Smart Money Concepts (SMC): Trade Like Institutions
SMC reveals how institutional traders operate—order blocks, fair value gaps, and liquidity engineering. Learn to see the market through their eyes.
- SMC focuses on order blocks (institutional entry zones), FVGs (imbalances), and market structure (BOS/CHoCH).
- The key pattern: liquidity sweep → order block tap → reversal. Trade where smart money trades.
- Thrive automatically identifies order blocks, FVGs, and structure breaks for SMC trading.
Explore SMC Concepts
Click through core Smart Money Concepts:
The last candle before a strong impulsive move. Represents institutional entry points where large orders were placed.
How to Identify
Find the last down-candle before a strong up-move (bullish OB) or last up-candle before strong down-move (bearish OB). Zone extends from high to low of that candle.
Wait for price to return to order block. Enter on reaction (rejection candle). Bullish OB = long entry zone. Bearish OB = short entry zone. Stop beyond the OB. Very high win rate when combined with trend.
What Are Smart Money Concepts?
SMC is price action through the lens of institutional order flow. It asks: where are institutions entering? Where do they need liquidity? What causes impulsive moves? The answers become your trading zones.
While traditional TA uses indicators and patterns, SMC focuses on the mechanics: order blocks show where big players positioned, FVGs show imbalance (price moved too fast), structure breaks show bias changes.
Core Concepts
Order Blocks
The last candle before a strong impulsive move. This is where institutions placed their orders. When price returns to an order block, it's likely to react—those orders may still be valid.
Fair Value Gaps (FVG)
Three-candle pattern creating a gap where no trading occurred. FVGs are imbalances—the market moved so fast it left unfilled orders. Price tends to return to fill these gaps.
Break of Structure (BOS)
When price breaks a swing point in trend direction. Confirms trend continuation. Trade pullbacks after BOS for trend entries.
Change of Character (CHoCH)
When price breaks a swing point against trend. First warning of potential reversal. Doesn't mean reversal confirmed—but bias is questioned.
| Concept | What It Shows | Trading Use | Reliability |
|---|---|---|---|
| Order Block | Institutional entry | Entry zone | High with trend |
| FVG | Imbalance | Target/entry | Medium |
| BOS | Trend continuation | Bias confirmation | High |
| CHoCH | Possible reversal | Warning signal | Medium |
Trading with SMC
The Complete Setup
- Higher TF Bias: Identify trend direction via structure (BOS confirms, CHoCH warns)
- Entry Zone: Mark order blocks and FVGs on higher TF
- Wait for Return: Price returns to OB/FVG during pullback
- Lower TF Confirmation: Look for sweep + reversal on entry TF
- Execute: Enter on confirmation, stop beyond zone
The Power Combo: Liquidity Sweep + Order Block
Best SMC setup: price sweeps liquidity (takes out obvious highs/lows), taps an order block, then reverses. The sweep provides liquidity for institutions to fill at the OB, then price reverses. Very high probability when aligned with HTF bias.
Common Mistakes
- Every candle is an OB: True order blocks precede strong moves. Weak moves don't create valid OBs.
- Ignoring trend: OBs against trend fail more often. Trade with the trend.
- No confirmation: OB + sweep is good. OB + sweep + reversal candle is better.
- Single timeframe: SMC requires multi-TF analysis. HTF for bias, LTF for entry.
- Over-marking: Chart covered in zones = analysis paralysis. Mark only significant levels.
Frequently Asked Questions
What are Smart Money Concepts?
SMC is a trading methodology focused on understanding how institutional traders move markets. It emphasizes order blocks, fair value gaps, market structure, and liquidity rather than traditional indicators.
What is an order block?
The last candle before an impulsive move—represents where institutions placed orders. Bullish OB = last down candle before strong up move. Bearish OB = last up candle before strong down move.
What is a fair value gap (FVG)?
Three-candle pattern where middle candle's body creates a gap between candle 1 and 3 wicks. Represents imbalance—price moved so fast no trading occurred in that zone. Price tends to return to fill FVGs.
What is break of structure (BOS)?
When price breaks a swing point in the direction of the trend, confirming continuation. In uptrend: BOS = new higher high. Confirms bullish bias continues.
What is change of character (CHoCH)?
When price breaks a swing point against the trend, signaling potential reversal. In uptrend: CHoCH = break below previous low. First warning of trend change.
Is SMC better than traditional TA?
SMC is another perspective on price action. It's not magic—same principles different language. Works best combined with sound risk management and market context. No approach guarantees wins.
What timeframe is best for SMC?
Multi-timeframe is essential. Higher TF (4H, daily) for bias and major zones. Lower TF (15m, 1H) for entries. Trade lower TF setups into higher TF order blocks for best results.
How do I combine SMC concepts?
Higher TF bias (BOS/CHoCH) → identify direction. Wait for price to return to OB or FVG → entry zone. Look for lower TF confirmation (sweep + reversal) → trigger. Always use stops.