Smart Money Concept’s Flashcards
What is an Order Block?
A market behavior that indicates order collection from large operators (financial institutions and banks).
The market starts ranging while building the order block.
What happens once the order building is completed?
The market makes a sharp move towards both upside and downsize.
Why are Order Blocks important?
Institutional traders are key price drivers.
Explain Smart Money steps?
Smart money makes several steps in their trading based on the availability of the price.
For example, if a bank wants to buy $100M EURUSD, it will take trade-in three or four steps. In the first step, they will take $20M, in the second step, $50M, and in the third step $30M. The price usually makes a movement when the full quota of $100M completes.
Define Order Flow?
- Once the price starts a movement from an order block, it provides an order flow towards any direction.
- Order flow from a higher timeframe indicates a market direction.
How is the Order Flow identified?
On higher timeframe, look for the price that tested an order block and moved higher or lower.
Once it completes the test and starts the movement will find the direction.
Steps to trade Order Block?
Enter trade after test and rejection of Order Block
Stop loss level should be below or above the order block with some buffer.
Take profit level would be towards the order flow with 1:1 risk: reward ratio. Final take profit level is Fibonacci 0%, which is usually the top of the available price in a bullish condition and the bottom of the price in a bearish condition.
Explain the difference between efficient and inefficient price action?
Efficient PA - series of three candles where the high of the first candle meets the low of the third candle (buyer’s and seller’s have a fair chance to access liquidity)
Inefficient PA - high of the first candle doesn’t meet the low of the third candle
Explain how an imbalance in PA is created?
Inefficient PA creates imbalance in PA.
Price is likely to return to this area to fill skipped liquidity and balance price.
What is Liquidity?
Liquidity refers to how active a market is.
It is determined by how many traders are actively trading and the total volume they are trading.
How do you spot Liquidity
Look for equal lows/highs within a range
Above PA - buy side liquidity
Below PA - sell side liquidity
Define a high probability order Block set-up
- Impulsive PA breaks structure and creates imbalance
- Order block validated when MRH broken
- Price consolidates creating equal highs and lows
- Downwards break of range taps into sell side liquidity and order block
- Price moves in upwards direction
How do you identify the participation of large operators in the market?
Increase in volume
