Transcript for:
Smart Money Concepts (SMC) Lecture Series

hey guys welcome back to the channel recently I have received a lot of request from my subscribers to make a complete course on Smart money Concepts from the very basic to the advanced level so I posted a community poll to see if the majority were actually interested and the poed results were extremely positive about 90% of all who participated wanted to learn smart money concept so here I am thrilled to present you with this new video course on Smart money concept the course is designed in an orderly manner to provide you with the most comprehensive understanding of the principles and strategies associated with smart money Concepts I'll be taking a very conventional approach assuming that all of you are complete beginners to this topic keeping that in perspective I will discuss the main Concepts in Greater detail which is actually essential to build a solid foundation so that we can have a good understanding about the strategies that we can Implement as a trailer this will in turn enable us to plan our proper entries stop-loss and targets thereby generating High reward to risk rates which is the highlight of this entire SMC concept I'm not even joking when I say higher water to risk ratio we are literally talking about 10 is to1 or 20 is to1 or sometimes even a whooping 40 is to1 reward Tois ratio which is abs absolutely insane and that tells you how powerful these concepts are by now I have mentioned smart money Concepts numerous times but what exactly are smart money Concepts I don't want to bore you by giving the same old answer that these are techniques or methods used by large institutions hedge funds Banks Etc who are referred to as smart money due to the reason that they make smart decisions in the market and most of these concepts are purposefully kept away from the reach of uninformed retail Traders but my Outlook on Smart money Concepts is different I like to view them as traps set by the big institutions to use retail orders usually the stop-loss orders to generate enough liquidity so as to buy at discount and sell at premiums think of these methods as manipulations or stop-loss hunting or liquidity grabbing or simply the inducement of retail traders to enter into wrong trades at the wrong time or wrong locations I know these terms are a little over your head but fear not because we are going to deal with all these terms in the upcoming episodes and I guarantee that you will love it a lot of research learning preparation and hard work has been put into making a very relevant course and that to absolutely free of Coast I doubt if anyone would take all the pain to make genuine content for my retail Trader Brothers so I request you to wholeheartedly like this video and support the upcoming videos also and share all the episodes with all those who are willing to learn and improve their trading but don't have the money or means to do so also make sure to subscribe to this channel because it's free and also enable the Bell icon so that you will receive notifications when I upload the new episodes so in this video I would like to give an idea about the course structure and why you should learn these Concepts then I will answer the Evergreen questions like which is the best Market to trade SMC techniques will it work in the Indian market which is the best time frame to analyze and trade smart money Concepts or should we use the multi-time frame analysis approach but before all that I would like to take this opportunity to thank wickoff theory developed by Mr Robert wickoff during the early 20th century so you can think how old these concepts are actually the whole wickoff method is based on the premise that the market is manipulated by a small group of Traders or so-called the smart money who have the ability to influence Market movements these smart Traders or institutions use their knowledge and resources which include data about retailer orders and retailer behavior and they use this information to accumulate or distribute assets before the public is even aware of their intentions or in simple layman terms they manipulate the market to trap retailer liquidity smart money Concepts or institutional Concepts theory is improved by The Works of inner circle Trader Tom Williams Steve Morrow and a few others every now and then these concepts are given a new look and some flashy names but the concepts Still Remains the Same think of it like companies introducing their old product in a new exciting packaging inducing you to buy these courses so I urge you not to spend a lot of money on these expensive courses because these series of episodes will be more than sufficient to understand the concepts and strategies but I have an advice I would like you to watch my courses on price action and supply and demand the reason why I'm suggesting this is because smart money Concepts price action and supply and demand Theory are all interconnected and have a lot of similarities this just the terminology that changes most of the underlying ideas are the same the Crux of smart money concept is simply this markets are manipulated by big institutions and funds and they use the liquidity of retail Traders against them now coming to the second question why do you as a retail Trader need to learn about these Concepts and is it necessary actually I can give an answer to this question in a single sentence it is just that if you don't know where the liquidity is then you are the liquidity every move in the market is in some way a trap set for the uninformed retail Traders most of the retail Traders blindly follow certain strategies patterns and some even call themselves breakout Traders while other identify themselves as reversal Traders and so on but until and unless you don't understand how and why a price move was triggered you will remain as a tiny fish in the ocean being hunted over and over again by the big institution of the smart money so having a good grab of these techniques can give you a boost to your understanding on how to track the liquidity and how to capitalize on it just like the institutions you will definitely start thinking differently and view charts with a broader perspective because I strongly believe believe that every move or even each candle formed in the market has a meaning or a logic behind it if learned and implemented in the right manner these Concepts will definitely take you to the next level now another doubt that most of you might have will be regarding the type of markets in which these Concepts can be applied to be frank these Concepts can be applied on all those markets which have ample liquidity so liquidity in simple terms is the ease of buying and selling of an asset without much slip pages meaning that there are enough buyers and sellers available for the smooth transaction of Assets Now the more difficult it becomes to buy or sell an asset the asset is said to be less liquid now how do you know if the market or chart you are looking at is liquid or not now there are a few ways to find this out the most simple method is to look for trading volumes as you may all know trading volume refers to the number of shares traded in a particular time frame or period it could be for 15 minutes or 1 hour or a day or a week a high trading mum indicates that there is a lot of interest in the stock or an asset and it is highly liquid with this we can say that most indices are highly liquid so to answer your question these Concepts will work well in indices like Nifty Bank Nifty Etc but when it comes to stocks you will have to compare the volume of a stock with its competitors to get an idea and along with that we also need to look at the bid ass spread and the market capitalization of the stock in simple terms the market capitalization of a stock is the total value of all outstanding shares so a higher market capitalization generally indicates a more liquid stock as there are more shares available for trading on the other hand the bit ask spread is the difference between the highest price that a buyer is willing to pay for a stock or it is called the bit price and the lowest price that a seller is willing to accept or the ask price so a narrow bit of spread indicates that the stock is highly liquid as there is a lot of activity in the market and the buyers and sellers are very close in their pricing but if the bid are spread is wide then the stock is less liquid or there is less activity taking place so if you're trading in the Indian markets I recommend you stick with the top nifty50 stocks or maybe just select the top 10 stocks that you like from the nifty50 range of stocks from different sectors and if you are a beginner try your best to avoid mid gaps and small gaps because the price action may not always be that smooth and sometimes things may not work out but the best markets to trade smart money concepts are Forex and crypto markets which are open for almost the entire week thereby providing a much smoother price action but this does not mean that all Forex payers and cryptocurrencies are equally liquid there is Euro USD USD JPY Etc which are highly liquid currency payers and cryptos like Bitcoin ethereum Etc are highly liquid on the other hand there are other currency pirs like cadchf or pln JPY or even cryptos like kucoin or gatecoin Etc which are not liquid so in short you can use the smart money Concepts to trade Forex markets crypto markets indices and stocks all of which having high liquidity now moving on to the second most popular question which time frame should I choose to trade smart money Concepts to be absolutely Frank we need to follow a top down approach that is we need to start our analysis from the higher time frames or the trend time frames to identify the larger market Trend and mark the areas of values and then move down to an intermediate time frame to spot nested areas of interest for refining our higher time frame analysis is and also to identify the market liquidity and finally move down to a lower time frame to take a proper entry set a stop- loss and place a suitable Target now SMC technique will work for all trading Styles whether you are a swing Trader or intraday Trader or BTSD Trader it doesn't matter what your trading style is I have already made a detailed video on how to select the proper set of time frames based on your trading style that you follow so you can watch that video to know more about multi-time frame analysis now finally let's look at how the entire course is structured as I have mentioned earlier we will go in depth into the most important smart money Concepts as shown on the screen once you become familiar with all these terms and their meanings we will discuss the application Side by learning how to use these concepts for trading in the live markets that is how to implement these SMC strategies we will also talk about the risk management part where we will learn the entry stop-loss combined with the proper exits to plan a high probability High reward to risk trade last but not the least I will also discuss an indicator that will make things very easy for you so that you don't have to analyze each chart from scratch this indicator you just need to cross check the validity of the generated SMC signals for trading sorry to interrupt but this could be important for you have you been in a situation where you want to invest your pressure Savings in the stock market but there are just too many stocks to choose from and too many gurus giving stock tips it's risky and you don't want to take the hassle of reviewing the fundamentals and sweating over the company's performance then there are the same old mutual funds no doubt mutual funds are great investment instruments but they are mostly vanilla and less transparent introducing small cases a small case is a ready-made basket of stock or ETFs which reflect an idea theme or strategy it is just like a supermarket where everything is available everything is clearly labeled with the right variety and options now let's look at a scenario what according to you is the future of the Indian economy well to begin with the Indian economy is going good according to some reports in the coming next 15 years 45 CR people will be joining the middle class which is actually huge this means more buying power now if there is money then the demand will also increase so now what do you think these people will do with the income they're left with after paying for rent and food luxuries branded products travel and more with the Great Indian middle class small case you can invest in all those companies who will benefit from the growing consumer demand through just a single product you can invest in a readymade portfolio of stocks well that all sounds very great but then who puts together these portfolios small cases are created by sa registered professionals who have an idea or strategy these guys do all the hard work of selecting stocks and deciding how much money is allocated to each stock remember there are many such small cases and enough options for everyone what if I need to know more about small cases like the past performances the stock selection or things like that small cases present all the necessary information for you to make a decision you can look at the cagr today's change and risk profile you can see all the stocks and weights and see the criteria behind picking of these stocks measure past performances of lumpsum and sip you can also see the news related to these stocks all you have to do is Click invest and the best thing when you invest in small cases you only pay when you transact there are no expense ratios it means that the cost is low and investing is easy moreover your stocks and each ETFs will show up in your demat account so what are you guys waiting for stop picking stocks that you don't understand instead invest in ideas that you believe in through small cases the link is in the description happy investing now let's get back to the video let's say you are a curious kid and you asked me to explain what smart money concepts are in a single sentence then I would say smart money concepts are a few methods of identifying planning and executing trades on the basis of where the majority of Market orders are and what the major Market direction is so in a nutshell it all comes down to figuring out the market Direction and where the major liquidity is there for taking so as you might have already guessed the initial step is to identify the market Behavior at a particular time period or to be more precise we are interested in identification of a proper mark Market structure so that we can plan our trades based on the dominant Market Direction so in this video we are going to deal with the idea of Market structure with respect to Smart money Concepts now you may ask me haven't we already discussed the concepts of Market structure and market trends in the price action course actually yes we did but when it comes to Smart money Concepts Market structure identification involves a lot more abbreviations new terms and stuff like bow chalk strong highs strong lows weak highs weak lows Etc but the overall idea Remains the Same I personally think that with smart money Concepts you will get to understand Market structure and it's working in a much greater detail and in addition to this we will also get a Clarity on the major Market structure and the minor or internal Market structures and we will also talk about the nature of pullbacks for both these structures so let's get going right away now you may be familiar with the fact that a liquid Market or a stock or any asset goes through several Market phases majorly the accumulation phase the markup phase the distribution phase and the markdown phase now there can also be subphases like the reaccumulation or redistribution phases but my point is that even though there are several phases of the market the overall Market structure boils down to three three main stages or Trends namely the uptrend structure the downtrend structure and the sideways or range bound Market structure now as you may already learned from the price action course an uptrend is characterized by higher swing highs and higher swing lows while downtrend forms when price forms lower highs and lower lows and when it comes to sideways Market there is no clear Trend or Price action or simply the price remains within a range now this is is a very basic way of understanding Market structure and Trends but in this video let's build on top of this basic idea so in smart money Concepts we are mostly interested in trending price action when compared to sideways or range bound price action but this does not mean that we can completely avoid sideways ranges and it is not the right way to think about it because further forward in this course we will definitely talk about how to deal with our trade on Range price action meanwhile let us now focus on the two main structures based on SMC technique now these are the bullish Market structure and the bearish market structure so think of a bullish structure as an uptrend with many more constraints and on the opposite think of a bearish structure as a downtrend but with a lot more constraints or factors to consider first let us take a look at a typical bullish Market structure and yes you are right we need to look for higher highs and higher lows but Market structure is not always that easy to identify it is more complicated and challenging that we think I personally believe that if you get this particular step right then you'll be able to get most of your trade analysis correctly in fact this is the step where most people make mistakes so when you commit a mistake at the start of your analysis itself then naturally the rest of the process will obviously amplify the initial mistake and finally you'll be left with a corrupted and incorrect anal analysis in hand and guess what all of this will result in a wrong trade at the wrong time and the wrong location with you making huge losses and at the end of the day you will have no idea where things went wrong so my request is that you strengthen your Basics first now with that out of the way let us understand a bullish Market structure see as mentioned just now Market structure will not always be very easy to identify and Mark sometimes it can be confusing and comp complicated take a look at this chart at a single glance can you determine the overall Market structure well most of you would not be able to actually this is a bullish Market structure and why do you think you are not able to identify this the simple reason is that your eyes are not trained to look for specific details let me explain this now you might have learned that market moves in the form of waves and during a trending move there is an Impulse move and a corrective move this is true and I don't have any problems with this idea but what needs to be added in this context is that a market structure comprises of two structures that is there is a major structure and there is a minor or internal structure and as the name suggest the major structure is the dominant structure or it is the major structure that determines the dominant player in the market now the minor or internal structure is the less important structure that gets formed within the major structure so if you are planning to be an SMC Trader then you should train your eyes to spot these Major Market structures in comparison to the minor structures because it is the major structure that majority of our trades will be concentrated on now you may ask me which time frame we should look for the major structures now we will get to this topic of time frames in a later on video but for the time being keep in mind that we have to look for the major structures on the higher time frames for our analysis you can check out my detailed video on time frame selection to learn more about how to select proper time frames based on our trading Styles moving on let's learn how to map the major Market structure and also discuss what the breakoff structure and change of characters now this is important because it helps you confirm the major swing points that is it lets you confirm the higher highs and the higher swing lows in a major bullish Market structure from the minor swings which actually behaves like noise in our analysis similarly it can help to confirm the lower swing highs and the lower swing lows in a bearish market structure from the minor or internal structures now take a look at this the market momentum is bullish the market created a low and a high then the price made a retracement or a pullback then once again the price moves higher and breaks and closes above the previous High now this is called a break of structure or simply boss or spelled as BOS it is also called as a continuation break as the price resumes in the major Trend Direction so technically a bullish break of structure happens when the price breaks and closes above the previous swing high or the higher high please do note that the price has to close above the previous swing high level for this to be considered as a valid breakoff structure just a liquidity sweep or simply a false breakout associated with a long Wick does not qualify as a breakoff structure in addition to this only when a bullish breakout structure happens then only the higher swing low level is confirmed and as you may know a higher low is the lowest swing Point Which is higher than the previous swing low level in a bullish trending Market structure now what happens after a bullish break of structure how do we confirm a higher high now listen to me carefully price rarely moves in a straight line If You observe within a larger Trend there are almost always counter Trend moves these counter Trend moves are the results of lower time frame liquidity hunting so once the price bounce or get rejected from a level then normally it will Target a previous short-term higher low before continuing in the same direction as the longer term Trend and for some of you this might be a very New Concept and by the way this is called as an inducement which is a very important topic in SMC and we will discuss this concept in our upcoming episodes and once we get used with all these small topics we will combine all these Concepts to finally understand what a true SMC structure looks like and how it works in a very practical manner but for the time being let us go ahead and understand how a higher high of a major bullish structure gets formed using a concept that most of us are already aware of it is none other than pullbacks so the price breaks the previous high and it moves higher but it cannot go higher indefinitely at some point it has to come down which we call as a corrective move so we can say that a bullish Market structure is a combination of bullish impulse moves and corrective pullbacks now you can ask me do all these pullbacks or Corrections matter the answer is no we are more interested in those deeper pullbacks now how do we know if a pullback is deep enough for this purpose we can make use of the Fibonacci retracement tool so a deeper pullback is a retracement that goes beyond the 38.2 per to 50% or even lower Fibonacci levels without closing below the previous swing low or higher low levels the reason why we require a deeper pullback is because there is a lot of liquidity available below these internal pullback levels and for the market to make a meaningful move it has to tap into these retailer orders and then use these orders as a fuel to move higher this is a very simple explanation of a much complicated concept I hope you guys have understood what I'm trying to explain anyways once we have identified a deeper pullback using Fibonacci retracement tool we can now Mark the highest point after the previous breakoff structure as the higher higher level and now once again if the price moves higher and if it manages to break and close above the recent higher high form then again we have a bullish break of structure and this step will confirm the higher low level which is in fact the deepest pullback before the break of structure has happened so in short a new higher high is confirmed only after a deeper pullback has happened which will actually sweep all the previous retailer liquidity below the internal or M swing lows and on the contrary a new higher low is confirmed only when a valid bullish breakout structure happens now what happens when the market fails to make a new higher high that is the break of structure fails but instead the price breaks and close below the previous higher low level so if you have watched my price action course carefully then you know that this is the first sign of a change in the market structure from bullish to bearish or in other words we can say that this is the start of a new trend reversal and in smart money terms this shift in the market structure is called as a change of character or simply chalk but do keep in mind that the price has to break and close below the previous higher low for the chalk to get confirmed this is very important as many Traders make mistake in this part as just a liquidity sweep or a false breakout with a deep Wick projecting below the higher low low does not qualify once a change of character takes place we will now focus our analysis towards the formation of either a bearish market structure or a sideways Market structure we should consider the possibility of both these structures until and unless we get a solid confirmation for the continuation of the bearish market structure let me explain this in Greater detail we know that during a downtrend or a bearish market structure we expect the price to form low low swing highs and lower swing lows so if you want to be an SMC Trader you have to train your eyes to find these important levels but trust me it is not as easy as you think because in most trading textbooks we will find a very simple and straightforward method of identifying Market structures but in real Market scenario it is much more complex so listen to me carefully in order to confirm a lower low in comparison to the previous swing low the price has to do a pullback not just any pullback but a deeper pullback taking out the liquidity of the previous internal swing high levels now you can identify if it is a deeper pullback or Not by using a simple Fibonacci retracement tool and check if the pullback is over 38.2% or 50% or even higher levels but as long as it does not break and close above the previous major swing high level we are okay with it now what is the significance or maybe what is the logic behind wanting a deeper pullback now the logic is quite simple and it is associated with the retailer mentality so as a retailer what will you do when you spot a breakout or a breakdown obviously you will take a trade in the direction of the market break right now where will you place your stop- loss quite clearly you will place it beyond the breakout level so in case when a retailer sees a bullish breakout structure most probably he will place stop loss below the previous minus swing low level and if he spot a bearish change of character he will take a short position and he will place the stop loss just above the previous minor swing high level right clearly these swing levels just before a breakout or a breakdown or in other words these swing levels just before a break of structure or a change of character have a lot of stop-loss orders available these stop-loss orders are in fact retailer liquidity which the smart money is so Keen to exploit and these clusters of stop-loss orders helps the smart money to buy low and sell high now coming to the reason why these deeper pullbacks are important it is quite evident that these deeper pullbacks are actually searching for retailer liquidity and once the liquidity is absorbed the market usually tends to continue strongly in the major Trend Direction so we have to look for a deeper pullback after a change of character has taken place so as to confirm if the low formed is actually a lower low or not don't worry if you have not understood this concept completely you can either watch this concept multiple times and still if the doubt persist you can wait for the upcoming episodes where I will talk about inducements order blocks Etc so that you will get a deeper understanding on the smart money concept structure mapping now moving on after the deeper pullback taking out the retailer liquidity and confirming a lower Lo the price moves lower and it breaks and closes below the recent lower low level this is called a bearish breakoff structure or simply boss I'm stressing the point that the price needs to break and close below the previous low level to confirm a valid breakup structure just a liquidity sweep or a force breakout with a deep Wick projecting below the low low level won't count as a valid breakoff structure now only when a valid breakoff structure happens can we actually confirm the lower high level so long story short a lower swing high is confirmed only when there is a valid bearish breakout structure and on top of that the lower swing high is the highest point before the boss and the previous lower low level and all the other swing Highs are just the internal or minor structures and we don't have to give much importance to these as an SMC Trader the major structure matters to us the most and we conduct the analysis for our major structure on our higher time frames to get the best possible results because in the lower time frames charts are more random and noisy now once again the price has to search for liquidity in these intermediate or internal swing highs and in doing so it forms a deep pullback which sweeps the liquidity in those levels and then moves slower now once the liquidity is absorbed by a deeper pullback which can be measured using a Fibonacci retracement tool we can confirm the new lower low level then again the price has to move lower and break and close below the new lower low formed to confirm a valid break of structure and in turn the highest point before the boss and lower low will be marked as the new lower high level and this process continues until the price fails to break and close below the previous lower low level and instead it breaks and closes above the previous lower swing high level now what does this indicate this actually signals a change in the sentiment or it can be thought of as the first indication of a reversal that is the trend might change from bearish to bullish so this shift in the market structure is called as a change of character so now we have to change our perspective and we have to look for a bullish structure or a sideways Market structure and by now you might already be familiar as to how to identify a bullish Market structure right but hey I haven't talked about the sidewise market structure right but you may already be familiar with the accumulation or distribution phases from my price action video These are phases where the market takes a break or where the big institutions start building their position which is actually represented by the accumulation phases or where they start selling their Holdings which is called as the distribution phase anyways the sideways Market structure can be any of them think of it as Market taking a pause or a breather and only when the price breaks and close above or below the constrains of this phase are we really interested in making a move so as an SMC Trader or a price action Trader it is always ideal to wait out the sideways market and focus more on the trending Market phases for your trades now before I finish this episode I have to discuss a few more terms like strong highs and strong lows weak and we lows Etc now these are just additional information which is built on top of what we have already learned in this video and it's nothing new so a weak high or a weak low refers to those swing highs and lows which have a greater possibility of getting swept so for example a higher high is considered as a weak high as it has a good possibility of getting taken out by a bullish breakup structure and similarly a higher low is considered as a weak low as there is a good chance that a change of character can take out this higher low on a same note during a bearish market structure a lower low is marked as a weak low as there is a good chance that it can be taken out by a bearish breakup structure and similarly a lower high is considered as a weak high as it can be easily taken out by a change of character so in short a weak low or a weak High has a greater chance of getting taken out by the market contrary to this strong highs and strong lows are those price levels which are not easily taken down by the market so typical examples of this are the higher highs just before a change of