**The Ultimate Guide to SMC (Smart Money Concepts) in Forex Trading**
*Inspired by the content shared by The Trader Circle (YouTube: “Smart Money Concepts SMC Forex Trading (ICOD, MITD, SIBI, OB)”)
Original Author: The Trader Circle*
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**Introduction to SMC (Smart Money Concepts)**
In recent years, Smart Money Concepts (SMC) have become increasingly popular within Forex trading circles. These concepts encompass an institutional approach to trading, focusing on liquidity, manipulation, and market structure. Unlike retail trading strategies that rely on indicators and simple support-resistance, SMC delves deeper into how and why prices move, seeking to trade along with the “smart money”—large banks and institutions that drive the market.
This article provides a comprehensive overview of SMC, distilling insights from The Trader Circle’s presentation. It will explore foundational terms, practical application, and key patterns, equipping traders to analyze markets with an institutional edge.
**1. What is Smart Money?**
**Smart Money refers to:**
– Large financial institutions: hedge funds, investment banks, and market makers
– Entities with the capital and resources to manipulate price for optimal order execution
– Traders who follow refined, high-probability strategies based on understanding market structure and liquidity
**Why Trade Like Smart Money?**
– Retail traders often fall victim to moves and traps created by larger institutions
– Understanding SMC reveals the motive behind price moves, enabling traders to avoid manipulation and trade in alignment with major players
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**2. Core SMC Terminology and Concepts**
**Internal Structure:**
Determining the major direction of the market (trend, consolidation, etc.) based on price action, swing highs and lows.
**Liquidity:**
Liquidity is the pool of orders resting above or below obvious swing points. Institutions seek this liquidity to fill large positions without slippage.
**Order Blocks (OB):**
Zones where institutions have opened large positions, often marked by a significant reversal from a consolidation candle.
**Mitigation Blocks (MITD):**
Similar to order blocks, but representing areas where orders are mitigated or closed.
**Sell Side and Buy Side Liquidity:**
– Sell side liquidity: Clusters of stop losses below swing lows
– Buy side liquidity: Clusters of stop losses above swing highs
**ICOD (Institutional Candle of Displacement):**
Powerful momentum candles that break important market structure levels, signaling institutional entry.
**SIBI (Sell Side Imbalance Buy Side Inefficiency):**
An area in price where the market moved rapidly down, creating an imbalance with inefficient price discovery. The market will often retrace to these zones in the future.
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**3. Market Structure: The SMC Foundation**
To trade like smart money, you must read and understand market structure. This involves:
– Identifying **breaks of structure** (BOS)
– Recognizing **higher highs and higher lows** in an uptrend, and **lower lows and lower highs** in a downtrend
– Noting **internal and external range structures** to determine trend stage and likely liquidity targets
*Example:*
If EURUSD makes a new lower low, retraces, and then breaks the previous lower high with momentum, this signals a possible reversal—institutions are likely accumulating.
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**4. Liquidity, Stop Hunts, and Manipulation**
Institutions often engineer “fakeouts” to trigger stops, providing themselves liquidity to enter or exit positions.
**Patterns created:**
– Price makes a swing high/low, consolidates, then violently breaks through, only to reverse (stop hunt)
– The greatest liquidity often rests above a swing high (buy stops) or below a swing low (sell stops)
– SMC traders look for price to attack liquidity before reversing from an order block
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**5. Order Blocks and MITD: Where Institutions Operate**
**Order Blocks
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