The Bank’s Blueprint: An Advanced Guide to Smart Money Concepts (SMC) in Forex

Stop trading against the market. Start trading with it. This is how institutions really move price.

Unlock the Forex market by trading like institutions. This guide decodes Smart Money Concepts (SMC), from order blocks and liquidity grabs to fair value gaps, giving you a blueprint for high-probability setups.

• Master Liquidity: Discover why “equal highs” and “equal lows” are not support/resistance, but liquidity pools. Learn to identify exactly where institutional “stop hunts” will target retail traders’ stops before a major reversal.
• Decode Order Blocks: Go beyond simple supply and demand. Pinpoint the exact last institutional candle before a structure-breaking move. We’ll show you how to find “mitigated” vs. “unmitigated” blocks for high-probability, high-R:R entries.
• ⚡️ Identify Price Imbalances: Learn to spot “Fair Value Gaps” (FVGs)—the three-candle vacuums left by aggressive institutional buying or selling. Price is drawn to these gaps like a magnet, offering you a precise entry model before the next big move.
• Read the True Narrative: Differentiate between a “Break of Structure” (BOS), which confirms a trend, and a “Change of Character” (CHoCH), which signals the first warning of a major reversal. This is the key to knowing when to follow and when to fade.
• Build a Fractal Workflow: Integrate high-timeframe (HTF) bias with low-timeframe (LTF) precision. We’ll show you how to map a Daily trend, identify a 4-Hour order block, and wait for a 5-Minute confirmation entry, aligning all timeframes for a perfect setup.

Introduction: The 90% Problem

If you have spent any time in the Forex market, you have heard the grim statistic: 90% of retail traders lose 90% of their money in 90 days. But why?

For decades, retail traders have been taught the same classical technical analysis: draw trendlines, plot support and resistance, add a Moving Average, and watch for an RSI divergence. The problem is, this is what everyone is taught. And if everyone is doing the same thing, who is on the other side of the trade?

The answer is “Smart Money”—the institutional giants like central banks, hedge funds, and major financial institutions. These entities move trillions of dollars daily and cannot simply click “buy” on a billion-dollar EUR/USD position. They must accumulate and distribute their positions strategically, and they often do so by engineering price moves to feed off the predictable behavior of retail traders.

This is where Smart Money Concepts (SMC) come in.

SMC is not an indicator or a trading system. It is a philosophy. It is a lens through which to view the market, shifting your perspective from a retail trader (often called “dumb money”) to an institutional one. It’s about reading the story of price action, understanding the “why” behind price movements, and identifying the digital footprints left behind by the major players.

This guide will not give you a magic signal. It will give you something far more powerful: a blueprint for understanding how the market truly functions. We will deconstruct the core pillars of SMC, moving from the foundational concepts of liquidity and market structure to the advanced entry models involving order blocks and imbalances.

Prepare to unlearn what you thought you knew about trading.

The Core Philosophy: Liquidity is the Fuel

Before we look at a single chart pattern, you must understand one non-negotiable concept: Liquidity is the fuel of the market.

Everything that happens, every major move, every reversal, and every trend is driven by the hunt for liquidity.

Who is “Smart Money”?

First, let’s clarify our terms.

• Smart Money: These are the market participants with enough capital to (literally) move the market. Think major banks, institutional investment funds, and market makers. They operate on a scale unimaginable to retail traders.
• Retail Money (or “Dumb Money”): This refers to the vast majority of non-professional, individual traders. Their collective actions, while small individually, create predictable patterns that smart money can exploit.

Smart Money cannot just place a 5-billion-dollar buy order. There isn’t enough “sell” volume at a single price point to fill it. If they tried, their own order would skyrocket the price, giving them a terrible average entry.

Instead, they must be subtle. They need to buy when others are selling. So how do they find a massive pool of “sell” orders?

The “Stop Hunt”: Engineering Liquidity

This is the “A-ha!” moment for most new SMC traders. Smart Money finds liquidity by triggering the stop-losses of retail traders.

Think about classical technical analysis:

• You are taught to place a buy-stop order just above a clear resistance level to catch a “breakout.”
• You are taught to place a sell-stop order (your stop-loss) just below a clear support level.

Now, think like an institution. Where are the largest, most predictable pools of orders? They are clustered right above old highs (“resistance”) and right below old lows (“support”).

A “stop hunt” (also called a “liquidity grab” or “liquidity sweep”) is an engineered price move designed to do one thing: push price just far enough to trigger all those stop-loss orders.

• When a sell-stop is triggered, it becomes a market sell order.
• When a buy-stop is triggered, it becomes a market buy order.

If an institution wants to buy a massive position, it will first push the price down to sweep below a clear support level. This triggers a cascade of retail stop-losses (market sell orders). The institution then steps in and buys all of those sell orders, filling their giant position at a discount price.

Once their orders are filled, they have no reason to keep the price low. Price then violently reverses, leaving all the “breakout” sellers trapped and all the “support” buyers stopped out.