character meaning that the market was not able to take out the higher high level which makes it an important level for future price analysis as it could play the role of a potential resistance level in the future similarly a lower low just before a change of character is considered as a strong low for future analysis because the market was not able to take out this level and it can act as a meaningful support level in the future now other than these uh there are equal highs and equal lows and as the name suggest they have same high or low levels now we will understand the significance of all these as we move along this course but I think this is enough for this particular video and after a few more episodes we will revisit this topic once again but then we will discuss the topic completely using relevant charts be it Forex charts or Nifty or Bank Nifty charts anyways uh I would like to end this video by mentioning that market structure makes up the backbone of the market and it is essential in understanding if you want to be able to read the market more precisely and clearly so as to be able to trade in it successfully in the previous episode we have understood about the market structure mapping in great detail in this video I would like to introduce you to a completely new topic it is known in different names in SMC B fair value gaps imbalance inefficiency Etc but the overall concept Remains the Same what you need to keep in mind is that such imbalances in the market happens due to irregular or disproportionate price movements these price movements May deviate from what is considered normal or expected based on historical price pattern terms fundamental analysis or technical indicators such inefficiencies or imbalances can create potential trading opportunities for both investors and Traders but imbalances in price Behavior can take different forms just think about it could be in the form of gaps volume imbalances spikes lack of liquidity displacement Etc now I will try to explain each one very briefly to get a general idea of what is what let's start with gaps price gaps occur when the opening price of a candle is significantly different from the previous candles closing price so a gap has a complete absence of trading activity between two Candles now these gaps can be caused by various factors such as overnight news earnings reports or other Market moving events and gaps can be of different types it can be Breakaway gaps Runway gaps exhaustion gaps and professional gaps depending on the type of Gap you can choose to adopt a particular strategy to capitalize on the imbalance I have already made a detailed video on gaps and how to trade them in my complete price action course you can check that out to learn more next up is volume imbalances a volume imbalance is a gap between the closing and opening price of two candles and the difference in between a volume imbalance in fact has a trading activity happening or there is an overlap between the high and low prices when compared to a price Gap now a quick example of a volume imbalance would be from this closing price to this opening price and also we have a gap however the price did manage to trade through these areas so it is indeed a volume imbalance and not really a price Gap moving on price spikes refer to sudden and sharp movements in a Securities price often resulting from an unexpected event or a large surge in trading volume now these spikes can be caused by different factors such as Market orders stop-loss triggers or algorithm trading activity now in some cases low trading volume and liquidity in a particular stock can lead to inefficiencies as it may result in a wider Bidar spread and difficulty in executing trades at desired prices so Traders need to be cautious when dealing with ill liquid stocks as it can be challenging to enter and exit their positions without cusing significant price impacts now all these are in some form or the other a type of imbalance in the market but when it comes to Smart money Concepts we are only concerned about the imbalances caused due to displacements so displacement in short is a very powerful move in price action resulting in strong selling or buying pressure generally speaking displacement will appear as a single Candlestick or a group of candles that are all positioned in the same direction now these scandles typically have large real bodies with very short bcks which suggest that there is a very little disagreement between buyers and sellers or in other words only one party has a clear dominance over the other most often a displacement will occur just after a liquidity level has been breached where there are clusters of orders and this will often result in the creation of both a fair value Gap and a market structure shift now we have already discussed Market structure mapping and terms like boss chalk Etc in the first episode so make sure you have a proper knowledge of the same but right now what we are concerned about are fair value gaps or inefficiencies or simply imbalances so after the price reaches a particular liquidity level where large numbers of orders are accumulated and when price reverses after absorbing the liquidity from this area often what will come next is displacement so these fair value gaps are usually created within these displacement moves which means that these are instances in which we can spot inefficiencies or imbalances in the market I have talked about liquidity levels where most of the orders are accumulated but how to identify these levels there is a simple rule to spot these areas so the last bearish candle or selling momentum before an up move is referred to as a bullish order block there a large number of biod ERS are assumed to be located similarly the last bullish candle or the last buying momentum before a down move is referred to as a bearish order block where a large number of sell orders are assumed to be clustered just keep this in mind and don't stress a lot because we will learn all this in great detail in the upcoming episodes now you can ask me why is an imbalance or fair value gap for that matter considered as an inefficiency the reason is simple and straightforward when price moves strongly in One Direction and that too by means of large bodied Candles there is a clear discrimination between the buyers and sellers let me explain imbalance as the name suggest is an area of unequal Market moves where there are only buyers or only sellers which exist in the market the reason we call this an imbalance is not only because it is an imbalance between buyers and sellers because there is literally an imbalance in the market trading volume is tilted either towards the bid or outside too quickly so there are still a lot of unexecuted orders in the market so if you have an impulsive move to the upside it is because there are no sellers to absorb the buying pressure of the Bulls this means that there is no resistance from sellers to stop the buyers from pushing the price up rapidly on the other hand if we have an impulsive move to the downside it means there are no buyers to absorb the selling pressure of the beers this means that there is no resistance from buyers to stop the sellers from pushing the price down rapidly simply put imbalances occurs when there are many orders of the same type be it buy sell or limit orders and also a lack of liquidity or counter orders in the market for example if there are many more buyers of a stock that sellers then the balance can tilt in the favor of buyers and on the chart this imbalance looked like a price Gap within which only a part of the volume has been traded this is an unhealthy price action because it shows the disequilibrium between buyers and sellers so an imbalance means unfair price action where the market will almost always come back to fill another thing to not is that the Wicks do not fill each other and if they do then it is healthy price action or efficient price action and not really an imbalance so to put it simply Market inefficiency occurs when the Wicks are separated by a distance or a gap and they do not meet while an Efficient Market on the other hand is one in which the Wicks do not have a gap between them and they actually meet this brings us to the next important Point how to identify or spot an imbalance or a fair value Gap within a particular displacement move to be absolutely clear an imbalance can be defined as an imbalance between buyers and sellers so a bullish imbalance has more buyers behind it and obviously a bearish imbalance has more sellers behind it so when you see an impulsive move to the upside or downside in the market with no Wicks overlapping full bodied candles this is where imbalance in the market are formed these can happen on all time frames now when looking for an imbalance in the market simply look for any candle which has a full real body and look for the part of this candle that is not overla by the previous and next candles week this signifies an imbalance in the market because there were only a few transaction going going on between buyers and sellers we can clearly say that one party has overpowered the other depending on the direction of the price now if you think about it Wicks usually represent price oscillating up and down within the time it takes to print an entire candle showing that the price is efficient because there were continuous transaction happening between buyers and sellers so it shows us that price is giving both buyers and sellers a fair chance at accessing the liquidity so when the big me it provides the buyers and sellers and access to get into the market and profit on the price move but on the contrary when you see a full bed candle with no wigs overlapping it it is obvious that you have identified a clear imbalance in price this may seem very complicated and over the R so let me break this down further and help you understand it better now a very simple method to keep in mind is to think of a fair value Gap as a three Candlestick pattern where the first candles low does not overlap with the third candle's high in case of a Down move or where the first candle's high does not overlap with a third candle slow in case of an up move with the condition that the middle candle has to be a large bed candle with little or no WIS but there can be some exceptions to this rule which we will look at but first let's take a deep dive into this concept as I have mentioned just now these imbalances on price chart are visualized by a three Candlestick sequence containing one large middle candle whose bordering candles upper and lower wigs do not overlap now take a look at this example the middle candle is a large bearish candle with little or no pcks now number the candles as 1 2 and three from left to right then consider the first candle's slow and Mark a horizontal line out and do the same for the third candle's high and extend out and horizontal line you can notice that there is a clear gap between the wigs on the the first candle and the third candle and the Wicks do not meet or the high does not overlap with the low therefore this can be identified as an imbalance or an inefficient price action or simply a fair value Gap now consider another example here the middle candle is a large bullish candle with little or no Wicks now number the candles as 1 2 3 from left towards right then extend a horizontal line from the first Candlestick high and do the same from the third candlesticks low and you can c clearly notice that the high and low Wicks do not overlap with one another so we can say this price action is inefficient or not healthy so this is a fair value Gap now let's take a look at some of the tricky situations which you could encounter in the charts on some occasions you'll not be able to apply this rule directly and you might need to focus on some more important factors before clo a air value Gap observe this over here and tell me how will you mark the imbalances in this case case so if you look at this diagram this candle here is our last bullish candle or the last buying momentum before the price Str so most of you will mark this bearish candle's low which formed after the last bullish candle as number one and some people might even Mark the bullish candle low as number one and then Mark the third candle's high now in either case this is not a valid imbalance and why is it so if you look at the left side there is a bearish candle before this up move and you will notice that the high and low of this bearish candle is protected meaning that the candles high and low are not broken by the up move so if the market creates anything between the high and low of this bearish candle all those moves are considered as internal BS only so in such scenarios first of all you have to check if the previous candles highs and lows are broken or not then only you have to number the candles as 1 2 and three so here this bearish candle has to be numbered one and this candle's low is to be marked or extended using a horizontal line the next candle which has broken the bearish candle low is our second candle and finally we will also Mark the high of the third candle now this becomes our valid imbalance which the market might return to fill or absorb so keep in mind that internal price moves are not to be considered while marking proper imbalances now a lot of people will wait for the price to fill this particular imbalance and they will look for short trading entries but this is not a valid imbalance this would have been a valid imbalance if the market would have broken this bearish candle slow so now the bearish candle is no longer considered now when you mark the imbalance you can consider the bullish candle slow and number it as one but the next bearish candle is not taken into account because it is an inside candle which was unable to break the highs and lows of the bullish candle so our second candle in this case would be this bearish candle which has broken the low of the bullish candle and then the third candle high is also Mark and the difference will become our imbalance now there can be another scenario when the high of the last bullish candle has been broken now how will you mark the imbalance in this case so here this bearish candle is no longer an inside candle and thus we can number it as one and Mark its low and subsequently we can number the other candles as two and three and mark the high of the third candle and thereby we can observe the imbalance I hope you guys have understood all these different scenarios now I want you to Mark the imbalances for these three scenarios on your own just pause the video and do it by yourself the answer will appear on the screen after 5 seconds so try it right away so now that you have understood what a fair value Gap look like let's also make sure what it does not look like like before extend a horizontal line from the first candle's low and another line from the third candle High to see if there is a gap when dragging the high and low across you can see that they overlap this means that the low from the first candle is lower than the high from the third candle so there is no gap or inefficiency there and thus this is not a fair value Gap similarly over here if you were to extend the first candle's height using a line and also extend a line from the third candle's low you can see that there is an overlap between the first candle's High and the third candle's low meaning there is no imbalance or fair value Gap so now just to clarify a gap between the first candle's low and the third candle's high or the first candle's high or the third candle's low is what creates a fair value Gap now I want you to find such imbalances or fair value gaps on different charts and mark them on your own by this simple method the next thing we are going to look at are CBS and BCS these are nothing new it's just the same concept in a new name and packaging just to induce curiosity so a CB stands for cell side imbalance and buy side inefficiency what does this mean it means that the sell side was offered but the buy side wasn't so it is inefficient or simply put it represents a bearish fair value Gap where the Bayers have or power the Bulls it is also known as undervalued fair value Gap what it means is that the price of the asset is lower than its fair value Gap in this case the price might increase in the future to balance this inefficiency in price now a busy stands for buy side imbalance and sells side inefficiency this means that the buy side was offered but the sell side wasn't offered so it is inefficient or it represents a bullish fa value Gap where the Bulls have over powered the paays it is also known as overvalued pair value Gap what this means is that the price of the asset is higher than its fair value Gap now in this case the price might decrease in the future to balance this inefficiency so if you look at this price section right here we have a bearish fair value Gap where the sell side is offered but the buy side is inefficient so this creates a CB if you look over to the right you can see that the price has made a bullish fair value Gap or a byy because it offered the buy side but not the sell side and that's all about BC and CB and I hope that clarifies some things for you guys now another relevant question worth asking is why do Market imbalances occur the emergence of persistent price imbalances in One Direction after long periods of stable or efficient pricing indicates that institutions are accumulating positions now these institution can be funds Banks and other Financial institutions that we call Smart money but do keep in mind that the market is influenced not only by institutions but also by market makers investors and Traders with large capital for example smart money can place many orders and then modify or cancel them to bring the market back to an equilibrium State these market makers Traders and investors can oppose each other and they can also act in the same direction in most occasions imbalances in the market can occur after the release of an economic or geopolitical news the reasons can vary on whether you're dealing in Forex or in other markets could be the publication of financial statement for example a very positive quarterly report can lead to an imbalance towards buyers similarly it can be corporate announcement of bankruptcy management changes takeovers business purchases Etc it could also be governmental and Regulatory actions interest R changes Etc which could contribute to the imbalance it could even be political problems natural disasters Etc now since you have understood what a fair value Gap or imbalances now you can ask me how is it useful for Traders like you and me now as mentioned earlier imbalances in the market can be viewed as inefficiency in price Behavior telling us that maybe Banks or big financial institutions are involved in the aggressive movements of prices that we are seeing again if you think about it most impulsive moves and imbalances in the market happen as a result of there being no liquidity in the form of counter orders to stop the price from being met with resistance and thereby slowing down now if you consider an efficient market we get to see the price trade within a range of fair value for that particular asset where the sellers will sell when they perceive that the price of the asset is high or the price is trading at a premium and the buyers will buy when they purum that the price of the asset is low or is trading at discount this is not the case of an inefficient Market the big institutions will create a high momentum move and an imbalance in the market that is much like a gap in price in most cases this price manipulation can be a part of institution's plan to generate liquidity to buy low and sell high and therefore we may see the price coming back to fill that imbalance or close the price gap before pushing back into the same direction that the price made the impulse move from and now to answer the question how can we as Traders benefit from such imbalances imbalance is a type of trading opportunity for both intraday and swing traders in trading imbalances are used to identify zones of Interest we will talk about these zones of Interest which is more commonly known as order blocks in the upcoming episodes The Zone from which the imbalance originated is characterized by a higher level of probability this zone is suitable for analyzing and identifying potential trade and risk points the entry points can be selected with the help of technical analysis within the selector trading methodology in this case imbalances act as an additional factor in favor of the trade so naturally most imbalances in the market represents an inefficiency in price and therefore there is usually a good chance that the price will return to fill that imbalance in order to make the price efficient again now I cannot guarantee that the price will always come back to fill the imbalance but in most scenarios the price will return to fill the imbalances that form in the market because it is a rule of nature that everything wants to come to rest or to be balanced in the same way the price also wants to remain in Balance so when an imbalance is created the price tries to balance it and the imbalance gap between the wigs of the neighboring candles acts as a price magnet it means that as the liquidity fills the price will close the imbalance this is what we call as mitigation in smart money Concepts or when we say that the price has mitigated the imbalance it means the imbalance has been filled and efficient price action has been restored and the market will most likely continue in the direction of the UL move but do keep in mind that mitigation is more a general term which can be used to indicate a filling of a price Gap filling of an order block Etc we will talk about this topic in more detail in the up coming episodes of this course as you are aware by now imbalances represent price in efficiency therefore there's a high probability that the market will come back to fill the imbalance for example if a large bidder has manipulated the market a correction might occur afterwards typically price tends to mitigate the imbalance or the area from which it originated therefore we can look to take a trade in the direction of the imbalance in order to profit from the price movement in this way you'll be able to buy low and sell high like the institutions however there are times when the price will just continue to push back against the imbalance that are forming in the market I won't go deeper into the trading aspects of this concept in this video we will discuss different SMC trading techniques once we have covered all the basic concepts that guides the SMC Theory now I want to talk about some Advance Concepts regarding fair value gaps I won't force you to Lear this but it is worth knowing as it would help you to trade with better conviction and accuracy now there are three things to look out for within a fair value Gap the first being the start of the fair value Gap the second being the consequent encroachment or the 50% of the fair value Gap and lastly where the price completely fills the fair value Gap we can make use of the Fibonacci tool to Mark these levels Within These fair value gaps when the price returns to the fair value Gap we should look for a few different things this will give us a better idea if the fair value Gap is respected by the price or or should it be considered invalid I will be considering a bearish fair value Gap or a CB for this purpose so first the price can either reach up into the fair value Gap but close outside the fair value Gap and continue lower price can also reach up into the consequent encroachment or 50% of this fair value Gap in this case we would like to see the candle close outside the fair value Gap but as long as the price is respecting the consequent encroachment we can be pretty flexible with the price closing just below the consequent approachment sometimes the price can also reach up to fill the fair value Gap and in such cases it is preferable to see the price closing outside the consequent encroachment of this fair value Gap the most important thing to look for and invalidating a fair value Gap is where the price closes so when the price start to close over the consequent encroachment or outside of the fair value Gap it is an indication that the price is not respecting the fair value Gap and most of the time price will not reverse back down and the CB is deemed invalid now let's look at a few examples to understand this concept better so we have a CB right here let's mark out the consequent encroachment using Fibonacci tool and see what happens so you can see when price reaches up into this fair value Gap does not close over the consequent encroachment or in other words price respect the fair value Gap and it is still valid for a reversal to happen now let's take look at another CB right here let's mark out the consequent encroachment you can see that the price did not respect the CB at all and close right through it this is when we will invalidate a fair value Gap because the price is not respecting it now if you look at a bsy or a bullish fair value Gap right here and Mark out the consequent encroachment to see what happens the price reaches into the fair value Gap and closes out so it is currently respecting the BC and it is still deemed valid another case is when the price breaks out and close below the BC and in that case we can confirm that the price is not respecting the BC and it can be regarded as invar the next thing we are going to look at is fair value Gap inversion to explain this in simple terms inversion happens when a fair value Gap fails or when the price closes through it and then this fair value Gap can be used as a support or resistance for future price movements what this means is that I would expect price to return back to this old CB to use it as support and move away similarly price could return back to an old bsy to use it as a resistance and then move lower another thing to note is that this does not have to happen back to back meaning that this can occur later on after a period of consolidation let's look at some example to clear things up so we have a c right here and the price closes through it so it is considered invalid but that does not make it useless we can then look to see if the CB supports the price and we can clearly see that this old CB acted as a support for prices before getting a move higher here's an example of what I mean when I say that the fair value Gap inversion does not need to occur back to back so we have considered another buy and right here we get a close below this fair value Gap so it is deemed invalid now let's see what happens when price returns to this old B you can see that the price returns to this old BC it uses it as resistance to go lower but this did not happen suddenly and the price took a while to return back to this BC for our next example we have a CB right here so let's see how the price reacts to it and you can see the price has filled this fair value Gap but the price closes out of it so it is currently respecting the CB but right after this we can see that the price closes over the CB invalidating it now let's see if an inversion happens when the price return and you can clearly see how the CB was used as support when the price return so I think that clears a lot of questions regarding imbalances or fair value gaps you need to be aware that imbalances in chart create the fuel for the uptrending price movement however you should not mindlessly enter a trade in an imbalance Zone it is necessary that you use strong confluences and it is also necessary to monitor the context and make decisions based on it in this video we will discuss the most important Concept in the whole smart money concept approach or maybe it is one of the Keystone topics when it comes to trading as a whole it is none other than liquidity we retail Traders like to get things done the easier way therefore we usually focus on indicator signals for taking trades we are least bothered about why the price moved in a particular manner that trigger the indicator to give a buy or a sell signal almost all indicators are derived from fundamental elements of the market which are price and volume further price and volumes are a result of the postprocessing of basic Market data so the point that I want to elaborate is that indicators can to some extent do a good job in generating winning trades but most indicators fail to work in all market conditions and the signal provided by a single indicator cannot be trusted completely and to top it all off almost all indicators are lagging in nature and they give a trade signal after the move has already started which result in more risk and thereby lowers your reward to risk ratio so one way to stay on top of the market is to play the game like the market makers big institutions or Banks or simply the smart money who feeds on the retailer orders to make a living the big price moves or momentum moves that you witness in the market are a result of the smart money trapping the uninformed Traders or should I say the ill informed Traders because retail education as we all know is based on patterns like Candlestick patterns chart patterns trend lines support resistance zones Etc and eventually they hope on to taking trades on the signals given by conventional indicators or Price patterns I'm not saying that these patterns and indicators don't work at all but there are high chances that most of these can be engineered by the big players these big institutions or smart money are always trying to trap us and take our stop losses so when new Traders come fresh onto the markets they can easily be manipulated and money can be taken away from them because they are easy prey for the big boys the retail Traders lack of knowledge as to where the majority of Market orders are accumulated makes them vulnerable to these institutional traps this is the major reason why most of the retailers lose money they remain as prey to these Banks and institutions or in other words they are liquidity for the big players in essence this is a cat and mouse game in order for one person to win someone else needs to take a loss so the question is what do you want to be the cat or the mouse now there is a popular saying in the market that if you don't know where the liquidity is then you are the liquidity so in this episode and and the upcoming episode we will talk extensively about this Prime concept of liquidity to stay ahead of the majority of retailers and also to stay clear of most of the smart money traps I can guarantee you that once you understand the entire concept of liquidity you will think more clearly as to how the market functions and it will also open up new trading possibilities for you so let's get started right away for some of you there might still be this doubt as to what exactly is meant by liquidity so in simple terms a market with high liquidity is one where there is a large number of buyers and sellers willing to trade in that particular asset this means that there is a high availability of buy and sell orders allowing transactions to be executed quickly and with minimal impact on prices so think of liquidity as an area where there is stop losses and pending orders waiting to be filled we can find liquidity in areas or zones where many people Place their stop- losses be it buy or sell stops usually retail Traders are impulsive and they tend to buy at highest when greed kicks in and they sell at lows when Panic kicks in but at all times when there is a buyer in the market there is always a seller and vice versa and that's how the markets work now the smart money AKA institutions use this retailer liquidity that is the orders of the retail Traders against them for example the institution buys at lows when retail Traders sell after a breakout of that low similarly they sell at highs when the retail traders buy after the breakout of a high so in essence we are all liquidity in the market however that does not mean every single order which is being placed in the market must be targeted and taken out by these big players as some areas are simply not liquid enough for it to be worth the grab for these institutions so in short liquidity is like fuel or acts as a driver to move the market in a specific price zone smart money will try to manipulate the price in order to break through these obvious zones and seize or absorb the liquidity to sum it all up every Market has retail Traders and institutions the retail mindset is almost same across all the markets and liquidity in smart money Concepts enable us to understand where these retail Traders are being manipulated and where the