price reaches multiple times at the same resistance level.
• Smart Money Strategy:
  • Wait for the price to take out equal highs/lows.
  • Enter a key zone like a supply or demand area with confirmation on direction.

Price Movement Concepts

• Mitigations: Determine who's in control of the market—buyers or sellers.
  • If price moves above a previous high, buyers are in control.
  • If price moves below a previous low, sellers are in control.
• Market Structure:
  • Consists of swing highs, swing lows, and the overall flow.
  • A clear uptrend features higher highs and higher lows.
  • Respect of previous lows and breaking of new highs indicates an uptrend.

Order Blocks and Breaker Blocks

• Order Blocks:
  • Areas on the chart where large volume trades by institutions have affected price.
  • When price moves strongly above a previous high, the origin of this move is identified as the order block.
• Breaker Blocks:
  • Form when a valid order block fails to hold, and the market structure shifts.
  • This results in a zone where the opposite market force takes over, causing price reversal.

Utilizing Smart Money Concepts

• Reading Charts: Identifying dominant market players (buyers or sellers) is crucial to setting up your trades effectively.
• Assessment Criteria:
  • Check if price is reaching a demand or supply zone.
  • Look for signs of liquidity grabs like stop hunts within those zones.
  • Observe if price is still breaking new highs for uptrends or new lows for downtrends.

Conclusion

Harnessing ICT concepts like fairness gaps, order blocks, liquidity sweeps, and market structure shifts can significantly improve trade quality. These concepts should be used in combination with market structure, liquidity, and timing for best results. Practice and experience are key to mastering these techniques.

Action Points

1. Improve understanding of smart money concepts.
2. Identify and utilize fair value gaps for trading.
3. Recognize and prepare for liquidity sweeps.
4. Analyze market structure and mitigate zones to understand market dynamics.
5. Use valid order blocks for high-probability setups, focusing on changing market structure.
6. Continuously practice to enhance trading strategies and decisions.

Subsequent Core Concept: Liquidity (Introduction Text)

• Definition: Identifies where stop-losses are usually placed.
• Smart Money Observation: Moves market to exploit liquidity from stop-losses.
• Strategic Entry: Wait for stop-loss sweeps before entering the market at demand zones.