This is why you constantly see price “wick” through a support level, grab your stop-loss, and then fly in the direction you originally predicted. You weren’t wrong about the direction; you were just the liquidity.

Your new rule: Obvious support and resistance levels are not barriers. They are liquidity pools waiting to be swept.

Pillar 1: Reading the Narrative with Market Structure

Now that we know why the market moves (to seek liquidity), we need to understand how it moves. Market structure is the grammar of price. It tells us the story of who is in control.

SMC refines traditional market structure analysis into a more precise science.

Break of Structure (BOS): The Trend Confirmed

A trend is a series of highs and lows.

• Uptrend: Characterized by Higher Highs (HH) and Higher Lows (HL).
• Downtrend: Characterized by Lower Lows (LL) and Lower Highs (LH).

A Break of Structure (BOS) occurs when price makes a new high or low in the direction of the trend.

• In an uptrend, when price breaks above the previous Higher High, this is a bullish BOS. It confirms the trend is strong and buyers are still in control.
• In a downtrend, when price breaks below the previous Lower Low, this is a bearish BOS. It confirms sellers are in control.

A BOS is a continuation signal. We use it to confirm our bias. After a BOS, we typically expect a “pullback” before the next move in the same direction.

 Change of Character (CHoCH): The First Whisper of Reversal

This is the single most important structural signal you will learn.

A Change of Character (CHoCH) is the first sign that a trend is potentially reversing. It is the opposite of a BOS.

• Imagine an uptrend (making HHs and HLs). Price fails to make a new Higher High. It then pulls back and breaks below the most recent Higher Low. This is a bearish CHoCH. The protective low that was holding the trend has failed. This does not mean the market is instantly in a downtrend, but it is our first warning sign that sellers are stepping in and the bullish narrative is failing.
• Imagine a downtrend (making LLs and LHs). Price fails to make a new Lower Low. It then rallies and breaks above the most recent Lower High. This is a bullish CHoCH. The protective high that was holding the trend has failed. This is our signal that buyers are taking control.

The Workflow:

1. We see a trend.
2. We see a CHoCH against that trend.
3. We now stop trading with the old trend and start looking for setups in the direction of the new CHoCH.

Strong vs. Weak Highs/Lows

This is a more advanced concept. The strength or weakness of a structural point is determined by its ability to do its “job.”

• The “job” of a Higher Low in an uptrend is to launch price to a new Higher High (a BOS).
• The “job” of a Lower High in a downtrend is to push price to a new Lower Low (a BOS).

A Strong Low: A low that successfully leads to a bullish BOS. This low is considered “protected” because it did its job. We do not expect the price to break this low.

A Weak High: A high that fails to break the previous low in a downtrend. This high is “weak” because it failed its job. It is likely to be broken.

This concept helps you identify targets. A weak high or weak low is, by definition, a liquidity pool. Price will often be drawn toward it.

Pillar 2: Finding the Footprints: Order Blocks (OB)

If liquidity is the fuel, and market structure is the map, then Order Blocks are the “X” that marks the spot.

This is where institutions placed their orders.

What is an Order Block?

An Order Block (OB) is defined as “the last up candle before a strong down move” or “the last down candle before a strong up move.”

But this definition is too simple. A high-probability Order Block has specific criteria:

1. It must lead to a Break of Structure (BOS). The move that originates from the order block must be powerful enough to break a structural point. This proves that institutional capital was involved.
2. It must create an Imbalance (see Pillar 3). The move away from the OB is often so fast and one-sided that it leaves an “inefficiency” in price, which we call a Fair Value Gap.
3. It should ideally sweep liquidity. The best order blocks are often formed right after a liquidity grab. Price sweeps the stops and then forms the OB as it reverses.

Bullish vs. Bearish Order Blocks

• Bullish Order Block: The last down candle (bearish candle) before a strong bullish move that causes a BOS.
• Bearish Order Block: The last up candle (bullish candle) before a strong bearish move that causes a BOS.

Why does this matter? The institution that pushed price down (the last down candle) to sweep liquidity or accumulate orders must reverse its position. That last candle represents the origin of their massive position.

Why Price Returns: Mitigation and Refinement

Here is the core trading strategy: Price will almost always return to test (“mitigate”) a valid order block.

When an institution initiates a massive move, not all of its orders get filled at the price it wants. The move is too fast. Therefore, they will often let the price drift back to the origin of that move (the order block) to fill the rest of their pending orders before continuing the trend.

When price returns to the OB and fills those remaining orders, the block is now “mitigated.”

Our job as SMC traders is to identify a fresh, unmitigated order block and place our entry there, catching the second wave of the institutional move. We are, in effect, getting in at the same price as the bank. This is what allows for tiny stop-losses (just on the other side of the OB) and massive risk-to-reward (R:R) ratios.

Pillar 3: The Price “Vacuum”: Fair Value Gaps (FVG)

This concept is the final piece of the puzzle and works in perfect harmony with Order Blocks.