smart money is entering or exiting now another question can pop up in your mind where to find these liquidity zones or order clusters now there are two types of liquidity based on Direction they are buy side liquidity and sell-side liquidity the buy side liquidity represents a level on the chart where the short sellers will have their stop-loss positioned so essentially these stop-loss orders set by the short sellers who sold from the resistance or the swing Highs are essentially buy orders and the buy side liquidity will also include byy limmit orders set by all those buyers who were waiting for a breakout above the resistance or the swing High when it comes to sell side liquidity it is just the opposite it represents a level on the chart where long buyas Traders will place their stop losses so essentially this cluster of orders will include stop-loss orders set by a buyers who went long from the support level or swing low level which in turn is a sell order and sell side liquidity will also include cell limit orders which were set by those sellers who were anticipating a breakdown below the support or swing low in both these cases these levels are often found at or near extremes as the tops and bottoms of the ranges meaning that these points are found at the highs and lows of ranges this is because at these points many people are waiting for the zone to act as a support or resistance or for the price to break the zone to continue in its direction so you can always use higher time frames like daily weekly and monthly time frames to identify these zones now if you want to understand where to find liquidity even simply then understand that whenever there is a trend line support or resistance level double top or double bottom patterns Channel patterns rectangular ranges swing levels Etc there are a lot of retail stop- losses and pending orders available meaning that there is enough liquidity to be taken therefore these are popular areas where retail Traders tend to execute their trades so there will be a lot of stop losses making it a nice level of liquidity for the big players to Target but before all that let us understand why liquidity is important on a price chart so if you think about it liquidity is extremely important because it is the direction in which the price moves the price will always move towards these points to attract liquidity to the market without liquidity financial markets cannot function let me explain this so that you will have a better idea see big players in the markets aim for the best prices but usually they face challenges finding sufficient counter orders to fill their large orders for example if an institution is looking for long positions they will place buy orders at limit prices but for the order to get executed there needs to be enough sell orders right now think about what happens if they enter the market at low liquidity areas where there are only fewer orders available to counter the institutional orders this will create much more volatile markets which will negatively impact the average price of the big players which is actually a risk they are not willing to take now on the contrary entering at a high liquidity area where there are a lot of counter orders available will result in less volatile markets ensuring a better average price for the institutional position and these High liquidity zones are where most of the retail orders are placed smart money Players understand the nature of this concept and they will commonly accumulate or distribute their large positions near levels where many stop- losses resides this concept of absorbing retail orders by taking advantage of all available liquidity at multiple price levels is called as liquidity grab or liquidity sweep and it comes from the need for big players to enter the market in these zones to take their large positions and it ensures that their orders are filled at the best possible prices by breaking up their order into smaller sub orders and then spreading them across multiple price levels so institutional Traders and high frequency trading forms commonly use liquidity sweeps for efficient and quick execution of large trade volumes and the sheer amount of stop-loss orders available at these key levels allows a large player to fully realize their positions and once this level where many stop- losses have been placed has been traded through it is often seen that the price will reverse its direction and head in the opposite direction seeking liquidity at the opposite extreme now think about the result when a large number of stop- losses are triggered if price experience higher volatility or more orders hitting the market such volatility in price generates opportunities for participants to either Ender a trade in a favorable environment or protect their positions the fact that too many orders were triggered all at once result in sharp price moves in the market so without ample liquidity to play with we will never see such big directional moves in the market in fact how will a car be able to move without fuel similarly it is liquidity zones and liquidity sweeps that helps to run the markets smoothly now I hope this clear things up next up let's briefly touch upon the different types of liquidity areas within the market structure based on this liquidity can be classified into external liquidity and internal liquidity now as the name suggest liquidity associated with Major Market structure is referred to as the external liquidity it is also known as major liquidity and the liquidity associated with minor or internal structures in the market is named as internal liquidity or minor liquidity in this video however I will only talk about external liquidity and how to spot external liquidity so to understand what external liquidity is we need to have a fair understanding about Market structure predominantly the major Market structure I have already made a video on Market structures and how to properly Mark the swing points namely the swing highs and lows and also to identify and mark break of structure change of character Etc so if you haven't watched the video I urge you to post this video right away and watch the first episode of this course right now to get a better understanding as to how major liquidity functions to Briefly summarize things a bullish Market structure will have higher swing highs and higher swing lows a higher high is confirmed only after a valid pullback and a higher swing low is confirmed only after a valid breakout structure and a change of character happens when the price break and close below the previous swing high or higher high thereby Shifting the market sentiment towards bearishness now when it comes to a bearish market structure it comprises of lower swing highs and lower swing lows a lower high is only confirmed after a break of structure and a lower low is confirmed only after a valid pullback and a bullish change of character happens when price manages to break and close above the previous swing high or lower high indicating a shift in the sentiment from bearish to bullish now these are basically the things that you need to keep in mind while learning the major Market structures now let me ask you which are the most important points when it comes to Major structure quite clearly these points are higher highs and lows and lower highs and lower lows or simply these are the major swing highs and major swing lows now let me ask you another question why do you think the market does a break of structure or a change of character and then does a pullback what do you think about this particular behavior of the market okay let me explain let's take the case of a bullish breakout structure and a bearish change of character now what are they these are basically simple breakouts right but if you think about it on a much deeper level what exactly is taking place here as we are aware a bullish breakout structure happens when price breaks and closes above the previous swing high or higher high so one must focus on the swing High level the swing high is considered as a strong resistance level or a supply Zone there can be at least two types of participants waiting in this area the former would be sellers who are obviously trying to take short trades from the swing high or the so-called potential resistance level and where will they put their stop losses quite obviously they will set their stop losses which is actually a buyback order above the swing high now the second group involves buyers who are anticipating a breakout of prices above the swing high level because the current market trend is bullish so what will these buyers do they will look to buy on the breakout and they will place their stop loss which is a sell order just somewhere below the swing high level so as you can see there is a large cluster of orders available above and below the swing high level so this is a highly liquid area so now what will happen depending on which side has majority of orders the market will move in that direction to absorb or sweep the liquidity in this case a breakout above the swing High has happened meaning that the concentration of buy order was much more than the amount of sell orders available below this level this is why the market moved higher absorbing all the seller stop losses and buy limit orders a similar scenario takes place in case of a bearish change of character which is our level of interest in this case yes you are right it is the higher low or simp the swing low level now applying the same logic here also there are at least two interested players here the former are buyers since the swing low has the potential to act as a support or demand level and since the trend is also bullish the buyers will look to take long trades from this level and where do you think they will set their stop losses quite obviously they will set their stop losses which mind you is actually a sell order somewhere below the swing low level now the second group compris of those sellers who are looking for a breakout below this swing low level if you look carefully you can see a proper trend line and thus they will bet on the breakdown below the trend line as the price has tested the trend line multiple times so they will look to sell on the breakdown and they will obviously Place their stop- loss somewhere above the swing low or even above the recent swing high so quite clearly there are a large number of orders available above and below the swing low level so this is a highly liquid area now what will happen depending on which side has majority of orders the market will move in that particular direction to absorb or sweep the liquidity in this case a breakdown below the swing low has happened meaning that the concentration of sell orders was much more than the amount of buy orders available above this level this is why the market moved lower absorbing all the buy stop losses and sell limit orders I hope you have understood in in a similar manner you can understand what happens during a bearish break of structure or a bullish change of character now I hope things are making sense but still a question remains why don't the market just keep going in the direction of the breakout why do price stop and return back or why do prices form pullbacks so if you have observed closely once the price does a break of structure or a change of character it does not move up or move down indefinitely if we take the case of a bullish break of structure Above This previous swing High we will come to know that the price will move up only to that extent where the orders are available or in other words as long as liquidity is available above the swing High the market will move higher this is because the smart money is absorbing all the buy side liquidity so as to sell high and once it has absorbed all the orders above this swing High where do you think the market will go now one thing that you must keep in mind is that the market moves from one area of liquidity to the other So based on this idea where will the market find liquidity once it has swept all the orders above the previous swing high or once the buy side liquidity is completely taken out think about it there is no liquidity available anywhere higher so no point in going higher so where will the market go now this is where we have to think about why the market does pullbacks after a break of structure or even a change of character I can just tell you that it is the inherent nature of the market to move as waves forming impulse and corrective moves and just stop the discussion but understanding the reason behind these pullbacks are very important let me remind you that the market needs fuel to move higher or lower this fuel is none other than liquidity in the form of retailer buy or sell orders as you may already know now liquidity is the reason why Market forms impulses and Corrections in this case after sweeping out the buy limit orders and buy stops which is actually the buy side liquidity the market pull back slower and what is the purpose of this pullback the pullback is the way in which the market is looking for a sell-side liquidity and where can we find these clusters of sell limit orders and sell stops this is why you need to have a proper understanding of how the market structure forms and functions in this particular case after a bullish break of structure the market can pull back to a few possible levels where it could find liquidity and only after it has stabed the liquidity from these levels the market will continue to move higher these levels could either be internal or minor swings formed within a wave or it could be the major swing level also below these minor swings and major swing low levels there will be a lot of players looking for a trade opportunity usually the previous major swing low level is considered to be a strong demand zone or a support level so most buyers would be interested to take a long trade from this level and they will obviously set their stop losses below this major swing low level so there will be a lot of sell orders available below this level and so the market could tap into this liquidity pool to sweep all the retailer stop losses to buy at lower prices and then move up higher now the price won't always move all the way down to this major swing low if you look at the chart on most occasions the price will pull back only by 40% or 50% before resuming the main Trend now what do you think is the main reason for this now I want you to understand that when price pulls back it has got a few liquidity options to tap into I have not discussed some of these terms yet but bear with me on this so the first option is to tap into an inducement level which you can consider as a previous minus swing below which you can find liquidity as Traders will look to buy from this level assuming a double top formation while some sellers will place sell limit orders anticipating a breakdown of prices now both this action will result in a pole of sell side liquidity that the smart money can tap into the next available options are order blocks or point of interest and just for the sake of understanding assume POI as areas where large number of buy or sell orders are placed by institutions for the sake of buying low and selling high and we can expect the market to reverse from these zones so the market can tap into either of the two water blocks the first is a decisional POI which is usually formed after an inducement and there is a 50% chance that the market will tap into this liquidity area and reverse higher and the other order block is formed near the major swing low level and it is usually called the extreme POI so the other 50% chance is that this extreme POI will be tapped to absorb orders the price will go deeper into these levels to absorb all the available orders usually vsmc Traders will take buy and sell trades from any of these three mentioned liquidity levels we will talk about the concepts of inducements aut blocks POI Etc in our upcoming episodes but I hope you have understood the overall concept behind external liquidity now let us briefly take a look at where to spot these external liquidity levels or under which circumstances can we observe these levels so as you may have already guessed the major swing highs and major swing lows especially on higher time frames are high probability areas where we can find major liquidity you can understand this using a simple example you can mark the structure on a 1 minute time frame which is a lower time frame and then Mark the structure on a 1 hour higher time frame in which time frame do you think there will be more orders present near the swing highs and lows without much thinking we can say that the higher time frame swing level s will have more liquidity in comparison to the one minute swing levels meaning that there will be more meaningful price reactions on higher time frame structures another location to find major liquidity is where equal highs or equal lows are formed near the previous swing highs or swing lows respectively on a higher time frame there are good chances of finding cide liquidity below these equal lows and buy side liquidity about these equal highs the same logic applies to double tops and double bottom s which are formed near these major swing points yet another location where you can find major liquidity is below an uptrend line drawn connecting the major swing lows or above a downtrend line drawn connecting major swing lows these trend lines are quite lucrative places because you can find both buy and sell side liquidity because one party is looking to benefit from a breakout of the trend line while the other party is looking to gain from a reversal from the trend line obviously the smart money will Target these trend lines and most often you can see fake outs from these trend lines which are none other than the big players sweeping the liquidity to get better entry prices now the other important locations where you can spot major liquidity includes the previous monthly highs and lows previous yearly highs and lows previous weekly highs and lows and even the previous daily highs and lows these are all levels that a large number of participants are keenly watching to take a trade and therefore there will be a large number of order getting accumulated here these are all prospective locations with very high liquidity since we don't have the kind of information that the big players processes we cannot determine the strength of a liquidity area and the exact location of liquidity at all times therefore we can only predict where the liquidity can be discovered but you must understand that the larger the time frame the greater the liquidity however the more we go down onto smaller time frames the more weak the liquidity will be so these are all the things that you need to know about liquidity especially external liquidity in the next episode we will turn our attention to internal liquidity are you one of those traders who gets into a trade near a level of importance or be a peculiar chart formation but the price goes against your trade takes out your stop loss and the next thing you see the price reverses its direction and moves in the same direction as you have anticipated in the beginning I have been there and it's very frustrating and if you are one of them then this video is for you this video will definitely change the Outlook of how you look at the charts in the previous episode we have talked in detail about liquidity its importance and we have also discussed in detail as to how major liquidity functions and where to find them so if you haven't watched that video please make sure to watch it right away because it will give you all the basic stuff that you need to know when it comes to the concept of liquidity but just to brush things up liquidity is generally known as the fuel in the market which is usually a cluster of retailer orders that is it can be limit orders and stop-loss orders which when taken out or swept causes the market to usually reverse in the direction of the existing Market Trend with a strong momentum this will usually result in a fake breakout of the previous high or the previous low which can be in the form of deep Wicks taking out retail ERS this is called as liquidity grab or liquidity sweep now Market always moves from one area of liquidity to another so when liquidity is taken the market needs to generate liquidity in order to move which means if liquidity isn't already there it will be created and we have also talked about buy side and sells side liquidity then we have discussed about major or external liquidity which in short is the liquidity available at or near the major Market Market structure which includes the major swing highs and major swing lows you will get a good idea on Market structures if you watch my video on the same topic on episode one of this course in addition to this major liquidity can also be found at or near higher time frame supports and resistances weekly or daily highs and lows Etc now in the previous episode on liquidity I have classified liquidity based on Market structure as internal and external liquidity but looking at a much broader perspective we can categorize liquidity into four types of which the later two of them are actually applicable to the previous two classifications I will explain this right now but first of all the different types of liquidity classifications are external liquidity internal liquidity static liquidity and dynamic liquidity as mentioned just now external liquidity is the liquidity that can be identified above a range high or range low previous high or a previous low or swing high or swing low internal liquidity on the other hand is the liquidity created within a Range High and range low previous high and previous low or a swing high or a swing low now when it comes to static liquidity this liquidity is created or it is identified at or near double bottoms or double tops or simply near equal highs or equal lows and finally Dynamic liquidity is actually identified as the liquidity which is associated with a trend line so this liquidity is created at both sides of a trend that is above and below a trend line now you might have understood how the last two types of liquidity namely the static and dynamic liquidity are related to the first two types it is simply the fact that trend line liquidity and liquidity associated with equal highs or lows or simply the double tops and double bottoms are observable in both both major and minor structures in the market now we will understand about internal liquidity how to read it or how to spot it and how retail people get strapped in these areas as you may know minor liquidity is the liquidity associated with the internal Market structures this means all the clusters of retail orders which are getting accumulated between the major market levels like the major swing highs or the major swing lows are known as internal liquidity so you can anticipate a lot of retail stop- losses and limit orders at or near these minus Wing structures in the screen you can see a few structures these are all common areas where you can spot internal liquidity we will first understand each one of them and then take a few examples from real charts this is not a very difficult topic to understand all you need to do is to think how a retail Trader will respond when provided with a particular situation in charts so all you have to do is to think like you always have as a retailer and without much efforts you will be able to identify where the minor liquidity is already available in the first diagram we can easily spot equal lows so technically we have two lows on the same price level thereby forming a minor support level it is also known as double bottoms we have learned that double bottoms are reversal patterns right so what do you think a retail Trader will do when he or she Sports a double bottom pattern it is very obvious that they will try to take a long trade either after a breakout above the neckline or some might even take a long position from the support level connecting the lows now comes the important question where will they set their stop losses almost all of them will place their stop losses somewhere below the support level now you can imagine that there will be a large cluster of stop-loss orders lying below this support level these are all stop-loss orders set by the buyers who have taken a long position and these stop losses are sell orders or sell side liquidity but what exactly do you think this is this my friend is retail liquidity that we have been searching for now what happens next or what will be the outcome the smart money will always look to buy at lower prices and they will look to sell at higher valuations they do not follow any strategy or patterns but they take their positions based on liquidity so most often or not theyve look to tap into these areas of liquidity to execute their positions at the best possible valuations now coming back to a discussion on double bottoms the smart money or institutions will push the prices down and break below the equal lows or support level so as to absorb all the sside liquidity and once all the stop losses are absorbed or swept the market usually reverse its direction and move higher this is usually more frustrating for Traders than hitting the stop losses because usually such a move will impact a Trader psychology and it will also question his analysis and learnings so in short there is liquidity below equal lows or below the support level connecting the lows of the double bottom which is actually a cluster of sell stoploss orders or sell side liquidity which get stabed by the big institutions to buy at lower valuations now the second diagram shows equal highs it means that we have two high points on the same price level this is also known as a double top pattern like a double bottom this is also a common reversal pattern that you can find on charts if you have clearly understood how liquidity and Retail a mindsets Works in case of a double bottom then understanding the logic behind double tops or equal highs is just a piece of cake ask yourselves what will a retailer do when they spot a double top pattern they will try to take a short trade either after a breakdown below the neckline or they might even sell when the price starts falling from the top resistance level connecting both the tops now where will they set their stop- losses most commonly retailers will place the stop losses somewhere above the top resistance level now you can imagine that the there will be a large cluster of stop- losses lying about this resistance and almost all these stop- losses are placed by short sellers who sold from the resistance or neckline so technically this cluster of stop losses are buyback orders or buy side liquidity and this is the liquidity that smart money is Keen to tap into so what do you think will happen next smart money will always look to sell at higher valuations and they will try to collect the retailer buy stop-loss orders or the buy side liquidity which is clustered above the double top or the top resistance level so most often they will push the prices higher and break above the equal highs or resistance so as to absorb all the retail orders to sell their positions at the best possible prices and once all the stop- losses are grabbed or swept the market will usually reverse its direction and move lower which can be really heartbreaking now if you have understood both these types of liquidity then the next few types are going to be really easy yes we are talking about support and resistance liquidity next so what happens in a support level think about it in terms of a retailer what will be a retail participant's thought process so when price test a support level few times we can anticipate two types of Market participants around this area the first group involves buyers who are looking to take a long position at or above the support level to take a reversal trade the second group are sellers who are looking to profit from a breakdown below the support level now how will both of these players act in this scenario first up are the buyers they are looking to take a long trade entry so they will try to buy at or above the support level and they will place either byy limit orders or Market orders now comes the important question where will they Place their stop- loss the will set their stop- loss somewhere below the support level which is actually a sell order and when it comes to short sellers they are looking for a breakdown below the support level so they will either place a sell limit order or a sell Market order at or below the support level when the breakout happens and these guys will set their stop- loss somewhere above the support level which is actually a buyback order now as you can visualize there are a large clusters of buy and sell orders getting accumulated above and below the support level or in other words there is sell side liquidity or clusters of sell orders below the support and buy side liquidity or clusters of buy orders above the support level and this is a golden opportunity for the smart traders to capitalize on so what do you think will their action plan be you might have seen and experienced this happening many times in the chart the smart money will first push the price below the support level to break into the sells side liquidity so as to be able to execute their large buy order positions at the lowest price possible this will result in retailer sell orders and sell stop losses being triggered now the buyer positions will automatically be exited when their stop losses gets hit while the sellers are still in their trade and their bu stop losses are still active above the support level now once all the smart money orders are executed by the retail sell orders which was accumulated below the support they will push the price higher and what will happen now now all the buy stop orders which were set by the sellers will get triggered and they will also be out from their trades this will lead to the market moving higher strongly this will in turn induce the for more traders to start buying and thereby pushing the markets even higher this is a typical case of false breakout and liquidity grab in the market and even now a majority of retail Traders are unnown aware of this smart money trap the same action plan happens in the case of resistance levels also here also there are two players there are sellers who look to take advantage of a reversal from the resistance level so as to initiate a short position at or below the resistance they will set their stop losses somewhere above the resistance level then there are buyers who are looking to benefit from a breakout above the resistance so as to buy Above the resistance these guys will set their stop losses below the resistance in the event of a breakout so there is buy side liquidity above the resistance and sells side liquidity below it and as you might have guessed the smart money will try to manipulate both these players they will first push the price above the resistance so as to execute their sell orders at Higher valuations by absorbing the buy orders or buy stop loss orders thereby taking out the short sellers out of their trads but the breakout buyers are still active in their trades and their stop-loss orders are still live below the resistance level or in other words the sell side liquidity is still available below the resistance and once all the large smart money positions are filled they will push the prices lower thereby absorbing the sell side liquidity and taking out the breakout buyers this will cause the price to fall rapidly which will encourage the former participants to start selling and thereby causing the market to decline even even lower this is another typical case of false breakout associated with a liquidity grab a similar approach is seen during consolidations especially the rectangular ranges when it comes to rectangle patterns we have a bottom support level and a top resistance level so most often the false breakout happens in the opposite direction of the market trend for instance if the market structure is bullish then most probably we might see price absorbing the retail liquidity available below the bottom support level and then push higher to form a real breakout above the resistance level on the contrary if the market structure is bearish then most probably we might see a false breakout above the top resistance level so as to absorb all the buy side liquidity and then the price might move lower and form a real breakdown below the support level now this analysis is not 100% accurate because we cannot predict the occurrence of a false breakout perfectly since there is liquidity