Many traders cannot find the right strategy of entering and leaving the markets precisely with high accuracy.
The SMC trading system is considered a game changer for those wishing to trade like professionals. It deals with key steps that help find market trends, liquidity, and precise entry points.
With the SMC trading strategy step-by-step approach, your chances of successful profitable trades increase substantially. In this article, each component is broken down, and how to successfully use this powerful trading system is explained.
Understanding the SMC Trading Strategy
The SMC trading strategy is said to replicate the way institutional traders and “smart money” trade. Using this strategy, you will be able to know where entry and exit points are by identifying where liquidity is in the market and where smart money is positioning themselves.
Step 1: Identify the Directional Bias
The very first step toward executing the SMC trading strategy is to discern the directional bias in the market. This is simply done by analyzing recent highs and lows in the market. Thereby, by drawing a box between the most recent low and high, you can deduce the trading range.
If the price breaks to the upside, the market is bullish, and you should look to go long. If the price breaks downward, the market is bearish, and you should focus on short opportunities.
Step 2: Identifying Areas of Liquidity
Having determined the direction of the market, you then proceed to identify the liquidity areas. Liquidity simply refers to areas in the market where traders have placed their stop losses, take profits, or new orders. Some of these are:
- Equal lows
- Equal highs
- Asia session highs and lows
- Previous highs and lows
You avoid getting trapped in market traps if you identify these regions. Smart money generally targets these zones of liquidity before making a move in the trend direction.
Step 3: Understanding Order Blocks
Order blocks are the most crucial areas of supply and demand in the market. These are the places where smart money is actively engaged. A good order block formation occurs when the market has made a sharp move and then pullbacks to an important level.
For instance, a bullish movement would require you to look for the order block below a recent low area. The area is pretty much a demand zone, which has a lot of buy orders. More often than not, when price makes this level, it will bounce up.
Step 4: Executing the Trading Strategy
Now that you have your directional bias, liquidity zones, and order block, it’s time to execute the SMC trading strategy. On a higher timeframe (such as the 15-minute chart), look for a price pullback into the order block. Then, shift to a lower timeframe (such as the 1-minute chart) to confirm the entry.
The key is to wait for a shift in market structure on the lower timeframe – from bearish to bullish in a long trade or bullish to bearish in a short trade. Once you confirm this shift, take your entry at the order block and set your stop loss below the order block level. You can target liquidity areas such as previous highs for profit-taking.
Step 5: Managing the Trade
Once you’ve entered a trade, it’s important to manage it. This includes monitoring your trade to ensure the market continues in your favor. Use trailing stops or take partial profits at certain liquidity levels to lock in gains as the trade progresses.
Real-Life Example Using the SMC Trading Strategy
Let’s take an example of how the SMC trading strategy can work. I made a trade last Friday following the above steps precisely. Before the trade, I published the screenshot in my community about how I set up the order block and liquidity zones.
In this live example, the price broke out to the upside, which was a bullish sign. I found key liquidity areas and an order block below the recent low. When the price reached the order block, I changed to a lower timeframe, confirmed the change in market structure, and took my entry. The trade was a successful long position targeting liquidity in the form of previous highs.
Conclusion
The SMC trading strategy can be really powerful if implemented correctly. By following these five steps: identifying the direction of the market, spotting liquidity, understanding order blocks, executing the strategy, and managing your trades, you can significantly increase your chances of becoming a profitable trader.
Remember, it all comes to being patient and disciplined. Wait for confirmation before making trades, and you are also sure to trade according to the prevailing trend of the overall market.
Now, if you feel that your trading skills should reach a different level, start using the SMC trading strategy right now.
Many traders cannot find the right strategy of entering and leaving the markets precisely with high accuracy.
The SMC trading system is considered a game changer for those wishing to trade like professionals. It deals with key steps that help find market trends, liquidity, and precise entry points.
With the SMC trading strategy step-by-step approach, your chances of successful profitable trades increase substantially. In this article, each component is broken down, and how to successfully use this powerful trading system is explained.
Understanding the SMC Trading Strategy
The SMC trading strategy is said to replicate the way institutional traders and “smart money” trade. Using this strategy, you will be able to know where entry and exit points are by identifying where liquidity is in the market and where smart money is positioning themselves.
Step 1: Identify the Directional Bias
The very first step toward executing the SMC trading strategy is to discern the directional bias in the market. This is simply done by analyzing recent highs and lows in the market. Thereby, by drawing a box between the most recent low and high, you can deduce the trading range.
If the price breaks to the upside, the market is bullish, and you should look to go long. If the price breaks downward, the market is bearish, and you should focus on short opportunities.
Step 2: Identifying Areas of Liquidity
Having determined the direction of the market, you then proceed to identify the liquidity areas. Liquidity simply refers to areas in the market where traders have placed their stop losses, take profits, or new orders. Some of these are:
- Equal lows
- Equal highs
- Asia session highs and lows
- Previous highs and lows
You avoid getting trapped in market traps if you identify these regions. Smart money generally targets these zones of liquidity before making a move in the trend direction.
Step 3: Understanding Order Blocks
Order blocks are the most crucial areas of supply and demand in the market. These are the places where smart money is actively engaged. A good order block formation occurs when the market has made a sharp move and then pullbacks to an important level.
For instance, a bullish movement would require you to look for the order block below a recent low area. The area is pretty much a demand zone, which has a lot of buy orders. More often than not, when price makes this level, it will bounce up.
Step 4: Executing the Trading Strategy
Now that you have your directional bias, liquidity zones, and order block, it’s time to execute the SMC trading strategy. On a higher timeframe (such as the 15-minute chart), look for a price pullback into the order block. Then, shift to a lower timeframe (such as the 1-minute chart) to confirm the entry.
The key is to wait for a shift in market structure on the lower timeframe – from bearish to bullish in a long trade or bullish to bearish in a short trade. Once you confirm this shift, take your entry at the order block and set your stop loss below the order block level. You can target liquidity areas such as previous highs for profit-taking.
Step 5: Managing the Trade
Once you’ve entered a trade, it’s important to manage it. This includes monitoring your trade to ensure the market continues in your favor. Use trailing stops or take partial profits at certain liquidity levels to lock in gains as the trade progresses.
Real-Life Example Using the SMC Trading Strategy
Let’s take an example of how the SMC trading strategy can work. I made a trade last Friday following the above steps precisely. Before the trade, I published the screenshot in my community about how I set up the order block and liquidity zones.
In this live example, the price broke out to the upside, which was a bullish sign. I found key liquidity areas and an order block below the recent low. When the price reached the order block, I changed to a lower timeframe, confirmed the change in market structure, and took my entry. The trade was a successful long position targeting liquidity in the form of previous highs.
Conclusion
The SMC trading strategy can be really powerful if implemented correctly. By following these five steps: identifying the direction of the market, spotting liquidity, understanding order blocks, executing the strategy, and managing your trades, you can significantly increase your chances of becoming a profitable trader.
Remember, it all comes to being patient and disciplined. Wait for confirmation before making trades, and you are also sure to trade according to the prevailing trend of the overall market.
Now, if you feel that your trading skills should reach a different level, start using the SMC trading strategy right now.