A Fair Value Gap (FVG), also known as an “Imbalance,” is a clear signal of institutional aggression. It’s a “vacuum” in price that the market will almost always seek to fill.

Defining Imbalance (The 3-Candle Pattern)

An FVG is a three-candle pattern.

• Look at Candle 1, Candle 2, and Candle 3.
• A Bearish FVG is formed when the low of Candle 1 does not overlap with the high of Candle 3. The space between them (on Candle 2) is the Imbalance.
• A Bullish FVG is formed when the high of Candle 1 does not overlap with the low of Candle 3.

This gap shows that price moved so aggressively (in the direction of Candle 2) that the other side of the market couldn’t participate. It’s an “inefficient” or “unbalanced” price delivery.

How to Trade Fair Value Gaps

The market abhors a vacuum. It will seek to “rebalance” this inefficient price action by returning to fill the FVG.

This FVG acts as a magnet for price.

• In a bullish move (after a bullish BOS), price will often pull back to fill a bullish FVG before continuing higher.
• In a bearish move (after a bearish BOS), price will often rally back to fill a bearish FVG before continuing lower.

We can use the FVG as our entry zone. Many traders will place a limit order at the start of the gap, or at the 50% mark of the gap (often called the “consequent encroachment”).

The Ultimate Confluence: Order Blocks + FVGs

Now, let’s put it all together. The highest-probability setup in all of Smart Money Concepts is this:

1. Price is in a clear trend (e.g., a bullish trend on the 4-Hour chart).
2. It creates a Break of Structure (BOS) to the upside.
3. This BOS move is aggressive and leaves behind both:
   • A Bullish Order Block (the last down candle).
   • A Fair Value Gap (FVG).

This is your A+ setup. You now wait for price to pull back. Where will it go? It will be drawn like a magnet into the FVG, and it will often pull all the way down to the Order Block to mitigate it.

Your entry is at the Order Block, your stop-loss is just below it, and your target is the next major liquidity pool (like a weak high).

Advanced SMC: The Entry Models and Workflow

You have the building blocks. Now, let’s build the house. A complete trading plan requires managing different timeframes and entry styles.

The Fractal Market: High-Timeframe (HTF) Bias

The market is “fractal,” meaning the patterns we just discussed (BOS, CHoCH, OBs) happen on all timeframes, from the Monthly down to the 1-Minute.

Your first job is to establish your directional bias from a High-Timeframe (HTF), like the Daily or 4-Hour.

1. Is the 4H chart in an uptrend (making BOS to the upside)?
2. If yes, your bias is BULLISH.
3. You will only look for buy setups. You will ignore all bearish signals on lower timeframes, as they are just pullbacks.

This is called trading “pro-trend” or “HTF-aligned.”

The Low-Timeframe (LTF) Entry: Risk vs. Confirmation

Once you have your HTF bias, you identify your “Point of Interest” (POI). This is your unmitigated 4-Hour Order Block or FVG.

Now, you have two choices for how to enter:

1. The “Risk” Entry (or Limit Order Entry):

• Method: You set a limit order directly at your 4H Order Block and “set it and forget it.”
• Pros: Requires no screen time. Achieves the absolute best Risk-to-Reward (R:R) ratio, often 1:10 or more.
• Cons: Lower win rate. Sometimes, price will blast right through your OB without slowing down. You will take more losses, but your winners will be massive.

2. The “Confirmation” Entry (or LTF Entry):

• Method: You set an alert when price enters your 4H Order Block. You then “drop down” to a Low-Timeframe (LTF) like the 5-Minute or 1-Minute chart. You wait for the LTF to give you a Change of Character (CHoCH) in the direction of your HTF bias.
• Example: Your 4H bias is bullish. Price pulls down into your 4H Order Block (this pullback is a 5-Minute downtrend). You wait for that 5-Minute downtrend to break by creating a bullish CHoCH.
• Pros: Much higher win rate. You are getting confirmation that the HTF level is holding before you enter.
• Cons: Lower R:R (your entry is slightly worse). Requires more screen time and skill to execute.

Most professional SMC traders prefer the confirmation entry. It filters out the failing setups and drastically improves the win rate.

Your New Lens on the Market

Smart Money Concepts are not a shortcut. They are a complex and nuanced way of reading the market. It requires un-learning years of bad habits and retail-focused logic.

You will no longer see “support”; you will see a pool of sell-side liquidity.

You will no longer see a “breakout”; you will see an inducement for retail traders to provide liquidity.

You will no longer trade against the sudden, violent moves; you will identify their origin (the Order Block) and join them on the pullback.

This shift in perspective is the most valuable asset you will ever gain as a trader. Stop chasing lagging indicators and drawing random lines. Start tracking the footprints of the institutions that actually move the market.

Your journey starts now. Open a chart, hide your indicators, and start mapping the true story of price. Identify the last Break of Structure. Find the Order Block that caused it. See if price came back.

You may be shocked to find the bank’s blueprint has been there all along.