available on both sides of support and resistance it can lead to more than one fake outs or in some cases there might not even be a fake out now let's talk about the next category of internal liquidity which is the trend line liquidity now trend line liquidity is one of the most common types of smart money manipulations that you can encounter on charts especially when there is a predominant Trend involved technically there are two types typ of trend lines uptrend lines and downtrend lines another important thing to keep in mind is that for a line to be considered as a trend line there should be at least two touches on it and to confirm a valid trend line there needs to be at least three touches on it now this concept is easy to understand if we compare it to support and resistance so consider the uptrend line as a support level for prices and downtrend line as a resistance level for prices now it is easier to visualize the events better so let's start with an uptrend line as I have mentioned an uptrend line acts as a support for prices so we can expect two types of participants waiting to take a position there are buyers looking to go along from the support trend line then there are those short sellers searching for a breakdown below the support trend line thus there lies buy side liquidity above the uptrend line and sell side liquidity below the trend line This Means most often both retail buyers and sellers stand to lose their stop losses the big institutions will first push the prices down to break below the uptrend line This Means all the sell stop orders of buyers and sell limit orders of short sellers will be triggered the smart money will try to absorb all the retail liquidity to ensure that their large buy positions are executed at the lowest prices possible now only the short sellers are active in their positions with their buy stop losses live above the trend line once all the smart money orders are filled they will take the prices higher revisiting the buyback orders placed above the support trend line by doing so the short sellers will also be taken out of their positions once their stop losses are triggered this will in turn push the prices higher so you can see how both retail sellers and buyers are equally affected by such a manipulation a similar scenario persist when it comes to downtrend lines also there will be buy side liquidity above the resistance trend line and sells side liquidity below it the smart money will create a false breakout above the trend line sweeping all the buy side liquidity in order to execute their sell positions at the best possible valuation and once all their orders are filled they will reverse the prices to move lower which then takes out the sell side liquidity and then combine it with the new formal sellers coming in the market will fall even more finally there are are people who look to trade prominent chart patterns like flag patterns which unfortunately is yet another internal structure formation that is prawn to liquidity manipulations you might know about flag patterns how it forms and how to trade them if you don't you can watch it in my chart patterns course video basically there are two types of flags bullish flags and bearish flags let's start with the bullish Flags first flags are continuation patterns meaning that the possibility of the existing Trend to continue is fairly High when a bullish flag consolidation is spotted the retail Traders will look for a bullish breakout above the top resistance line now majority of this group includes buyers who are looking to take a breakout trade and they will usually set their stop losses below the bottom support level this is the usual practice now the manipulation Happening Here is very exciting first the smart money will create a small reaction above the top resistance level of the flag this minor reaction above the resistance will induce a lot of form more retailers to take the bait that is they will think it is a breakout and these Traders would rush in and place their buy Market orders and buy limit orders above the resistance in order to buy and they will in turn set their stop losses below the bottom support level but most probably this reaction would be a false breakout to trap the retailers into taking a trade now the price would move lower and break below the bottom support level where lies a large clusters of sell side liquidity and these institutions will ensure that all their buy orders are executed at the lowest prices possible sweeping the sells side liquidity means that all the buy stop losses are triggered and they are taken out of their trades now what happens afterwards quite clearly the market will bounce back higher and and this time creating a real breakout instead of a minor reaction and once a strong breakout with high volume appears more Traders would join in and the prices would rise even higher a similar scenario takes place in case of a bare flag but here instead of buyers the former sellers would get trapped a beer flag as you may already know is a bearish continuation pattern so most of the retailers would look for a breakdown of prices below the bottom support line so as to take a short trade position while setting the stop losses above the top resistance line so the smart money will create a sudden price reaction below the support line which will induce a lot of retailers to enter into short trades this activity causes a lot of buy stop orders getting accumulated above the resistance Line This is actually buy side liquidity and the market will create a false breakout and it will move higher to grab this liquidity in for the smart money to execute their sell orders at higher prices now almost all the buy stoploss orders above the resistance level will be triggered and those Traders will be taken out of their positions and once all the smart money orders are executed the market will once again reverse and move lower and this time the market will form a real breakdown below the flag support to which more short sellers would respond by selling aggressively and the market will fall even lower now there are other patterns and other situations in the market where internal liquidity is available for the taking within the major structure some of them are symmetrical triangles price channels supply and demand zones Etc but the ones that I have discussed here are the most important types and it is more than enough to get a fair understanding as to where to find internal liquidity and how to find Smart money traps associated with them now let's move on to a few quick examples of such internal liquidity manipulations in the real market conditions uh take a look at this chart you can see price making equal lows so clearly there is sell-side liquidity below this level and what happens next as you can see the market moves down and absorbs these clusters of orders and then it reverses to go higher usually when liquidity is absorbed the price will move quite strongly moving on to example two what what we have here is equal highs and you know what that means it means there is buy side liquidity available above this level now the smart money are eager to manipulate or absorb these liquidity areas and guess what happens the price breaks into this liquidity area and sweeps out all the retailer orders above it and then it moves down lower this is a typical manipulation that you can find on charts on a regular basis you can call it double tops or double bottoms also but the logic Remains the Same now example three is a support level within the major structure and we have talked about how the manipulations takes place around a support level or a demand Zone quite clearly so there is buy side liquidity above it and sell-side liquidity below it and look what happens next the market breaks below the support level gets hold of the retailer stop losses and then reverses and goes higher taking out the buy side liquidity this price manipulations affects both the players now this is example number four which is a resistance level within the external structure here also you can anticipate retailer orders stacking above and below the resistance so there is buy side liquidity above the level and sell side liquidity below it and as you can see the price broke above the resistance level to sweep the buy side liquidity and once it is done the market reversed its direction and in the process it takes out the cell side liquidity and moved lower now look at this case an internal uptrend line has formed within the major structure from what we have learned there are both types of orders available above and below this trend line and look what happened here the price broke below the trend line thereby taking out the sell side liquidity and then it did a sharp reversal and moved higher now yet another example is of a downtrend line which formed within the major structure here the price made a false move higher to grab the retailer liquidity and then reverse lower to continue in the major Trend Direction the next example is one of a flag formation this is a bullish flag formation and as you can see the price made a false breakout or reaction below the support level just to absorb the liquidity available in the form of stop losses and then the price broke above the flag and moved higher this is a similar example but this is a bare flag formation here you can see the market took out the liquidity above the top resistance line and then the price returned and broke below the lower support and continue to decline in this manner using this simple logic you can spot innumerable liquidity manipulations in the charts it could even be in the form of recognizable patterns that most retailers are Keen to trade from so go ahead and look for such manipulations and liquidity grabs in the charts and also try to understand what happens next you will clearly understand how the price movements are engineered in the markets once we have a discussion on a few more topics like order flow order blocks and inducements we will continue this discussion in the upcoming episodes in this episode we are going to learn another important topic in SMC without the knowledge of which trading in the markets can be tricky as well as risky it is none other than inducements some Traders ignore the significance of this topic while many others don't use it in the proper manner we will try to fix this so in this video we will understand what inducement is and what its significance is then we will learn different methods of identifying and sporting inducements in the market further we will discuss about the different types of inducements namely major and minor inducements and finally we will understand the difference between induc ments and change of character so watch the video till the end to gain complete understanding of the entire topics so let's get started now there are different ways in which you can define an inducement but I would like to think of inducements as an area or level where retail stop- losses can be hunted or simply think of it like a trap in the charts the proper definition of inducement is that inducement is an area of deception where most Traders believe it is the correct and right time to enter trade leading them to take wrong decisions at the wrong locations and in the wrong direction so the idea of an inducement level is to induce or persuade traders to buy or sell at the wrong location thereby leading them to a trap now inducement is a concept based on liquidity for example think of it like a level where retailers find an opportunity to take a trade but for someone who follows smart money Concepts inducements give them an opportunity to take a counter trade against these retailers or in other words inducements signal SMC traders that it is now feasible to take a trade it is always advised that until and unless there is a proper inducement in the chart one should not even think about entering into a trade position this is because the chances of it being a trap otherwise is very high and you might end up in losses so the reason why this is particularly important is because of the fact that inducement follows the nature of liquidity so if you have noticed liquidity follows an accumulation manipulation distribution cycle also known as the power of three let me explain this accumulation represents a stage within the market cycle where prices tend to consolidate while engineering liquidity on either side the manipulation phase follows the accumulation and is often marked by sudden and sharp price movements that catch retailers offguard manipulation occurs in the opposite direction of the real move and it is aimed to stop out the retailers and induce the breakout Traders so understanding the intentions behind manipulation phase is very crucial smart money uses these moves to acquire more shares or assets at favorable prices by triggering stop- losses and inducing breakout players they generate enough liquidity for their positions they accumulate positions while retail Traders are caught on the wrong side of the trade now comes the distribution phase after accumulating at the best possible valuations and manipulating the market to their advantage smart money begins to unload their positions to those eager retail traders who are late to the game the distribution phase in SMC is quite a bit different from the distribution phase that we have learned in the price action course here during distribution the smart money slowly offloads their Holdings typically in a controlled manner they distribute their shares to the retail traders who are jumping in eager to open new positions at higher valuations this influx can sustain the rally for a while this AMD concept emphasizes that recognizing these phases is essential for successful trading by understanding when smart money accumulates manipulates and distributes Traders can align themselves with the dominant forces rather than getting caught on the wrong side of things so this is the whole concept behind inducements also there are other significance of inducements which we will talk about in a short while now how exactly can we find inducements in the charts what are the things that we need to consider so there are two methods which you can apply to find inducements both of which has certain limitations of its own these are the first pullback method and the trend line method let's talk about the first pullback method this is actually the first pullback after a break of structure the idea is quite simple an inducement is considered as the first buback after a valid break of structure has has happened these pullbacks are minor pullbacks or internal pullbacks which can be formed using a single candle a group of candles or even a deep Wick you can see the different types of pullbacks that you can find on charts here even though we consider inducements as the first pullback after a valid break of structure in certain scenarios we might need to tweak this rule by a little bit let us understand this using a few examples we will first consider some bullish Market scenarios on a major Market structure before that make sure you have a fair understanding about the market structure mapping you can watch that video in my SMC playlist anyways here we have four situations we will take a detailed look at each one of them in the first case we can see the price break and close above the previous major swing high this is our valid break of structure now let us see what happened after the break of structure you can notice how the price moved higher and then it formed a minor pullback as per our definition the low of this minor pullback is our inducement level we can draw a small horizontal line at this low to Mark the inducement for easy identification of this line in the future we can name this Lon as IDM or you can even use a dollar sign for the same purpose now you can see what happened next the price moved lower and break below this inducement line this means that the liquidity below the inducement level has been absorbed or the uninformed retail Traders are trapped AP only when the inducement level is taken out should we start thinking about a trade mostly the market will move in the direction of the existing Market Trend after taking out the inducement but this does not have to happen immediately the price can reverse after sweeping a liquidity area or it can reverse from an order block also so inducement is a useful concept before taking a continuation trade but as always this cannot be said with 100% accuracy there can be such instances where the market could just fall lower and break below the major swing low and thereby forming a change of character instead now moving on to the second example in this case we can observe that the price moved higher and it break above the previous swing high level but the price did not managed to close above the previous higher high so this is not a valid break of structure therefore we cannot spot the inducement yet and what happened afterwards the price did manage to break and close above the previous major swing highlight level so now we have a valid break of structure now the price moved even higher and formed a minor pullback now we can mark the low of this pullback using a line this is our inducement level which is denoted by IDM or a dollar sign but as you can see the price did return back to take out the liquidity below this inducement level keep in mind that only after the inducement is taken out should we think about taking trades from an order block or from an area of liquidity indu m is also used as an order block filter the idea is that inducement levels are considered as smart money traps because it induces retail traders to take a short trade from an inducement level which is above the price of Interest or demand Zone during a bullish Market structure thereby making them to trade in the wrong location as well as in the wrong direction for those who are unaware of what price of interest is poi or price of interest is a price level or a price Zone where there is a very good prob probility that the market could react with it and respond accordingly a POI is also called DP or decision Point by some experts so a POI can be any of the following it could be an order flow an order block a supply or demand Zone session highs or lows daily or weekly or yearly highs on lows or it could even be price caps in a similar manner inducement persuades retail traders to enter into a long trade position from an inducement level which is below a price of Interest or a supply Zone during a bearish market structure thereby making them to trade in the wrong location and in the wrong direction so most often or not price will break this inducement level and take out the retailer liquidity so this is a very common smart money trap and this is why it is always recommended to take trades once the liquidity associated with an inducement level is taken out because once the price has swept the liquidity associated with an inducement level there are good chances that the price can reverse without test in any price of Interest or Supply or demand zones I hope things are making sense now look at this third example where is the inducement in this case it is clear that the price did form a valid breakoff structure but as per our definition of inducement the price did not create any minor pullbacks after the bullish break of structure but the price did form a pullback just before the breakoff structure so in such instances where there is no pullback formed after the breakoff structure we will consider the last minor pullback before the breakoff structure as the inducement level and we can mark it using a line and name it now look what happened next the price did return all the way down and took out the liquidity below the inducement level and then it moved higher so this is a special case where we have to make adjustments and not blindly follow the textbook definition of inducements now take a good look at this last example here the price gave a clean breakout above the previous higher high so it is a valid bullish breakout structure then the price moves higher and forms a minor pullback so as per our rule we will draw a line at the low of this pullback and Mark it as our inducement now did the price return to grab the liquidity no the price did not come back instead the market moved higher and then it Formed another minor pullback now what will we do if such a case takes place we should shift one inducement level forward to the law of this newly formed pullback and even if the price don't take out this new inducement level and it moves higher and then create another pullback then without any doubt we should shift our inducement line to this new law formed this is yet another important Concept in connection with the basic rule of first pullback and as you can see the price returned to sweep the liquidity below the inducement level and then the market continued higher after absorbing all the liquidity the idea remains same for bearish instances Also let's quickly look at a few examples for bearish Market structure in the first example price formed a valid break of structure then it moved lower and made a minor pullback so as per the rule we can draw a line at the high of the pullback and Mark it as the inducement level the price did come back and sweep the liquidity above this line moving on to the second example here the market did not give a valid break of structure at first then price Consolidated a bit and then finally it break and close below the previous swing low level thereby forming a valid bearish breakup structure and then once it moved lower it formed a minor pullback we can mark the high of this pullback as our inducement then we can see that the price returned to take out the liquidity above the inducement level so an important point to be noted here is that you should never look for an inducement until there is a valid break of structure now in this third example the price created a valid bearish break of structure but the price did not form any minor pullback on the way down instead it formed a corrective move towards the upside in such cases we can mark the high of the last pullback before the breakout structure as our valid inducement level in this scenario you can see how the price move higher and took out the liquidity above our inducement level and then fell lower in the last example the market formed a minor pullback after a valid breakout structure then we can mark the high of this pullback as our inducement level but the price declined even lower without grabbing the liquidity then it Formed another minor pullback on the way down in this case we can shift our inducement line to the high of this newly formed pullback and we can notice what has happened afterwards the price swept the retailer liquidity Above This inducement level now let me remind you again that you should never think about taking a trade until and unless the inducement level is not taken out this is mandatory if you are following smart money Concepts now always keep in mind that IND ements should be marked on the impulse move that caused the break of structure it should not be marked on the corrective move like in this case this is the wrong approach The Only Exception is when the market forms a valid change of character in which case the correction move gets converted into the impulse move of the counter Trend take a look at the scenario here the price break and close below the previous higher low level thereby confirming a bearish change of character in this instance we have to look for inducements in the price move that has caused the change of character in that sense we have to mark the inducement at the high of the first minor pullback after the valid bearish change of character so make sure you are marking your inducements in the right manner another importance of inducement is that it helps to identify and confirm the higher highs in a bullish Market structure and it helps to confirm the lower swing lows in case of a downward Market structure in the market structure mapping episode I have mentioned that you need a deep pullback after a valid break of structure to confirm your higher highs in case of a bullish Trend and also to confirm your lower swing lows in case of a bearish structure I asked you to use Fibonacci retracements to identify deep pullbacks but this is a time consuming process so a rather simple hack is just to identify the valid inducement level then the highest point above this inducement line once its liquidity is taken out will be our higher high in case of a bullish Market structure similarly the lowest point below the inducement level once the liquidity above the inducement is grabbed will be our low swing low in case of a bearish market structure now let's talk about the second method of identifying and marking inducements which is by using trend lines the idea is very simple let us consider a bullish Market scenario keep in mind whatever happens we will look for inducements only after a valid break of structure here you can see how the price break and close above the previous higher high thereby forming a valid bullish break of structure then the market moved higher what we will do is that we will draw a trend line connecting all the minor lows within the major swing or in other words we will try to connect all the internal swing lows using a trend line as you can see in this figure then we will wait for the price to break and close below the trend line which will in turn induce retail traders to sell because of a trend line breakdown all these retailers will be trapped and their orders will be taken out now in a bearish market structure we should look for a valid bearish breakoff structure below the previous swing low level and when the price Falls lower we can mark all internal highs formed after the recent swing high and then connect all these minor highs as and when they are found and when the price breaks and closes Above This downward trend line we can expect retail traders to take bu positions as they have spotted a trend line Breakout this is our inducement all these retail Traders will be trapped and their orders will be absorbed now there are a few problems with this trend line method first of all trend lines are subjected to human errors this means different Traders would draw an interpret trend lines differently so the inducement identification varies vastly from person to person so this confusion is not a good thing the second issue is that sometimes even after a breakout below the trend line the price would not move below the inducement low which means the liquidity below this level is not absorbed this could lead to wrong analysis because as per our pullback method the inducement level gets shifted to newly formed pullback lows as long as the liquidity is not swept by the market so from my experience it is better if you stick with the first pullback method after a valid break of structure for marking your inducements now let us talk about major and minor inducements you might have already guessed what these are anyways the differentiating factor between the major and minor inducements are the time frames it will also depend on your trading style so if you are an intraday Trader then your higher time frame can be 15 minutes while your lower time frame can be between 1 minute to 5 minutes so if you were to map your Market structure and Mark your inducements on a 15 minute higher time frame then you are indeed marking the major inducements now if you start mapping the structure and Mark all the inducements on a 5 minute low time frame and then consider all the internal price wings and the associated break of structures then you're drawing the minor inducements on a similar note if you are a swing Trader then your high time frame can be 1 day or 4 hours whatever it may be and your lower time frame could be 1 hour in this scenario your major inducement is marked on your higher time frame major or external structure while your minor inducement is marked on your lower time frame structure which is one hour and considering all the internal price moves within the major swing structure now the idea of identifying and marking minor inducements are also the same as with major inducements but because we are making use of lower time frames and also taking into consideration the minor or internal structure we will be faced with a lot of minor structure breaks this will result in a lot of inducements getting formed these minor inducements can be helpful for those Traders who wants to collect some quick profits while waiting for the price to take out the major inducement level but there is a small change in concept when it comes to minor inducements and change of character in a lower time frame internal Market structure so let's clear that out so this is a bullish Market structure on a higher time frame and to the right is how the lower time frame structure looks like and as you can clearly see in the lower time frame the internal price wings are quite detailed and visible now let us Mark the break of structures in the minor time frame once the break of structures are identified let us find the proper inducements we will try to Mark the inducements as per the first pullback after the break of structure Rule now since we have marked the bullish break of structure we will have to spot the lows of the first pullback here I have marked all the lows of the pullback and we can draw a line at these lows these are our inducements we can see how the price reacted in these inducement levels now let us Focus focus our attention on this last inducement level before the market revers lower so before It reversed the price tested a supply zone or a price of Interest so this is not really an inducement but instead this is a change of character or Chalk in the minor structure so the simple difference between an inducement and a chalk in a minor structure on a lower time frame is that inducement is the first pullback after a valid break of structure but a chalk becomes that that inducement level before the market tests a price of Interest let us look at a bearish case also to help us understand the idea even better so first you need to go to your higher time frame and map the structure that is you need to find your lower highs lower lows breakoff structures and change of characters if any then you need to Mark the major inducements in this higher time frame structure so if you are an intraday Trader map your structure on the 15 minutes higher time frame the next step is to move to your lower time frame which can be between 1 minute and 5 minutes let's take 3 minute for our purpose in the 3 minutes chart you will get more granular details on the internal structure and a lot more of swings now start identifying the valid minor break of structures and the price break and close below the previous internal lows then start identifying the minor inducements which are actually the highs of the first pullback after a valid minor breakup structure now this last inducement before the price reversed after after testing a price of Interest or a demand Zone will be our change of character so in the market change of character can happen on two occasions first of all as you may already know a chalk happens on a Major Market structure and the price breaks and close below the previous major swing low in case of a bullish Market resulting in a bearish change of character or we can say there is a change of sentiment from bullish to bearish it can also occur when price break and close above a previous major lower swing high level resulting in a bullish change of character the second scenario where a change of character can be identified is on a lower time frame internal structure where your inducement becomes a change of character when it test a price of interest and reverses I hope things are clear so these are all the important things that you need to know about inducements as an SMC Trader inducement is one of the most vital liquidity Concept in the whole of SMC course so make sure you learn the concept properly practice it on different charts back test it to find out if it actually works for you and take traits to get comfortable using it in this video we are going to learn two important topics in SMC they are order flow and Order blocks these are related topics so it makes sense to make a single comprehensive video on these topics so that we can learn how they are different from one another now let me warn you this is going to be the longest video in this entire course so watch it when you have adequate time because this is one of the most demanded smart Money videos in the previous episodes we have discussed the concepts of liquidity in great detail which is actually the core of SMC learning and if you haven't watched these episodes I strongly urge you to watch them right away now a fair understanding on liquidity will give you a lot of insights into the ways Which smart money institutions operate but but that is not enough to convert into profitable trade setups for getting the best possible trades you need to have a fair idea as to where to take the entries this is where order flow and Order block come into the equation these are simple yet effective methods by which you can spot potential areas from which you can hope into a trade position with minimal risk and high chances of profits so in this episode we are going to start our discussion with orderflow how to identify an orderflow in charts what are the different types of order flows and how do they work then we will discuss about order blocks why is it important to have an order block how to spot an order block the different types of order blocks and what are all the key points that you need to keep in mind and we will also learn how to identify a valid order block we will not talk about order Block refinement in this video we will cover it in a separate video so watch this video till the end so that you will not miss any important aspect and if you appreciate our work in creating valuable content free of cost make sure to like and share this video and if you new to this Channel or you haven't already subscribed do make sure to subscribe and also enable the Bell notification so that you will never miss any upcoming update so without wasting any time let's get started we will begin with the order flow I have told you in the liquidity videos that market moves from one area of liquidity to the other this can either be internal or min liquidity or external or major liquidity the market can tap into either of these liquidity areas or zones and then reverse the price Direction after sweeping the retailer orders in the charts a lot of such liquidity areas are generated and it is obvious that not all of them are worth considering and only a few of them will provide us with high quality trade setups so how are we going to capitalize on our knowledge in order to make highly probable and profitable trades while reducing the risk of overtrading or simply getting into trades at all these liquidity areas this is where order flow and Order blocks come into the picture so think of an order flow as that price move in the chart which to most extent reveals where the smart money hides their positions or where they are most likely to initiate their positions if you have observed the flow of prices in the market structure you will notice that the price will not always tap into the external structure before reversing its direction the market might reverse even before that this is due to the existence of order flows technically there are two types of order flows these are bullish order flow formed during an upward Market structure and a bearish order flow which is formed during a bearish market structure I have said this many times but I will say it again that you need to have a good understanding as to how to Mark the market structure properly in order to make the best use of these Concepts if you get your Market structure mapping wrong everything else will meet the same wait so make sure to watch the first episode if you haven't already now coming back to our discussion let us consider a bullish Market structure and try to spot the order flow during a bullish Market the major price structure forms higher highs and higher lows But If You observe the corrective moves you will notice that it forms lower highs and lower lows so a bullish order flow is represented by the last selling price before the bullish price momentum or in simple terms the last selling move before the buy is called as the bullish order flow therefore all you have to do is to identify the bearish candles before the price begin to move higher this is how we spot bullish order flows in the charts let us now learn how to spot a bearish order flow you will find bearish order flow in a bearish market structure in a beer market the major structure forms lower highs and lower lows while the corrective moves forms higher highs and higher lows and the bearish order flow is represented by the L last buying price move before the ongoing bearish price momentum or in other words the last buying move before the drop or sell is called as a bearish order flow therefore you need to identify the bullish candles before the price begin to drop lower but is the order flow that we have identified a valid one this is a question which is very important to consider order flows can be classified into three types these are mitigated order flows unmitigated order flows and failed order flows out of these three only the unmitigated order flows are of any use to us but for the sake of understanding I will explain all of them basically a mitigated order flow is one where the price has already tested or mitigated the order flow think of an order flow or even an order block as a one-time use thing once it is tested or mitigated it is of no use to us anymore it is not like our typical supports or resistances where the price will respect it multiple times but this is not the case with order flows and Order blocks check out this example we have identified the last selling move before the buy so technically this area is an order flow but if you notice closely you will see that the price has tapped into the bullish order flow therefore this bullish order flow is mitigated by prices this means that the order flow will not work in the future look at another example but this is for a bearish structure we can spot the last buying move before the drop and Mark this this area as a bearish order flow then you will notice that the price has tapped into this order flow and therefore it is already mitigated so this order flow will not work for the future price moves and it is not worth considering the second type is unmitigated order flow in this case the price will not tap into the order flow or the price will not mitigate the order flow these are the order flows which are useful to us this is because there is a high probability that the price might return back to m create this order flow now we can take a few examples to understand this better in this first case the market is in a bullish Trend so during the corrective move the price forms lower lows and lower highs our order flow will be the last selling move before the buy once we have marked the order flow we can observe that the price has not tested or mitigated this bullish order flow it also means that the price could come back to this order flow later to mitigate it so this is an unmitigated order flow similarly if we spot a bearish order flow in a bearish market structure and the order flow is not tested or mitigated by prices then this is an unmitigated orderflow Zone which could be a potential area of interest for a price reversal in the future now keep in mind that even the vixs projecting into an orderflow Zone mitigates it so the tiniest of tiny Details Matter now what is a failed order flow so it is an order flow which we have identified and marked through which the price prices passes through just like a mitigated order flow failed order flows are of no use to a Trader another point to keep in mind is that once an order flow is mitigated you can always shift towards the next one and if the next one is also tested then you can shift towards the next order flow and so on now let us briefly look at how to take trades using the orderflow concept the idea is to take a trade from the order flow Zone when price comes back to test the order flow during a pullback which follows the break of structure and then take a trade entry and the price begins to reverse from the order flow after mitigation as I have mentioned a few times this should only be applied to unmitigated order flows if you know how to correctly Mark the market structure and identify the pullbacks then this is going to be very easy now let us consider an example for bullish and bearish scenarios this is a bullish Market structure here you can see that the price has created a bullish break of structure when it broke above the previous major swing High we can identify the unmitigated order Flow by using the method that we have learned now we have to wait for a valid pullback to happen and as you can see the pullback returned to our unmitigated order flow and tested it by now we can anticipate two outcomes to happen either the price can break below our order flow forming a failed order flow resulting in not trates or the price can test the order flow and reverse its direction to move along with the major bullish structure if it were the second scenario scario we can take a long trade above the bullish order flow while keeping the stop loss below the order flow Zone our minimum Target should be the most recent swing high or the major higher high level in a similar manner we can discuss the scenario for a bearish market structure as you can see the price has formed a bearish breakoff structure when it broke below the previous major swing low level we can mark the unmitigated order flow Zone here then we will have to wait for a valid pullback to happen we can observe that the pullback returned to test the unmitigated order flow as in the previous scenario two outcomes are possible first the price could just break past the order flow resulting in no trade the other scenario is when the price tests the bearish unmitigated order flow and reverse lower to move in the existing Major Market Direction which is bearish in that case we can look to take a short trade below the order flow after it has been mitigated while keeping our stop- loss above the order flow on and our minimum Target level should be the most recent swing low level or the lower low level this orderflow concept can also be applied to the minor Market structures or in your lower time frame charts for the sake of taking short-term trades or for grabbing some quick points I have marked out some bullish as well as bearish cases here an important point to not is that if there are multiple unmitigated order flows formed within a major structure then there is a high probability that the the market will return back to the most extreme orderflow while failing all other orderflow areas or in other words the extreme orderflow zones have a higher probability of providing us with a successful trading opportunity now you can pause the video and take a note of the points mentioned or else the video will get very long I hope this will be useful for many scalpers and intraday traders who just wants to catch a few quick points now there are a few drawbacks with order flows that all Traders need to be aw of first of all stop losses will be considerably large since order flow is a zone or an area in the chart we will have to place our stop- loss Beyond this zone or area even then we cannot be absolutely sure that the price will not return to hit our stop loss and because of a large stop loss the reward to risk also reduces the reward to risk provided by an orderflow trading opportunity is lower compared to that given by an order block trading opportunity another problem with order flow is that there is no proper entry criteria entering a trade position from an orderflow zone is mostly about our intuitions and reward to risk considerations yet another problem which is committed due to human error is the wrong identification and marking of orderflow areas if you make the mistake of marking the order flow wrongly then most probably the price won't return to mitigate it or sometimes it will even fail the order flow now take a look at this case tell me where to Mark the order flow area by definition a bullish order flow is the last selling move before for the buy so if you follow this definition blindly then we will mark this area as the orderflow but this is not the correct orderflow Zone the area that we have highlighted is just an internal move or consolidation the real orderflow is this whole selling move the reason why I say this is because the consolidation did not take out the low of the selling move if it would have taken out the previous low then there is no issues with considering it as an order flow and you can see how the price returned to test the order flow similarly while marking a bearish order flow which is the last buying move before the sell you have to make sure if the move is just an internal move or consolidation or is it actually taking out the high of the previous move now let us shift our attention to order blocks order blocks are considered as a refinement of an order flow order blocks eliminates a lot of issues that an orderflow had order blocks provide you with limited trates which are of high quality and have a high probability of success secondly the reward to risk ratio is largely improved when using order blocks this means the stoploss setting is much tighter the trade entries are also more optimized due to the limited number of trades on offer but on the downside a tight stop- loss can be taken out by walltile price wings let us first learn the textbook definition of order blocks and how to identify and mark the order blocks in a bullish Market scenario a bullish order block is identified as the last bearish candle before the buy and during a bearish market structure a bearish order flow is considered as the last bullish candle before the sell so you have to spot the last bullish or bearish candle before an Impulse price move and Mark its highs and lows this is considered as an order block by most stock market teachers AKA gurus if you follow this logic and start marking order blocks you'll be shocked to notice that there will be a large number of order blocks on the charts and you'll obviously be confused as as to which aut blocks will work and which won't this is a vague way of explaining what an aut block is and it is of very little use to a Trader the majority of aut blocks obtained using this method is useless and it won't work to identify and Mark only valid and high probability order blocks I will introduce you to seven important factors these are Concepts that you have already learned in the previous episodes of this SMC course so it is nothing new and you don't need to stress about it lot here are the seven factors the first point is that you should Mark order blocks on higher time frames only so if you are an intr player then 15 minutes can be your higher time frame and you should Mark your aut blocks on this time frame only second one is that there should be a valid break of structure the third thing is to look for the last buying candle before the sell for a bearish market structure and look for the last selling candle before the buy for a bullish Market structure but certain conditions apply to this step step the fourth factor to notice is that there should be an imbalance or a fair value Gap another important thing to look out for is that there should be a proper inducement after the break of structure this is to avoid falling into the smart money trap next point is that there should be a proper liquidity sweep of the previous highs or previous lows depending on the market structure and the final thing to check for is to see whether the order block is associated with an unmitigated order flow now if you manage to identify and Mark order blocks based on these seven factors then you will come to the realization that there can only be a maximum of two valid order blocks within a certain swing move also the minimum number of order blocks within a swing move is one we will learn about these two valid order blocks very soon but first let us discuss in great detail about the seven factors for identifying and marking valid aut blocks so the first factor is time frame I have mentioned at the beginning of this course that structure mapping has to be done on high time frames and trade entries are to be taken on low time frames depending on your trading style similar logic applies to order blocks also the order blocks are to be identified and marked on your higher time frame charts these order blocks will be lower in number and has a higher chance of success compared to those order blocks marked on Lower time frames once the higher time frame order blocks are marked then we can turn to our lower time frame charts to refine our order block for better entry prices for example if you are an intraday Trader then you can Mark valid order blocks on your high time frame which is 15 minutes and once you're done with marking the order blocks you can go down to your lower time frame such as 1 minute 2 minute or even 3 minute charts and refine your order block for taking better trade entries this is called Lower time frame orderflow refinement this method will help you analyze the trend and take positions with better reward to risk now the second second factor is to have a valid breakoff structure the market should form a valid breakoff structure before we can actually start to spot and mark the order blocks order blocks are not valid until and unless there is a proper break of structure or a change of character in prices you may already be familiar with how to Mark the market structure by identifying boss and chalk I won't go into all those details you can always go back and watch the comprehensive video on Market structure mapping anyways during a bullish Market structure forming higher highs and higher lows we will only start to look for order blocks when the price has broken and closed above the previous swing high level in this case we will look for bullish order blocks since the overall idea is to ride the existing Trend but in case if the market has broken down and closed below the previous major higher swing low level which results in a bearish breakoff character then we will look for bearish order blocks only but a valid break of structure or a change of character is not the only metric to conform before spotting the order blocks we also need to check for inducements I have seen Traders Mark bearish order blocks on bullish market trends and vice versa on bearish trending markets they are literally trying to grab the minor or internal swing moves this may work on some occasions but most often the price end up breaking through these low probability order blocks marking order blocks on a higher time frame and then refining it on Lower time frame is one thing but marking counter order blocks against the existing Market structure can result in big losses so I will never ask you to bet against the market in fact it is the wrong approach in a similar manner you should only Mark order blocks once the price has broken and closed below the previous major lower swing low level this is a valid bearish breakup structure and for this instance we will only look to identify and Mark bearish order blocks and if the price has broken and closed above the pr previous lower swing high level which is a bullish change of character then we will look for bullish order blocks I hope things are making sense we have already discussed about the third point but still certain things need more clarification so in order to identify a bullish order block you will have to find the last bearish candle before the buy but it is not so straightforward there are other things that you need to look for the point is to check if there is a liquidity sweep involved this means that the last scandle that we have spotted should take out the previous minor low formed this also means that next candle should not take out the low of our last selling candle now if you are unaware of what liquidity and liquidity sweep are then I suggest you to watch my videos on the same topic so if the last selling candle was unable to take out the previous liquidity or if the succeeding candles take out the low of our last selling candle then we will not consider this candle for marking our bullish order Block in addition to this an imbalance should be formed after our last selling candle is formed in case of a bullish structure so technically there should be a fair value gap between the high of our last selling candle and the low of the third candle ENC counted from our last selling candle it does not matter if this imbalance is wide or narrow the only condition is that there should be an imbalance between these two candles as I have mentioned earlier we should only start checking for order blocks and imbalances only after a valid break of structure or a change of character in the swing structure if any of these two conditions are not met then our bullish order block is not a valid one so if there was no liquidity sweep then we can shift our order block to that candle which has actually taken out the liquidity or the previous minor low level this indirectly mean that while marking a valid order block the color of the candle doesn't really matter what matters is whether the minor liquidity was swept or not now even if we have spotted the last candle which has Tak taken out the liquidity at the previous minor low if there is no imbalance between our marked candle and the third numbered candle then we cannot mark this as a bullish order block and even if there was an imbalance between the highs and lows of these candles but if this imbalance is mitigated then also we cannot Mark our first candle as a bullish order block so the fair value Gap is the most important factor to consider while marking a valid order block and once a liquidity sweep and an imbalance is confirmed then we can mark the high and low of our first candle which will become our bullish order block another interesting observation that might be useful is that once you have identified the last selling candle or the candle that have swept the liquidity of the previous minor low and if the succeeding candles are formed within the highs and lows of this first candle then these candles don't really have an importance and these are just internal consolidations in this case we will only consider the candle which breaks the high of our first candle and this will be our second candle you can then check for imbalance between these three candles and not take into account the consolidating candles I have talked about imbalances and also about such internal consolidations in my fair value Gap episode so you can check that video to know more the logic Remains the Same while marking a bearish order Block in a bearish market structure after a valid breakout structure I won't go deep into all the details here as always the first step is to ensure that there is a valid bearish breakoff structure then you have to look for the last buying candle before the sell make sure that this candle has taken out the previous Minor High if it is not the case you can shift towards the right to find that candle which has swept the previous Minor High Level so the color of the candle doesn't really matter when marking the order blocks what matters is this liquidity sweep the next Factor after this is to check whether there is an imbalance or fair value gap between the first candle's low that we have identified and the third candle is high if there is no imbalance or gap between them then the order flow is not valid at all but if there is an imbalance between the first candle's low and the third candle's High then we can mark the order block by drawing lines at the highs and lows of the first candle that we have identified in some cases multiple internal consolidating candles can be formed Within These highs and lows of our liquidity grabbing candle you don't have to consider these candles I have already stated the reason as to why this is so you can mark the candle which breaks the low of our first candle as the second candle for the imbalance identification this is how you Sport and Mark a bearish order block properly but to filter the best order blocks you need to consider more factors earlier in this video I have mentioned that there can be a minimum of one order block and a maximum of two order blocks between a swing High and a swing low these are number one the extreme order block and the second second one is the decisional POI or the decisional order block both order block and POI or price of Interest are used in a similar sense now both these types of Auto blocks work in the market if properly identified and marked the extreme auto block is considered the high probability OB because it is the last resort for price to make a reversal as there is enough liquidity and imbalance available the reason why there can only be two valid order blocks can be either due to inducements or or it can be due to orderflow mitigations I will explain both let me start with inducements I have made a detailed video on inducements in the previous episode uh make sure to watch that video to get a proper idea on the topic anyways inducement is considered as the first pullback after a valid break of structure has happened the pullback can be a minor one If You observe in this figure then the first pullback after the bullish break of structure is marked using a line with a dollar sign it is essential for price to take out this inducement only then we can identify our valid order blocks from the smart money traps but as you can see here the price moved higher without sweeping the inducement the price formed another minor pullback keep in mind that the minor pullbacks can be a single bearish candle or a group of candles against the bullish price flow when price forms a new pullback then we will shift our inducement level at the low of this pullback and if the price still moves higher without taking out the liquidity below below this pullbacks low then once again we can shift our inducement level to the minor pullback formed at the higher level and in this case the market has taken out the inducement as the price has crossed below the pullback losss now I will tell you why this is important see during the minor pullback after a bullish breakout structure you can Mark a bullish order block at one or more of these levels but the bullish order block drawn at the highest pullback level is of low probability and there are high chances that the market will come back to take out the liquidity and break below this order block and move lower many Traders make the mistake of marking this order block and when the price give a reaction near this order block they initiate a long position but the chances of this trade failing is very high so this is not really an order block but instead it is a trap commonly known as the smart money trap so no matter what the scenario never try to take a trade until and unless you have confirm that the inducement is taken out once the inducement is taken out you can use the orderflow mitigation rule to further filter order blocks if there are more than two of them we will come to this in a short while meanwhile let us understand inducement for a bearish market structure in this case the price did a bearish breakout structure below the previous Wing low and then it formed a minor pullback higher we will draw a line at the high of this pullback with a dollar symbol to Mark the inducement level and as you you can see Market moved lower without taking out this inducement then it Formed another minor pullback so now we will shift our inducement level at this pullback High then you can notice how the price moved higher and grab the liquidity Above This pullback level or in other words our inducement is taken out once the inducement level is taken then we can look towards other order blocks for taking a trade now if there are still multiple order blocks available even after applying all these rules then we can further filter the using the orderflow mitigation rule this concept is very simple and easy to understand you might already have an understanding of what an order flow is and how it works so if I were to talk about a bullish Market structure then the last selling move before the buy or the impulse is our bullish order flow and the last selling candle or that candle which has swept the liquidity of the previous minor low and having a fair value gap between them will be our bullish order block this rule asks a Trader to Mark the order flow associated with an order block and then check if the order flow is mitigated or not in case if the order flow is mitigated then the order block associated with it will be of low probability or it can also be neglected and if the order flow is also unmitigated then the order block and Order flow are both high probability areas from which price can take a reversal this filtration method using order flows will reduce the number of aut blocks marked between a swing low and a high to a maximum of two and a minimum of one now finally let us summarize what we have learned we will consider a bullish Market scenario first this is a one-day time frame of Euro USD chart but you can choose any chart on any time frame based on your trading style here you can see that the price has managed to break and close above the previous higher swing so this is a valid bullish breakup structure and we can name it so the first condition is met now as the price moves higher we need to look for the inducement levels inducements as you are familiar with are formed at the lows of the minor pullbacks being created usually after a valid structure break here as the price moves higher it forms a minor pullback the low of which we will draw a small horizontal line the minus swing low is our inducement level now price moves higher once again without grabbing the liquidity below our inducement level as the market moves up prices forms another minor pullback based on our rule we will now shift the inducement level to this newly formed swing high level but once again the market moved higher and formed another single candle pullback without sweeping the previous inducement again we will have to shift the inducement level to this new minor low formed we can clearly see how we should Mark the inducement only on the impulse price move now finally price makes a correction and takes out our inducement level this implies two things number one the highest price before the inducement sweep will will become our higher high secondly it also means that the price can now tap into any liquidity level or Zone and probably reverse higher this is also a go-ahead sign that we requir to begin marking our order blocks so start from the lowest point on the impulse price wing for finding bullish order blocks start finding the last bearish candle before the buy which should necessarily take the liquidity below the minus swing low and it should also be associated with an imbalance or a fair value Gap which is unmitigated now based on these criteria if we consider this bearish candle then we would be marking the order block falsely it is because this candle did not sweep the liquidity and there is neither an imbalance associated with it the candle which absorbed the minor liquidity is the next bullish candle and there is a fair value gap between this candle and the third candle which is unmitigated so we will have to shift our order block to this first bullish candle we can mark the highs and lows of this candle and this is our high probability extreme order block you might have understood how the color of the candle is less significant in comparison to the liquidity grab and fair value Gap criteria as I have mentioned earlier a maximum of only two order blocks are possible here you can see how this bearish candle sweeps out the liquidity below the previous minor low with its deep Wick in addition there is also an imbalance or inefficiency between the first and third candle and it remains unmitigated so this becomes our second order block just Mark the highs and lows of this bearish candle this is the decisional order block which has a 50% chance of working in addition to marking the order blocks also make sure to draw the imbalances or fair value gaps associated with them now let's see how the price responded price moved lower and it took a reaction from the decisional POI or the decisional order block it also mitigated the imbalance in that area now here's the thing when presented with two order blocks that is a decisional order block and an extreme order block we should look to take a position from the extreme order block because this is a high probability order block than a decisional order block and it also helps us to buy at discount prices we will talk about premium and discounts in one of our upcoming videos so here the price took a reaction from the decisional order block but then it break down below this order block keep in mind that the order flow and Order blocks are just a onetime use thing so we will neglect the decisional order block now then the price declined lower and it mitigated the imbalance and interestingly moved higher without taking our high probability extreme order block one of the reasons why the order block was not tested was due to the fact that the bullish order flow which is the last selling move before the buy that is associated with our extreme order block was mitigated as you can see here it is one of those filters that you can apply to separate high probability Auto blocks from the low quality ones in this scenario since the price is at a discount valuation and since it filled the imbalance we can look for long trading setups while keeping our stop- loss below the UT block area if you are more risk covers then you can even set your stop- loss somewhere below the imbalance Zone all the minus swing highs will be our minor targets but one major Target will be the previously formed higher high you can and see how the price moved higher now let us look at a bearish scenario this is a 1H hour time frame chart here you can see how the price reacted from the previous lower low level but it failed to break below it but after a slight pullback price managed to break and close below the major swing low thereby forming a valid bearish breakup structure once the breakup structure is confirmed the next step is to find a proper inducement usually inducement is the high of the first minor pull back after a bearish breakup structure but here price moved upwards there is no inducement to be found lower in such cases inducement level becomes the high of the last minor pullback before the structure break I will mark this level and you can observe how the price returned to absorb the liquidity above the inducement once the inducement sweep is confirmed we can establish the lowest price point before the inducement grab as our lower low in addition we can expect the market to reverse from any liquidity zones and continue to decline lower this also give us a go-ahead signal to Mark our order blocks let us start from the highest point of the impulse move that generated the structure Break by definition a bearish order block is the last buying candle before the sell in addition to this it needs to sweep the liquidity above the minor highs and it should also be associated with an imbalance now this is the last buying candle but it has not swept the liquidity it was this bearish candle that has actually taken out the liquidity above the previous Minor High there is also an imbalance between the first red candle and the third candle above all this imbalance is unmitigated now if we Mark the orderflow we can see that it is also unmitigated therefore we can mark the high and low of this first bearish candle as our valid bearish order block this is a high probability extreme order block now we will see if there is another order block available if you look at this particular candle you can not noce how it has taken out the previous minor highs it is also associated with an imbalance which is unmitigated so this green candle can be our second order block we can Mark its highs and lows so it becomes our decisional order block we can also Mark the order flow for additional filtering we can find that the order flow is also unmitigated but keep in mind that the extreme order block has a higher probability of success than the decisional order block now let's see how the price react first the price moved higher mitigated the imbalance and tested the decisional order block but it did not reverse instead the price moved upwards first mitigating the inefficiency there then the price moved into the order block but instead of just testing this extreme order block price break through the order block during such an instance most Market participants would expect a change of character but someone who knows deeply about liquidity and manipulation they would wait for the price setion to complete and as expected the price did not break and close above the previous swing High instead it was sweeping the external liquidity available above this major swing High which is none other than retail stop losses and breakout limit orders now the market absorbed the liquidity and closed below our extreme order block so this order block is still valid the Traders can look for short trades from within the order block and they can set the stop loss above the order block but they can even place the stop- loss above the wick of the manipulation candle this is a good location to sell because we are shorting at a premium valuation all the previous minor lows are potential Target levels but the major takeprofit level will be a previous lower low level so that is all you need to know about order blocks and Order flows by now we have covered a lot of important topics in SMC from structure mapping liquidity inducements to order flows and Order blocks in this episode we will focus our attention on one of the common manipulation methods in the market market manipulation is the cause for losses of many retail Traders but still there are some proactive traders who trade with this manipulation and they grow their small accounts with the smart money if you know how the market behaves you can easily identify the possible manipulation areas for taking advantage of the manipulation concept that we will discuss is known as the institutional candle or the institutional funding candle or IFC for short for beginers the institutional candle is an outstanding concept associated with the market liquidity and price action in addition it is also a standalone powerful trading strategy that is followed by many SMC Traders and price action Traders so in this video we will talk about what an Institutional candle is and why do these IFC candles form we will also find reasons as to why these IFC candles work in the markets and why is it important for Traders and finally we will also learn how to take trades using this concept so make sure to watch the video till the end to get the complete understanding of the entire concept so let's get started the institutional funding candles are represented as the last opposing single or multiple Clos candles before the market forms a strong strong directional move those late buying or selling candles with one or more candlesticks within them which runs out of liquidity before heading in the intended direction are referred to as institutional funding candles these scandles simply indicate that the institutions sell before buying and buy before selling and that is the reason why these institutional candles are also called bangers candle so it is one of the most popular smart money trading concept out there basically it is the manip ation phase or we can visualize it as a tricky area where the big Banks and institutions manipulate the market for liquidity so if you remember I have already talked about the AMD concept of liquidity in the episode about inducements you can go back and watch that video to get a detailed understanding about the topic but to brush things up the AMD concept or accumulation manipulation distribution is a three-step process which involves huning the retailer liquidity in the market Market by inducing these ill-informed traders to buy or sell at the wrong place at the wrong time in the wrong direction this IFC concept is one of the popular manipulation techniques used to absorb the retail liquidity you can easily identify this institutional Candlestick pattern in charts with your naked eye you don't really need any additional indicator to look for it so if you want a simple hack to identify these institutional candles then follow this idea so when you are looking at the chart for institutional candles give extra attention to the body of the candles and not the Vicks the majority of the volume is held by the body and big players are trading there vixs are not so much important as retail Traders are trading there now you may ask me why do these institutional candles form the onew answer is obviously liquidity sweep but for the sake of better understanding let's just take the longer route so whenever there is a buyer in the market there must be a seller so there must be somebody on the other side of the market to take the trade this is true for all liquid markets and assets and that is the reason why market prices moves and this is where the institutional funding candle comes to play as it acts as a fishing warm of the smart money to grab retail Traders liquidity generally from a retailer point of view the stop- loss is placed above the swing high for a short trate position and they will set their stop loss below the swing low for buy orders now when institutions and big Banks wants to sell they will need more buyers it's obvious right so what will they do keep in mind that these big players are looking to sell at higher prices so they will require more buyers to buy from them at higher valuations most of the time their Moda suandi is the same initially they breach the immediate swing high level with a big bullish candle with little or no wick on different time frames you might see different scenario iOS you might see one big candle push in the 1 hour time frame but on the 15 minute or 5 minute time frame on the same chart you'll be able to see multiple candles push through above the highs remember that in the formation of institutional candles the number of candles is not important it may be one or more but the crucial thing is the intention of these candles or the push which is actually to take out the liquidity now the stop- losses of all the early sellers are triggered by this push which is placed above the high we know for a fact that the seller stop losses are actually buyback orders besides this the B limit orders of breakout Traders also exist about the high level the institutional candles will also trigger these buyers by limit orders deliberately this is the manipulation step further the institutions will grab all the unwilling and willing buy orders as liquidity to sell their positions at higher valuations and once the liquidity is absorbed their intended bearish market movement will start the same case happens during a bullish price move so the intention of the big institutions is to buy at lower prices so they will require a lot of sellers to sell at lower valuations which will become their liquidity and in order to create this liquidity the big players will manipulate prices the price will breach the immediate low or the support level with a big bearish candle with little or or Nock and as mentioned earlier it can be multiple candles as well it is not really the number of candles that matters but it is the intention of these candles or the push the stop- losses of early buyers are triggered due to this price push which were placed below the losss or the minor support we know that the buyer stop losses are actually sell orders besides this the Willing sell orders of breakout Traders also exist below the support level which are also triggered in the process and once the institution grabs all the unwilling and willing sell orders as liquidity their intended upward movement will start so the agenda of institutional funding candle is to take out or sweep the liquidity above or below the immediate resistance or support lines respectively now you can ask me why do these institutional candles actually work in the market now the strong reason why institutional funding candles work in the market is because these are the draw down or loss of the smart money I know you are confused but let me explain if the big institution wants to buy at lower valuation they will need more sellers who would sell at lower prices for generating enough liquidity they will manipulate the prices in this case they will create a single bearish candle or a group of candles below the immediate low of the support level this means the institutions are actually selling here but their real intention is to buy but they sell initially to trap the retail traders in their trades so that they can start using the retail orders to buy at lower prices and when the price returns back to the previous support level they would exit their short positions on a break even or on a small loss and as you can guess these institutions won't take such unnecessary positions and losses unless they want to make a much bigger gain so keep in mind that usually when the price comes back to the manipulation Zone smart money would close their counter order with a small loss or break even as they mitigate their position these are the best places to take a trade and make some profits by following the footprints of the spark money now let us discuss what makes institutional candles important institutional candle helps you to determine order flow and Market structure Yes you heard it right we know what an order flow is so a bullish order flow is the last selling move before a buy on a bullish Market structure and a bearish orderflow is the last buying move before a sell in case of a bearish trend now look at how institution candles form it follows the AMD criteria this means the manipulation move which is the IFC will act as the orderflow since it is the price move against the major Trend structure now IFC can also be used to determine market structures this is because institutional candles usually form the extreme highs and lows in a price move before the actual distribution in prices these highs and lows can act as swing highs and swing lows which are reference points for mapping the market structure in addition to this IFC is also a popular trade entry strategy you can think of trade setups in the dominant Trend Direction and the trade entry orders can be placed after the last price pushup or push down Beyond The Zone which is an important strategy that many Traders follow actually institutional candles for forms swing highs or swing lows so there are high chances that the market will never violate or break beneath the low of the last down Clos candles in a bullish market and likewise price will never violate and break about the last up Clos candles during a barish trend in addition to this if you have watched my videos on liquidity that is both major and minor liquidity and if you have done analysis on the charts then you might have come across innumerable situations of liquidity manipulations taking place in different locations and in different scenarios these liquidity manipulations could be near equal highs and equal lows near supports and resistances during consolidation breakouts trend line breakouts during pattern formations and so on and on most cases Within These manipulations you can spot institutional funding candles which goes deeper to grab the retailer orders so what I mean to say is that IFC is a very common manipulation type that you can find on the charts now let us learn in detail as to how to trade with these institutional funding candles so first of all you will have to mark up your major swing points that are formed by the institutional funding candles remember that in the upward moving Market the last down Clos candles are usually respected while the last up close candles are respected in the bearish trending markets in case if the market is in a consolidation period then both these types of institutional candles are respected once you have identified the IFC candles you need to Mark the IFC range for this you need to select the Fibonacci tool from the toolbar and then select the highest and lowest points in the institutional candles so the idea is to start plotting the Fibonacci retracement from the origin of the IC candles for bearish candles start drawing from the highest to lowest point and for bullish institutional candles begin from the low lowest point and follow through to the highest point the Fibonacci retracement levels will be automatically plotted but we only require the 0 percentage 50 percentage and 100 percentage levels you can go to the FIB settings and change it accordingly now even though you can execute a trade anywhere within the range of the institution candles it is mostly preferred to enter a trade either near the opening price of the institutional candles or at the 50% of the push so you can can trade within the fib 100 per to FIB 50 per levels this is your tradable zone now where to take a trade entry is entirely up to you depending on whether you are aggressive or conservative in your approach but let me tell you if you plan to take trades at 50% of the institutional candles then you might miss some of your entries because price never always returns to the 50 percentage level but on the upside if your limit order or Market order is executed at 50% level then you will definitely get a better reward to risk ratio one additional thing you can do is you can use the Fibonacci retracement tool once again and select the FIB 1 and FIB 0.5 levels this will generate another Fibonacci level at the 50% of our entry Zone this can further improve our chances of getting into most of the trade opportunities without having to take much risks when it comes to stop-loss setting your stop loss should be placed above the highs of the institutional candles for the the sell orders and it should be placed below the low of the down closed institutional candles for buy orders you can even place your stop- loss above or below the institutional candles body or Wick but I personally prefer to place my stop- loss above or below the wick this is the best and safest place to place your stop- loss now let's talk about the targets your take profits should be placed at the next area of Interest or price of Interest it could be the next high or low support or resistance distance Supply or demand Zone equal highs or equal lows where ample liquidity exist to drive the market to the opposite direction you can also place your take profits by analyzing the higher time frames I think that as a beginner to SMC Concepts a bigger win rate is more important than the large reward to risk ratio so you should cut our expectations and place your targets at a specific logical area and be consistent with it and always try to improve your entries that thereby you can maximize your rewards now let's take an example to understand the concepts even better in this case the price is trading within a range in such cases both the up closed and down closed institutional candles are usually respected by prices now as you can see price formed equal lows which I have marked here and then it Consolidated for a while then the price moved lower and it break below the equal lows with candles having deep wigs to sweep the liquidity below the level and once the liquidity was absorbed the price moved swiftly creating imbalances or fair value gaps on the way up these imbalance formations are very important it gives the reason for the price to return back and fill the inefficiency that was created to know more about fair value gaps or imbalances you can watch my video on the same topic anyways when the price starts to move higher we can identify the manipulation candles in this scenario these are the last down close candles I have marked these Candles now I have to identify the tradeable IFC range for this bring up the fibu retracement tool and select the highest point in the IFC candles and then drag the cursor and select the lowest point in the institution candles this will give you the IFC range as I have mentioned before when price returns back to this range after mitigating the imbalance we will look for long trading opportunities from FIB 1 or FIB 0.5 l levels if you want you can also draw another Fibonacci retracement between the FIB 1 and FIB 0.5 levels to obtain another 50% level at the midpoint of these two levels which will give a higher probability that your by limit orders will get executed and this intermediate level will provide a better risk to reward than the fib 100 percentage level now let us observe what the market did the market moved higher broke above the consolidation after which It reversed took a short reaction and once again break below the resistance turn support level further price Consolidated near the resistance area where it Formed equal highs I have marked this level now the price made a buildup and eventually break above the equal high level to sweep the liquidity above it after the liquidity hunt price returned lower this manipulation was in form of a level breakout following a consolidation after the manipulation price declined lower swiftly creating an imbalance or a air value Gap this is a classic case of AMD or power of three concept also this imbalance or inefficiency is a crucial part of the overall concept because it gives price a strong reason to return back and fill the inefficiency in prices the manipulation move or the liquidity grab was done by institutional candles in this case the last up close candles are our IFC candles I have marked these institutional candles here now we have to mark the tradeable IFC range using Fibonacci tool for this bring up the Fibonacci retracement tool and first select the lowest point of the IFC candles and then select the highest point of the institutional candles our tradable zone is between FIB 1 and FIB 0.5 levels you can also Mark the intermediate level between FIB 1 and FIB 0.5 levels for getting good results so the overall idea is to place sell limit orders at any of the mentioned Fibonacci levels when the price return to fill the inefficiency and there are very high chances that the price will tap into this Fibonacci range and our sell orders will get executed now let's see how the trade has turned out in both the cases so the price returned to our bullish trade setup all the by limit orders between FIB 1 and FIB 0.5 levels are executed you can set your stop- loss below the low of the IFC range for Target placement you can choose this recent swing low level as your first take profit level you can also choose the resistance level for Target but the probability of price reaching this level is low and as you can see the price moved higher and attained our first Target but the price did not move all the way up instead the price reversed once again and sharply moved lower once an IFC range is tested it is not useful anymore the price break through all these ranges keep in mind that our bearish trade setup is still active and after a while price reversed sharply and it started to rise again it came back to fill the price inefficiency and it tested all the sell limit orders placed between FIB 1 and FIB 0.5 levels in this case our stop- loss can be placed above the high of the IFC candle our Target can be set as the previous low formed and as you can see the price moved lower and hit our takeprofit level I hope things are clear now so you have to identify equal lows equal highs support resistance levels where possible manipulations may occur and the institution candles might form then you have to mark up the candles it might be one candle in the higher time frame and multiple candles in the lower time frame now you know how to spot this smart money manipulation institutional candle is an advanced price action trading concept also so make sure you learn this concept properly back test this strategy in multiple charts and improvise consistently in paper trading and when you get positive results then only you should implement it in your live trading in this episode we will learn an advanced tutorial on a rather interesting smart money concept which is regarding the identification and utilization of flip patterns and flip zones so in this video I will talk about flip zones the different types of flip entry models and I will also give you the important rules to identify and Mark valid flip zones these are powerful Concepts in smart money strategies and neglecting them in your trading may leave you lagging behind the changing market trends so by understanding and utilizing these essential techniques you'll gain the adequate expertise to identify high probability flip setups and you will also be able to make well-informed trading decisions so if these series of videos are useful for you then give this video a thumbs up to show your support and make sure to subscribe to our Channel and also enable the Bell notification to get all the latest updates so without wasting any time let's get started as the name suggest the term flip in the flip pattern indicates a market transition from one direction to the other thereby implying a change in the market sentiment this could be a shift from bullish to bearish or vice versa flips are often viewed as crucial turning points or areas where the Traders have potential opportunities to capitalize on the changing market dynamics the flip trading entries are considered as an effect effective method to enter quickly during Market declines or surges so how can you define a flip pattern you can think of a flip pattern as a particular price pattern or configuration on the price chart that indicates a potential shift or flip in the market Direction flips signal a transition from an existing Trend to a possible reversal or it indicates a shift in the market sentiment so the overall idea of a flip pattern is simple a flip pattern involves reacting to a significant Price Zone in the chart and then effectively breaking through it these significant price zones could be support or demand areas order blocks gaps important highs or lows Etc now the flip patterns are majorly divided into two main categories these are reversal flip patterns and continuation flip patterns we will talk in detail about each one of them first let us look at how we can spot a reversal flip pattern let's imagine a bullish Market Market structure with a consistent formation of higher highs and higher lows in prices to identify a valid flip pattern we have to consider a few key criteria first of all the price should face a rejection from a higher time frame Supply zone so when you mark the structure on higher time frames like one day or 1 hour or any higher time frame based on your trading style you'll be able to identify such price zones where we can expect the price to face some resistance this could be major resistance area as unmitigated higher time frame bearish order blocks price gaps daily weekly or monthly highs Etc all these levels or zones can act as a supply Zone and reject the prices now after encountering a resistance at the supply Zone and declining the price should retest the last form demand Zone and then move upwards showing a rejection from this demand Zone but the crucial thing to make sure is that the price should not establish a new higher high but instead the price should break break through the previously tested demand Zone this break of the demand Zone forms a new Supply Zone which is referred to as a flip Zone this flip zone is marked on the basis of an imbalance formed while breaking through the demand Zone we will talk about how to Mark a flip Zone in a short while it is vital that we closely monitor this newly formed flip Zone since the likelihood of price returning back to retest this zone is very high it is usually recommended to place a sell limit order within this Supply flip Zone to enter into a short trade position when the price retest the flip Zone the same principles apply in a bearish scenario in case if the market is consistently making lower highs and lower lows thereby indicating a bearish market Trend then we will wait for price to find a support on a higher time frame demand Zone and then move higher this demand Zone could be an unmitigated higher time frame bullish order block a major support level price gaps daily or weekly or monthly lows Etc ET as the price decline lower it should react with the last form Supply Zone on the same time frame that we are analyzing and then move lower but the crucial part is to make sure that this price reaction should not establish a new lower low or it should not form a bearish break of structure but instead the price should break through the previously tested Supply Zone this break of the supply Zone will form a new demand Zone which is called our flip Zone marking the flip zone is based on price imbalance formed during the supply Zone break we should closely monitor this flip Zone because there are high chances that the price could return back to retest this Zone it is a usual practice to place a by limit order within this demand flip zone so as to enter into a long trade position when the price retests the flip Zone here I would like to highlight a key point a flip pattern wouldn't exist without a reaction from the last demand or Supply Zone at least some of you might look at this and ask me isn't this a change of character although the flip patterns share similarity with change of character pattern not every change of character is a flip but on the opposite every flip is a change of character actually a flip is a specific type of change in the market dynamics where the price reverses and establishes a new structure this pattern as I have already mentioned is characterized by a clear rejection from the last Supply or demand Zone followed by a subsequent break of that price Zone creating a flip Zone setting up trades for the flip pattern is similar to those setups that we have for a change of character pattern there by allowing the use of both aggressive and conservative entry types with the flip zones we will not dwell deep into each of these entry types in this video we will talk about all the entry types and risk management strategies in the next season of smart money Concepts but now let's briefly analyze the flip pattern through a detailed Candlestick analysis and come up with some rules to identify the best reversal flip patterns it is observed that the flip patterns Effectiveness is greatly enhanced and the price reacts aggressively and push away from the demand or Supply Zone and then swiftly breaking through either the last demand zone or the last Supply Zone thereby leaving behind an inefficiency we have already made a video about inefficiencies or imbalances or fair value gaps in this course you can check it out if you want to know more if you have spotted an imbalance or inefficiency in price while breaking the supply or demand Zone then all you have to do is to find the extreme candle formed during the price pullback from the supply or demand Z before the price break through the supply or demand Z you can mark the highs and lows of this candle using a rectangle and this will be our flip Zone it is even better if this extreme candle is followed by a large bodied imbalance candle but just keep in mind that the breakout move should be associated with a price imbalance we will understand the reason for this in a short while now it is crucial to recognize the fact that the strength of demand or a demand Zone can be assessed by the level of rejection that it provides to prices and its ability to drive price to new higher highs if the demand associated with the zone is weak and it fails to generate substantial momentum and eventually leading to a break through the Zone then it signals a shift in control towards the new Supply zone or we can say that the beers are gaining dominance so as SMC Traders we can concentrate on trading the supply side of Market in these situations on a similar note the strength of a supply Zone can be gauged by the level of Rejection it provides in pushing the prices to form new lower lows if Supply turns out to be weak and it fails to produce substantial price momentum and thereby eventually leading to a break through the Zone then it signals a shift in control towards a new demand Zone which indicates that the Bulls are gaining traction so as an SMC Trader you can focus on trading the demand side of Market that is look for long trading setups now let's outline some rules and other criteria for identifying valid and high quality flip patterns and zones in the market I will discuss four essential rules that you can follow in order to identify valid flip patterns and zones with a high probability of success the first rule states that for a reversal flip pattern to be considered Ed valid the price must first mitigate and reverse from a higher time frame Supply or demand Zone this rejection from the higher time frame Supply or demand Zone indicates the possibility of a change in the market sentiment thereby setting the stage for a potential flip to occur in other words the price should react from a significant Supply or demand level before forming the flip pattern so if the price fails to mitigate a higher time frame Supply or demand Zone and then simply forms a flip pattern it cannot be considered a valid flip pattern now let's talk about rule number two this rule states that for a valid flip pattern to occur the price must react from a supply or demand Zone create a pullback and then break through the supply or demand Zone without a pullback or any rejection of price from the supply or demand Zone the pattern cannot be considered as a valid flip pattern moving on to rule number three this is a very important criteria that needs to be satisfied it states that a high quality flip pattern should create a significant imbalance or inefficiency when flipping a demand or Supply Zone this imbalance or inefficiency should be associated with a clear change of character or in other words it should involve a swift powerful price movement that invalidates the previous Market sentiment let us understand the reasons why this is very important imbalance represents an inefficiency between buyers and sellers leading to a disequilibrium in price that needs to be filled often imbalances are seen as a gap within the candles these are also known as fair value gaps to understand this better we will consider two scenarios if a three candle sequence as shown here lacks gaps between the high of the first candle and low of the third candle in case of a bullish scenario and if a three candle sequence lacks a gap between the low of the first candle and high of the third candle in case of a bearish scenario then these are examples of efficiency in the market this means the price action is balanced and there is no imbalance or inefficiency that needs to be filled conversely the presence of a gap within the first and the third candle as shown in these scenarios signifies an inefficiency or imbalance in prices that need to be filled in order to balance the price action or to make the market efficient therefore the presence of an imbalance during the supply or demand Zone break will increase the probability of the price returning back to fill this inefficiency which will in turn improve the chances of our flip Zone being tested I hope things are making sense now the last rule that is Rule Number Four emphasizes that a valid and high probability flip Zone must be unmitigated it means price should not test our flip zones when moving to break through the supply or demand zones flip zones are considered as onetime use thing just like orderflow or order block areas we will focus on only those CL trading opportunities when the price first enters a flip Zone once a flip Zone has been mitigated meaning the price has moved Beyond its boundaries and the inefficiency associated with it has been filled it will lose its significance as a trading area and we will not consider it as an area or price of interest for our future trades and subsequent retests of flip Zone may not offer the same trading opportunities as the initial trade entry now we can use aggressive or conservative entries when trading with the flip setup as I have mentioned before we will cover different SMC entries and risk management strategies in the second season of this SMC course but to give you a general idea while trading the reversal flip setups take a short trade from or within the supply flip Zone and take a long trade from or within a demand flip Zone and price pulls back to fill the inefficiency formed during the breakout now that we have extensively discussed the reversal flip pattern let's explore the specifics of the second flip pattern type which is the continuation flip pattern the continuation flip pattern can be divided into two types it can be either a supply to demand flip pattern or a demand to supply flip pattern let's begin with the supply to demand flip pattern the supply to demand flip pattern is a type of continuation flip pattern that involves a price transition from a supply Zone to a demand Zone as the name suggest it implies a shift from a supply Zone to a demand Zone this flip pattern indicates a decrease in the selling pressure and an increase in the buyer control or dominance thereby suggesting a potential continuation of the bullish Trend Traders sporting this pattern can seek opportunities to enter long trade positions as the price reverses from the supply Zone and move towards a demand zone now let's look into this scenario in Greater detail for this let us consider a bullish Market where the price has mitigated the extreme demand zone or the extreme bullish order block and begin to reverse thereby continuing its upward movement towards the next unmitigated higher time frame Supply Zone however in this scenario an interesting twist unfolds instead of respecting this unmitigated Supply Zone and reversing lower the price sharply surges upwards breaking through the supply zone so this break of the supply Zone indicates a lack of bearish momentum to sustain the selling pressure it also implies that the Bulls have taken control thereby suggesting a potential continuation of the existing bullish Trend this scenario creates a perfect demand Zone that is generated by the price wave that flip the supply zone so the new demand flip Zone can be marked as the extreme candle in the price wave that caused the break above the unmitigated Supply Zone also keep in mind that here also the price needs to form an imbalance or inefficiency during the breakout wave typically after such a flip pattern formation the price May return to this flip Zone to mitigate it and then resume its upward M the reason why price returns to this flip zone is due to the imbalance created by prices during the inefficient breakout move this is what we call a supply to demand flip pattern it signals a shift in market dynamics from selling pressure to buying pressure presenting a potential opportunity for Traders to consider entering into long trade positions thereby anticipating the continuation of the bullish Trend similar Concepts apply to demand to supply flip pattern as well let's talk about it now in this pattern the price shift from a demand Zone to a supply Zone suggesting a decrease in buying pressure and an increase in the selling interest thereby indicating a potential continuation of the prevailing bearish Trend in this scenario we have a bearish market where the price enters the extreme Supply Zone and starts to reverse continuing its downward movement towards the next unmitigated higher time frame demand Zone however something interesting occurs in this situation instead of respecting this unmitigated demand Zone and reversing higher the price sharply pushes downwards and breaks through the demand Zone this break of the demand Zone indicates a lack of the bullish momentum in the market thereby signaling a shift in control from buyers to sellers this creates a perfect Supply Zone that is generated by the price wave that flip the demand Zone to the downside so the new Supply flip Zone can be marked as the extreme candle in in the price wave that caus the break below the unmitigated demand Zone in this case also price needs to form an imbalance or inefficiency during the breakout price move typically after such a flip pattern occurs the price May retrace back to our flip Zone to fill the inefficiency and thereby even mitigate the supply flip Zone before resuming its bearish moment so this is what we refer to as a demand to supply flip pattern it denotes a shift in the market dynamics suggesting a potential opportunity for Traders to consider entering short positions anticipating the continuation of the prevailing downtrend now let us look at an example here we have a 1H hour time frame chart the price has formed a series of bearish breakout structures indicating a bearish trend we can also notice an unmitigated demand Zone in the 4-Hour time frame upon reaching this higher time frame demand Zone many Traders would expect a potential reversal and they would start looking for signs of a change of character to enter into long trade positions but contrary to their expectations price Taps into the 4-Hour demand Zone experiences a minor pullback and it crashes downward with significant momentum this aggressive price move is associated with inefficiencies or imbalances that needs to be filled to regain the balance price action this movement causes a flip in the demand Zone indicating a shift in the market dynamics and potentially signaling a continuation of the bearish trend we can mark this newly formed Supply flip Zone at the extreme candle of the inefficient price wave that caused the break of the higher time frame demand Zone to the downside the break of the demand Zone also signals a lack of bullish momentum indicating a shift in control from buyers to the sellers and as you can see on the chart the price retraces back to the supply flip Zone experiences a reaction and then aggressively move downwards with significant momentum Traders can look to take short trades from within the supply flip Zone formed so this is all you need to know about supply and demand flips in this video we are going to learn about two important reference areas or SS in SMC I will talk about breaker blocks mitigation blocks and how you can use these Concepts to improve your chart analysis I will explain what these are the psychology behind them and why they work in the market we will also learn how to identify and and trade them so Traders if these series of videos are useful to you please hit the like button to show your support and subscribe if you're new to this channel so without wasting any time let's get started breaker blocks and mitigation blocks are reference areas on charts where you can potentially find a trade opportunity breaker block and mitigation block concepts are almost the same but their formation pattern is different the general definition of a breaker block and mitigation block are similar the general definition states that a breaker block or even a mitigation block is a failed order block that turns into another Supply or demand area on the chart from my basic price action course we know that whenever the price breaks through a resistance level it becomes a support due to the behavior of Market participants similarly whenever the price breaks through a support level it starts to behave like a resistance when the market Taps into that area again this is the simple principle of polarity the same concept applies to breaker and mitigation blocks as well the market could ignore an order block supply and demand for many reasons this could include a shift in the market structure price being overvalued or undervalued Price tapping into higher time frame key levels or prices of interest and there can be many more such reasons now when a valid demand level fails to reject the price and if the price breaks through it becomes a supply level the overall logic is correct but involving aut blocks into the mix is what I cannot digest considering mitigation blocks and breaker blocks as failed order blocks doesn't always make sense if you have watched my video on order flow and Order blocks you might have noticed the number of criteria that needs to be satisfied in order to identify a valid order block be it a valid Market structure break an inducement a proper liquidity sweep presence of an unmitigated imbalance Etc you might have also realized that auto blocks are not always found at the extreme swing points we might have to shift our order blocks for obvious reasons now look at these two figures where I have marked a breaker block and a mitigation block one thing that catches the eye is that both these figures are associated with a change in the market structure or simply a change of character another important observation is that both these blogs are formed the extreme points of the price swing so calling it a failed Auto blog doesn't actually do justice for auto blocks because Auto blocks don't always get formed at the extreme swing points this is why I don't want to involve aut blocks when it comes to breaker blocks and mitigation blocks there is one other obvious reason which will strengthen my analysis comment down below if you have spotted it I will reveal it when we talk about the mitigation blocks having said that what is a proper way to Define breaker blocks and mitigation blocks this idea is simple to grasp if you associated with basic price action in the smart money trading concept it is called a breaker block and a mitigation block and in the price action concept it is called a breakout and retest the idea behind a breakout and retest or breaker block or mitigation block is that if the market can successfully retest the breakout level and continue in the same direction of the breakout it confirms the breakouts value validity and suggest that the market will likely continue moving in the direction of the breakout in SMC terms there is liquidity on offer above the extreme swing highs and below the swing low levels so here in search of liquidity the market can break through the extreme swing low level forming a bearish change in the market structure this further brings in a lot of sellers who would start shorting the market while placing the stop losses above the extreme swing low level or the support so the market will likely return back to sweep these stop losses and limit orders which are accumulated above the support So This is actually the reason why breaker blocks and mitigation blocks work in the market let's learn how to identify a breaker block a breaker block involves looking for key support or resistance levels on a price chart that may cause a significant change in the price Direction when the level is broken so when a support resistance or Supply demand level is breached it is considered as a sign ific an signal that the price may continue to move in the breakout Direction once the breakout is established we have to wait for the price to return to the breakout level to confirm that it has become a new support or resistance level and once the level has been confirmed Traders can enter a trade in the direction of the breakout so a breaker block can be an area of Supply or demand which was broken through by prices leading to a change in the structure and it is only confirmed after price retest back back to the breaker block it should be noted that the polarity of the breaker block changes after the breakout that is if it was a supply Zone it would become a demand Zone after breakout and vice versa this is the whole idea behind identifying and trading breaker blocks but let's dive deeper into the entire process we will begin our discussion with a bearish breaker block for identifying a bearish breaker block first we need to identify a swing High and a swing low in prices then the market should break above the high to form a new higher high we don't have strict rules here like the price should break and close above the previous high and it should take out an inducement nothing like that is required here even if all these conditions are met then also it is fine in this case the price has to just break above the previous High to create a higher high point this could even be the wick of a candle it should just sweep the liquidity available above the previous high but if this move is associated with an inefficiency then it would be even better this would mean that more participants would expect the price to come back lower to fill the imbalance and these players will look to go long from these discounted valuations once the higher high is formed the price should move lower and break below the previous low to create a lower low but here it is recommended that we should wait for the price to actually break and close below the previous low so essentially there is a break of a high and a low once the lower low is confirmed we can identify a breaker block for this scenario the last down Clos candle or the deepest or lowest candle in the group of the last consecu down close candle will be our bearish breaker Block in case if there are three or four consecutive down Clos candles you have two options one is to Mark the whole area from the highest to lowest point including the vix the second option is to Mark only the highs and lows of the last down Clos candle or the lowest candle in the mix I would recommend using the second method because in the first scenario the risk associated with it and the stop-loss placement would be higher it is vital to involve the lowest candle in the swing low and it doesn't matter what the color of the candle is now this block used to be a demand Zone but now it has been converted to a supply Zone unlike the case of an order block we don't have to see if there is an imbalance and a liquidity sweep and unlike an orderflow we don't need to check if it is unmitigated for a bearish breaker block we just need to find the last down close candle or the lowest candle in the series of consecutive Down Candles and mark them from Wick to Wick once the breaker block is identified and marked we expect the price to return back to this breaker block and then continue to decline lower the breaker block is validated when the price returns to retest it but here I would like to add an additional condition to make this setup a high probability one the condition is simple when the price breaks through the breaker block it should be associated with an imbalance or a fair value Gap specifically a CB that is a sell-side imbalance and a buy side inefficiency if a cell side imbalance is generated during the breakout below the breaker block this will become a high probability setup because it gives price more reason to retest our breaker block as the price imbalance need to be filled in order to make the market efficient again this setup is known as the Unicorn setup let us briefly understand the logic behind the old concept the market forms a new higher high but contrary to forming a higher low the market breaks below the previous low and makes a change of character instead as a result of the aggressive move breaking below the previous low the directional bias has changed to bearish and our demand level will turn into a supply level after this break has occurred the psychology behind the breaker blocks is that the traders who got long from the demand areas are now trapped after the bearish market structure shift so they would want to wait for the price to get back to their Break Even spot where they can close their long positions for little to no losses also Traders will start taking short trades here since they see this area as a key area of Supply the outcome of this double action is what makes the price reverse from this area so one of the the key points here is that a breakup blocks forms when we have a run of liquidity before a market structure shift keep in mind that this breaker block concept is applicable to the internal Market structures also we can take trades from breaker blocks when they are formed within the minor structure breaker blocks are one of the seven institutional reference points in SMC which is very important when using the pdas we will talk about pdas in the penultimate episode of this season anyways when price returns back to the bearish breaker blocks and move lower we can look to enter into short trades now another thing you can do is to draw a Fibonacci retracement connecting the highest and lowest points on the breaker block we only need the 0 percentage 50% and 100% Fibonacci levels you can adjust this in the settings this way we can optimize your trade entries you can look to place sell limit orders or take short trades between the f 0. 5 and FIB Z levels you can set your stop- loss above the breaker block or above the FIB 1 level you can set your targets based on the previous Market swings or you can even use the price projection method for setting the take profits we will talk about breakup block trading strategies in the second season of The SMC course anyways let's now learn about bullish breaker blocks here also we need to identify a swing High and a swing low the price should take out this low and form a new lower low this is a liquidity sweep below the previous low it is better if this particular move is associated with an inefficiency once the lower low is established we want the price to swiftly move higher and break and close above the previous High thereby forming a new higher High when the price breaks out above the previous High we can mark the last up close candle or the highest up close candle or the group of consecutive close candles in the swing high this becomes our bullish breaker block which acted as a supply Zone before but now it is converted to a demand Zone after the structure change as mentioned before it is ideal to Mark only the last up close candle or the highest up close candle when dealing with a group of candles when drawing the breaker block the color of the candle doesn't really matter this will help us with better risk management now if the breakout move is associated with a fair Val value Gap or an imbalance specifically a buy that is a buy side imbalance and a sell side inefficiency this gives price a reason to return back to fill the imbalance and thereby test our breaker block then this becomes a high probability trade setup known as a unicorn setup now when the price returns back to our bullish breaker block we can plan to take long trade positions you can use a Fibonacci retracement tool to Mark the FIB 0 FIB 0.5 and FIB one Levels by connecting the lowest and highest points in the bullish breaker block this will help you optimize your trade entries you can place by limit orders between F0 and F 0.5 levels you can set your stop- loss below the breaker block or below the FIB one level you can set your targets based on the previous Market swings or you can even use the price projection technique for sitting take profits so some of the key factors that you need to consider while trading break break blocks are number one market structure you need to identify the current market structure before looking for breaker blocks Market structure includes defining the market Direction supply and demand areas higher time frame key levels liquidity areas ETC number two is validity make sure the breaker block you identified is valid breaker blocks are created by a runoff liquidity before the market structure shift so you need to look for Sharp moves with Fair value gaps between the wig that creates inefficiency and finally number three is confirmation wait for confirmation before entering a trade confirmation can be in form of many price action signals Candlestick signals volumes Etc now let's quickly dive into mitigation blocks we will begin with a bullish mitigation block so first we need to look for a swing High and a swing low then Mark these points now the price is moves down but it fails to break below the low it is unable to take out the liquidity below the low the price moves higher swiftly breaking through the high and closing above the high resulting in a market structure shift once the breakout above the high is established we can mark the last up close candle or the highest candle in the series of up close candles forming the previous swing high this will be our bullish mitigation block it is ideal to Mark the highs and lows of the last up close candle or the highest candle in the mix as the bullish mitigation block when there are multiple consecutive candles as it provides better reward to risk for the trades now the color of the candle doesn't really matter much in addition to this if the breakout move is associated with an imbalance or a fair value Gap more specifically a buy that is a buy side imbalance and a sell-side inefficiency then this will become a high probability setup for our trads this inefficiency will be a motive for prices to return back to fill the imbalance and thereby even testing our bullish mitigation block we can look for long trades from this mitigation block you can also optimize your entries using Fibonacci levels for this extend a Fibonacci retracement from the lowest to highest points of the mitigation block we only require the 0% 50% and 100% levels so the idea is to place by limit orders between F0 and F 0.5 levels you can set your stop- loss below the mitigation block or below the fibb level as you can see the only difference between a bullish breaker block and a bullish mitigation block is that the breaker block is associated with a liquidity sweep below the lows thereby forming a lower low but in case of mitigation blocks price fails to execute a liquidity run below the previous low thereby failing to create a lower low this is a reason why mitigation blocks are also known as swing failure patterns or swing failure blocks box this also proves another important Point since the price was unable to break the previous low this means the use of order blocks as mitigation blocks cannot be justified think about it the first condition that needs to be satisfied if we are to identify order blocks is that the market needs to form a valid break of structure but here the price didn't even sweep the previous low so the concept of order blocks being used as Supply or demand area is significant in this case this is why I refuse to accept the idea of mitigation blocks and breaker blocks being considered as failed order blocks I hope you get the essence of it now keep in mind that just like a breaker block the mitigation block is also one of the seven institutional reference points in SMC mitigation block trading is also applicable in minor structure mitigation blocks can be used to take trade positions from the internal Market structure when formed Within in a pdra now let's quickly touch upon a bearish mitigation block as always identify the swing high and swing low in prices in this case price fails to sweep the liquidity above the high and it swiftly declines down breaking and closing below the previous low so the price was unable to establish a new higher high so this is a swing failure once the breakdown below the low is confirmed we can mark the last down close candle or the lowest or deepest scandle in the mix including the vix and this will be our bearish mitigation block if there is a price imbalance or a CB associated with the breakdown move then the probability of price returning back to our mitigation block increases because the price will try to fill the inefficiency for trade entries use F0 and F 0.5 levels to place sell limit orders you can set the stop loss above the mitigation block or even above the FIB one level now being a swing failure pattern I'm not particularly interested in trading from these mitigation blocks because liquidity is still available beneath these swings due to which the market could just reverse thereby hitting our stop losses and taking us out of the trade so be a little cautious while dealing with mitigation blocks in this video we will learn about rejection blocks rejection block is a sophisticated Concept in C methodology that is essential for identifying potential reversal points in the market this is another important reference point in smart money Concepts so in this episode we will discuss what rejection blocks are how to identify and Mark these blocks and we will briefly talk about how to trade these blocks if you find this series of videos useful please like the video to show your valuable support and don't forget to subscribe to our Channel because good things are yet to come now let's begin our discussion on rejection blocks a rejection block can either be a sell zone or a buy Zone that appears on the chart as long wigs or Shadows of candles at the market highs or lows this block is characterized by a specific candle or a series of candles with long Wicks indicating the strong rejection of a price level or a price Zone typically occurring at Key support or resistance zones or near important Supply or demand zones this signifies that the market attempted to break through a price level but the effort was promptly rejected thereby hinding at a strong underlying Market sentiment contrary to the attempted price move such patterns indicate a significant struggle between buyers and sellers leading to a rejection of the prevailing price trend this pattern is perceived as a clear indication that the market is not ready to sustain prices beyond that level be due to extreme opposition or other institutional factors so SMC Traders keenly look for rejection blocks as they often precede significant Trend reversals or retracements making them invaluable price areas for predicting future Market movements and also helps in strategizing entry and exit points when it comes to trading from these blocks now let us learn to identify these zones so what are the things to look out for a rejection block is identified on a price chart as a specific pattern where the market strongly rejects a certain price level or Zone indicating a potential shift in the trend so the first point is to identify key areas of Interest where the price has a good chance of giving a reversal or a retracement after a rejection these areas can be support or resistance zones Supply or demand zones or important highs or lows like the daily or weekly highs and lows Etc the another point to noce that a rejection block is often represented by one or more candlesticks that show a sudden and decisive move towards an area of interest only to be followed by an equally sharp reversal this means that a rejection block is formed only after capturing the liquidity from the previous high or low or equal highs or equal lows so in price action this is called a false breakout and in smart money terms this is called a liquidity sweep now that we know what to look for in the charts let us learn to Mark rejection blocks in the correct manner rejection blocks are classified into two types a bearish rejection block and a bullish rejection block the logic for constructing a rejection block is very simple let's start with a bearish rejection block a bearish rejection block occurs when the price spikes up but then Falls rapidly indicating a rejection of higher prices thereby signaling a potential downward movement so effectively we are looking for a swing high that is we have to find the highest candle the high and close price of this candle has to be higher than the high and close of the neighboring candles respectively in that case the tail or the wick of this highest candle will be our bullish rejection block usually we consider three consecutive candles near the highs for the purpose of identifying a rejection out of these three candles the middle candle has to be the highest of the all the color of the candles doesn't really matter but what matters is that the high of the middle candle should be higher than the neighboring candles and the close of this candle has to be higher than or equal to the close of the preceding and succeeding Candles now once all these conditions are filled we can mark the entire upper Wick of this highest candle using a rectangle this will be our bearish rejection block we expect the price to swiftly decline lower after the rejection such a move would mean that the price has grabbed the liquidity above the highs and then it strongly moved lower this would also signal that big players were involved in the price move keep in mind that the area near the highest Wick or the rejection block still contains a lot of orders waiting to be executed these include a cluster of buy stoploss orders and buy limit orders so we expect the price to return back to this rejection block to absorb the buy side liquidity when price comes back to test the rejection block we can look to take short trade entries we can make use of the 0% 50% and 100% Fibonacci retracement levels to place our sell limit orders we can set our stop loss above the bearish rejection block but the issue here is that since buy side liquidity is available above the rejection block we cannot judge the extent to which the price will extend itself to sweep the liquidity there are occasions where the wick of the Rus candle breaks above the bearish rejection block significantly so it is always recommended to patiently wait until the liquidity run is over and the price starts to show signs of a retracement or a reversal then only we should initiate a short trade I don't really appreciate the idea of placing limit orders and stop losses way before the price has tested the rejection Block in such scenarios there are high chances that your stop- loss will be taken out so be a little mindful about it now now talking about targets you can set your takeprofit level as any of the nearest support areas or demand zones where the price could potentially face a rejection or a push back now let's talk about bullish rejection blocks a bullish rejection block is formed when the price quickly drops to a low point but then rebounds sharply suggesting a rejection of lower prices and a potential upward Trend so effectively for a bullish rejection block we are looking for a swing low that is we have to find the lowest candle whose low and close prices are lower than the low and close prices of the neighboring candles respectively in that case the tail or the wick of this lowest candle will be our bullish rejection block usually we consider a three candle pattern in which the middle candle has to be the lowest of them all the color of these candles are not really significant but what is important is that the low of the middle candle has to be lower than its neighbors and the close price of the middle candle should be lower than or equal to the candles on the right and left if these conditions are fulfilled then we can plot the entire lower tail or Wick of this middle candle this will be our bullish rejection block so after sweeping the liquidity below the lows and forming a price rejection we can expect the price to swiftly move higher this tells us that the big institutions were involved in this move it is worth mentioning that the a area near the lowest wig or the bullish rejection block still contains a lot of retailer orders waiting to be executed these include a cluster of sell stop-loss orders and sell limit orders placed by those reversal traders who bought from the demand Zone and those breakout Traders waiting to sell below the support area this is why we can expect the price to return back to this rejection block to absorb the sell side liquidity so when the price comes back to test the rejection block we can look to take long trade entries we can also make use of the 0% 50% and 100% Fibonacci retracement levels to place our by limit orders we can set our stop- loss below the bullish rejection block here also the issue is that since sells side liquidity is already available below the rejection block we cannot really judge the extent to which the price will go deeper to sweep the liquidity on some occasions the wick of the retest candle breaks below the bullish rejection block so significantly that even if your analysis was spot on you would still end up on the losing side due to an early trade entry so it is always advised to patiently wait until the liquidity below the rejection block is absorbed or waiting for a clear rejection signal and when the price starts to show sign of a retracement or a reversal then only we should enter trades in the direction of the rejection this would mean initiating long trade positions now I don't generally agree with the idea of placing by limit orders and stop losses way before the price has tested the rejection Block in such scenarios there are high chances that your stop- loss will be taken out so trade logically and mindfully now when it comes to targets you can set your takeprofit level as any of the nearest resistance areas or Supply zones where the price could face a rejection or a push back so that is all you need to know about rejection blocks in SMC rejection blogs stand as a crucial tool in deciphering the market trends and making informed trading decisions the key to success lies in accurately interpreting these blocks within the broader Market context and using them to pinpoint optimal entry and exit points so make sure to learn the concepts properly back test it on multiple charts and on multiple time frames to see if it actually works for you today we are going to discuss two important Concepts in SMC these are liquidity voids and vacuum blocks liquidity void is a concept that I should have covered in my video on Fair Value gaps because these are very much related but liquidity voids shares similarities with vacum blocks given how and when they are formed so in this video I will talk about liquidity voids and how they are different from a fair value Gap then we will talk about vacum blocks and their formation we will will also investigate the reasons why liquidity voids and vup blocks are formed on the charts we will also look at the different types of liquidity voids and vacuum blocks and finally we will briefly discuss what to expect from these areas this is going to be an interesting video so watch the video till the end and if you are benefiting from these series of video tutorials make sure to give a thumbs up to show your love and support also make sure to subscribe to our channel to get the best trading education so without wasting any time let's get started I have mentioned that fair value gaps and liquidity voids are related Concepts let us understand this first so if you have watched my video on Fair Value gaps and imbalances you already know what this is in that video I have mentioned that after the price reaches a liquidity level and then reverses from it after sweeping the liquidity from that level what will often come next is displacement the fair value gaps are created within this displacement and are defined as instances in which there are inefficiencies or imbalances in the market these imbalances are visualized on the chart by a three candle sequence containing one large middle candle whose bordering candles upper and lower Wicks do not overlap so a bullish fair value Gap is a three candle pattern where the high of the first candle does not overlap with the low of the third candle leaving a gap in between similarly a bearish fair value Gap is a three candle formation where the low of the first candle does not overlap or cross the high price of the third candle thereby leaving an imbalance in between in this definition what you have missed is the term displacement displacements are nothing but liquidity voids so displacement in short is a very powerful move in price action resulting in strong selling or buying pressure generally speaking displacement will appear appear as two or more strong candles that are all positioned in the same direction these candles typically have large real bodies and very short Vicks suggesting very little disagreement between buyers and sellers or in other words there exist an inefficiency in prices often a displacement or liquidity void will occur just after a liquidity level has been breached and will often result in the creation of fair value gaps and a market structure shift we can also think of displacements in relation to fair value gaps at least two backtack fair value gaps will indicate a strong push in prices resulting in a displacement usually these liquidity voids or displacement moves form after a period of consolidation and then the price suddenly moves up or down very strongly printing one or more large bodied candles this means liquidity words are areas on the price chart which is characterized by a lack of of significant trading activity or volume they typically occur after a rapid price movement leaving behind a region in the chart where the trading was thin or almost non-existent this phenomenon often happens because most Market participants were not interested or were not able to trade at these levels either due to a lack of pursued value or because the market moved too quickly for them to react you can see this phenomenon every now and then across all different time frames the The Peculiar thing about liquidity voids is that they almost always fill up and by filling I mean that the price will return to the origin of the Void the reason for this is that during the void formation an imbalance or inefficiency is created in prices that has to be balanced the Eraser of this imbalance is what we call filling of the void and while some liquidity voids waste no time in filling some others take multiple periods before they get filled now let's take a look at bullish and bearish liquidity void formation here you can observe how prices crash down from a consolidation area the price formed a group of big bearish candles with large real bodies and little Wicks as it moved lower clearly the selling pressure is the dominant Force here there was literally no buying activity here this means there is an inefficiency in the market this is a typical case of sell-side imbalance and buy side inefficiency Orange short CB I know I have asked you to relate CB and BC to fair value gaps but the definition of CB and BC holds true for liquidity voids also this means there were not enough buying transactions to counter the selling pressure leading to a sells side imbalance and the lack in buying pressure remains as an inefficiency that needs to be filled so we can expect the price to return back and fill this bearish liquidity void that was created do not expect the price to fill the inefficiency all at once it will generally take time at the first stage we can expect the price to return back to fill the 50% of the liquidity void then it might come back again to fill the rest of the imbalance so a typical example of this bearish liquidity void can be observed on the 1 month time frame of nifty chart during the corona crash you can see two big candles crashing lower generating an imbalance but over the course of the the next few months you can see how the price returned back to mitigate the imbalance caused by the liquidity void I won't be giving you any trade entry methods or strategies in this video this is just a conceptual video to get your SMC Basics right we will talk about different strategies and risk management techniques in the second season of The SMC course anyways in a similar manner we can identify bullish liquidity voids here you can see how the prices explosively moved up higher from an area of consolidation as you can see the price formed a group of big bullish candles with large real bodies and Tiny Vicks as it moved upwards it is obvious that the buying pressure is the dominant Force here there was no effective selling activity to counter this price rally this means there is an inefficiency in the market this is a clear case of buy side imbalance and cell side inefficiency or busy what this means is that there are not enough sellers or selling transactions to counter the immense buying pressure leading to a buy side imbalance and a lack in the selling pressure remains as an inefficiency in the market that needs to be mitigated so we can expect the price to come back and fill this bullish liquidity void that was generated as mentioned before this void filling won't have to happen abruptly but over time these liquidity imbalances will be dealt with if we draw a Fibonacci retracement containing only the 0% 50% and 100% levels connecting the high and low of the liquidity void then we can anticipate the price to fill at least till the 50% of the imbalance in the first stage eventually the price will fill the void entirely you can take a look at this example to see how the buy side imbalance was completely filled over the course of time the great thing about trading liquidity voids is that they are present across all time frames and so they can be used across all these time frames the implication of this is that traders of all trading Styles can hope to benefit from it intraday Traders can go down to 15minute chart to trade them scalpers can even go as far down as 1 minute chart and swing Traders can also take advantage of liquidity voids on the 4H hour and even higher time frames now let's just briefly talk about how to approach our trades to benefit from these voids if you have understood what liquidity voids are you may already have an idea of how to trade them you know that since the void almost always get filled your hope is in trading the fill and how do you trade the fill or how do you know when the price is about to reverse to fill the void so the first thing to look out for when attempting to predict where the price may start the void filling reversal is to look for liquidity zones before the world these liquidity zones or pools are often in the form of supports and resistance es this is where you can expect the price to reverse from and fill the Gap another way to spot areas of potential reversal for filling of the Void is to look for liquidity zones that have developed after the void now you will find the price going up and down around this Zone however you can only use this method when the filling of the Void does not happen abruptly that is the price consolidates for some time creating a liquidity Zone that can be tapped into now let's move on to the second concept which are vacuum blocks as the word vacuum suggest there is a complete absence of trading activity by definition it refers to a specific area on price chart where rapid price movements has occurred leaving a noticeable Gap or vacuum in the market unlike liquidity WS where there was either a dominant buying or selling pressure resulting in an imbalance in prices vacuum blocks are associated with no trading or trans transaction in between leading to gaps in the charts in the price action context these are called price gaps and in SMC it is known as vacuum blocks just like liquidity voids vacuum blocks also represent inefficient price action these vacuums are crucial in predicting future price movements as they often act as magnets drawing the price back to these zones for a retest or to fill the Gap let me explain this in Practical trading a vacuum block operates by leveraging the market psychology behind sudden price movements when price rapidly moves away from a certain level it often leaves behind a region with little or no trading activity this is a vacuum block these are formed as a result of any High volatility event or news or even during session openings most experienced Traders would monitor these areas as they can act as magnets for future price action so when the price revisit visits or retest the zones it can trigger a strong reaction either continuing the initial Trend or reversing it the price revisits this vacuum block to fill the inefficiency in price action but keep in mind that not all gaps are filled completely and some gaps take a lot of time to get filled vacuum blocks are also classified to two types based on its formation these are bullish vacuum blocks and bearish vacuum blocks a bullish vacuum block is a gap created in price action when price opens way higher than the previous candle to Mark the vacuum block we have to consider those two candles between which the Gap was formed then we need to Mark the highest point of the first candle and the lowest point in the second Candlestick this will be our bullish vacuum block or simply a gap up now a bearish vacuum block is a gap created in prices when the Market opens lower than the previous candle to mark a bearish vacuum block we have to consider these two candles between which the Gap formation took place so all we need to do is to Mark the low of the first candle and the high of the second Candlestick this will be our bearish vacum block or simply a gap down these gaps are formed due to liquidity vacuum which is directly related to any events you can see these sorts of gaps forming every now and then in our Indian indices which is primarily due to to overnight sentiments following some Global or domestic events or news occurrence of such vacuum blocks are comparatively rare in case of Forex markets because these markets function almost 24/7 so every news is factored in due to this we might see a lot more liquidity voids getting formed rather than vacuum blocks in Forex markets this is another area where liquidity voids and vacuum blocks are related both these areas are formed as a result of some volatile event in the market usually these are related to some news that induces a lot of buying or selling this increased number of buy or sell orders at any given prices will result in price keeping certain price levels resulting in a vacuum Block in case there is a time delay between the market close and the market open and in other cases if this surge in buy and sell interest happens during the market hours it will result in large candles in the same direction resulting in an imbalance or a liquidity void I hope things make sense now if you want to know how to make use of this vacum block concept to take your trades you can watch my video on price gaps in my free Price action course or you can wait for the next season of this SMC course moving on vacuum blocks and liquidity voids can be classified into four major categories depending on where they appear on the chart and of these four only two tend to get filled quickly the other does take some time to fill up these include common liquidity voids and common vacuum blocks exhaustion liquidity voids and exhaustion vacuum blocks breakout liquidity voids and breakout vacuum blocks and finally we have runaway liquidity voids and runaway vacuum blocks let's briefly look into each one of them common liquidity voids and common vacuum blocks appear randomly on the chart often there is nothing more to their formation on the chart beyond their M appearance these are formed at random locations or in other words they have no underlying price action meaning in the market or maybe not something that I know of but one observation that I have made is that these common voids and blocks are formed within ranges that is when the market trades between a certain range you will come across them and 80 to 90% of the time these liquidity voids and vacuum blocks get filled now moving to exhaustion liquidity voids and exhaustion vacuum blocks these happen at the end of the trend as the name suggest these get formed when the market loses Steam and is nearing an end of a particular Trend and when this happens the market forms a vacuum block or a liquidity void indicating a trend reversal now talking about breakout liquidity voids and breakout vacuum blocks as the name suggest breakout voids and blocks happen when the price breaks out of a support resistance or a liquidity Zone after the formation of a breakout vacuum block or a liquidity void price will most probably return to fill the imbalance and then move in the direction of the breakout finally let's talk about runaway liquidity voids and Runway vacuum blocks these are considered as continuation voids and blocks because of where they appear on the chart these happen in a market with an already established Trend and they appear in the direction of that Trend runaway liquidity voids and runaway vacuum blocks don't fill on time as they often ser serve as continuation of the trend so these are all the important things that you need to know about liquidity voids and vacum blocks in this video we will dwell into the premium and discount Concepts exploring their application in trading and how they can enhance decision making we will also talk about the common mistakes that Traders make and finally we will discuss PD arrays and the hierarchy of different reference points within the PD understanding these Concepts can help Traders refine their entry and exit points thereby maximizing the potential for profitable trades so watch this video till the end to get a proper grip of the entire concept if these series of videos are helping you to learn and improve please make sure to like this video to show you valuable support and don't forget to subscribe to our Channel and also make sure to enable the Bell notification to get the latest updates so without wasting any time let's get started premium and discount are simple Concepts that apply to buying and selling things this includes buying and selling instruments in the stock market or the Forex Market premium means expensive or markup and discount means cheap or mark down this is a basic trading principle that can be used in any Market from consumer goods to Securities traded through Exchange or even Forex So when you buy something at a premium it means you're paying more than its fair value on the other hand buying something at a discount means you're getting it at a lower price than the actual value these simple Concepts can be applied to various products and assets that are traded in the market such as stocks currency payers or even Commodities if you look at this picture you will see that markups and discounts can be applied to anything that can be sold on the open market even if it's a pack of banana chips the most optimal demand for a pack of chips will be 200 rupees but as the price gets higher the demand reduces and vice versa the lower the price the higher the demand this is simply the low of supply and demand you can learn more about it in my basics of stock market video now this is quite logical because if a One-Stop supermarket chain like Dart has a promotion for Discount on their different products then you will see a lot of people flocking to buy these products like bees on honey now when it comes to trading premiums and discounts can be marked on a Candlestick chart to determine the premium and discount levels within a specific range or Price action and you must all understand that a major player will never sell at cheap prices and they will never buy at higher prices premium and discount zones are places where majority of their s sales and purchases takes place respectively when marking premium and discount zs on a Candlestick chart you have the choice to apply this marking to any part of the price or range therefore even despite the strategy you have chosen you should strive to buy in the discount Zone that is when the asset is trading at a discount and you should look to sell in the premium Zone that is after the asset marks up or becomes expensive think of it this way when you want to buy something from Amazon or flip cart you will look for the best discount that you can get so that you can buy it at a price lower than the actual going price in the market and when you want to sell the same product after some months in oilx you will definitely look to get the highest price possible that is you want to sell it at a premium or at an expensive price than the actual going price in the market now let's learn how to draw premium and discount zones for this you will require ire three things a swing High a swing low and a Fibonacci retracement tool if you have watched my video on Market structure mapping you will definitely have a good idea on how to spot swing highs and swing lows in a chart here the price is rallying higher this is an Impulse move towards the upside the swing low is the lowest point in this entire impulse swing move we will also have to include the wig if any on the contrary swing high is the highest point within the entire impulse swing move including the Wix now once the swing high and swing low are identified we can bring up the Fibonacci retracement tool from the left side toolbar section then select the swing low point that we have identified and drag the cursor and select the swing High Point this will automatically plot all the Fibonacci retracement levels we don't require all these default levels so we can select the Fibonacci settings and and then uncheck all the levels other than 0% 50% and 100% levels then you can click on okay now what we have are three levels one at the swing low one at the swing high and another at the midpoint between the high and the low now the area below the 50% Fibonacci level is considered as the discount Zone and the region above the 50% Fibonacci level is considered as the premium Zone the 50% level is known as equilibrium or mean threshold which is nothing but the fair valuation of the asset at that particular instance this is the point where bearish premium arrays and bullish discount arrays meet it represents a state of balance in the market where supply and demand are equal and the forces of buying and selling are evenly matched since the price is rallying upwards our bias will be bullish that is we want to trade with the trend so we will look for buying opportunities but as I have stated earlier we should always look to buy at the discount valuations or cheaper prices so where will you get the cheapest price obviously you should look to buy from the discount Zone when the price makes a retracement or correction in order to get a mark down below the mean threshold this doesn't mean you should take a long position anywhere in the discount Zone you should take by positions only from one or more of those prices of Interest or SMC reference points this gives us additional confirmations for our trades we will talk about these reference points and their relevance when we take up the PDR concept now look at the next scenario in this case the price has declined lower this is an Impulse move towards the downside so the first step is to spot the swing high and swing low of this impulse move then use Fibonacci retracement tool to connect the swing High and the swing low this will plot the retracement levels automatically now go to the settings and uncheck all those levels that we don't require just keep the 0% 50% and 100% levels so there is a level at the swing low one at the swing High and the last one is at the middle between swing high and swing loow which is nothing but the mainan threshold or equilibrium and above the main threshold is is the premium Zone and Below equilibrium is the discount Zone since the price is declining lower our bias will be to sell that is we will look for short trading setups when price makes a retracement or correction towards the upside and when we are looking to sell we will obviously look to sell at expensive valuations or at higher prices this means we should short above the main threshold or in the premium Zone this is where prices are marked up above the fair value or equilibrium now you can't just sell at random prices within the premium Zone it doesn't work like that you need to sell at any of the prices of Interest or the SMC reference points which is already existing inside the premium zone for the best possible results this will provide a high probability setup for us to work with now moving on let us look at some issues with this concept and we will also look at some of the common mistakes that Traders make when using premium and discount zones the truth is that most Traders either rely too heavily on this tool to make informed trading decisions or they use it in such market conditions in which it does not make any sense to use this tool when using Fibonacci you don't need to be FIP dependent on rely on the fact that when price drops into the discount Zone it should immediately begin to rise and when the price Rises to the premium Zone it should immediately stop and begin the downward movement keep in mind that price does not owe you anything and the market does not move according to your whims and fancies it is true that price takes into account premium and discount SS but the higher the time frame the stronger is the possibility of it working out for us the most common problem with premium and discount zones is that on Lower time frames that are below 15 minutes this tool becomes less effective if the price is not in its full range it is also worth remembering that price tends to change direction even if there are these important zones on the way so there is no real guarantee of a price reversal from these zones while we believe that premium and discount are a great entry point tool over Reliance on it can cause you to incur losses and also miss out on quality trade setups just because they are not premium or discount so without conducting an in-depth analysis of prices using Concepts like Market structure Supply demand zones liquidity Etc which help to get the idea of the market Direction it is not even worth choosing a Fibonacci tool to plot premium and discount zones the other common mistake that Traders fall into is using premium and discount zones in those markets or assets that are either extremely volatile or those which are trending strongly in One Direction a simple example is to choose a stock that tends to move in One Direction over the long term but with a very high volatility the price May fluctuate parabolically within an upward Trend and it will not even think about falling into the discount Z so the price may not always follow the expected pattern when it is in the premium or discount Z especially in short to medium-term Trends another mistake committed by the less experienced Traders is that they go chasing premium and discount zones everywhere in the charts and they will eventually end up on the wrong side of the trend so do not Chase premium and discount zones and do not go against the trend and lastly don't trade premium and discount zones within a consolidation zone so it is important to note that there is no real magic in premium and discount Fibonacci tool what matters most is the narrative the story that the market is telling only with a clear understanding of the narrative can you use this song as a framework for trading this is where the significance of PD arrays come into play PD arrays stands for premium and discount arrays this is a central Concept in smmc an array is nothing but a specific arrangement of things now premium discount array is crucial for understanding how the market has moved and how it might move in the future it is like a detailed map of the market activity showing Traders where the price has been and suggesting where it might go this array is particularly useful for identifying key levels of support and resistance as well as potential entry and exit points for trades pdas focuses on the analysis of price levels in terms of their relative value compared to the Market's perceived fair value in a pdra price points are categorized as either premium or discount premium prices are those considered higher than the Market's pursued fair value indicating a potential overvaluation while discount prices are seen as lower suggesting an undervaluation you already know how to plot these premium and discount zones and as a matter of fact you also know that this method of categorization allows traders to gain insight into the potential Market turning points by identifying where the market might switch from a state of overvaluation to undervaluation and vice versa but PD arrays are more than just premium and discount zones this is a multifaceted analysis that helps traders to not only see what the market is doing but also understand why it is doing so thereby enabling more informed and strategic trading decisions pdas also take into consideration some array items or reference points specifically there are seven array items or institutional reference points that we need to consider in a pdra in ICT methodology these reference points includes old highs and old lows order blocks rejection blocks mitigation blocks breakup blocks fair value gaps and liquidity voids old highs and old lows refers to the swing highs and swing lows that can act as potential resistances or support levels for prices respectively due to this reason there will be liquidity in the form of retailer orders available beneath these levels so old highs and old lows are potential areas where the smart money can manipulate prices to absorb the liquidity and then reverse the market Direction other than this I have given you detailed explanation on each and every single topic you can watch and revise them by going to the SMC playlist now there's a particular order or hierarchy or relevance by which each of these array items are organized within a PD aray but before I tell you the hierarchy of array items items I want you to remember that you need to conduct your analysis on your higher time frame charts no matter what trading style you follow it could be swing intraday positional Etc but this primary analysis should be done on your preferred higher time frame this will definitely improve the quality of the trade signals once you receive a good setup you can always move down to your lower time frame charts to optimize your trade entries now let us look at the order of relevance of discount array items we will only consider the discount Zone when our trading bias is bullish so for remembering this with e we can also call it a bullish discount array here I have listed the bullish discount array items in the order of their relevance or hierarchy so the most relevant institutional reference point is the old LW followed by a bullish rejection block then a bullish order block a bullish fair value Gap after this followed by a bullish liquidity void a bullish breakup block thereafter and the least relevant item is the bullish mitigation block the hierarchy or relevance of fair value gaps and liquidity WS can be interchanged now even though the relevance of these array items are in this particular order we should start looking for these reference points in the opposite order that is we need to start searching for a bullish mitigation block first followed by a bullish breaker block and so on there is a simple explanation as to why the relevance is in this order but when looking for opportunities we should go in the opposite order of the hierarchy look at this figure I have marked some of the seven reference points within a discount zone now what do you notice we can see that the old low is the lowest of all array items located at the end of the discount Zone the next item is the bullish rejection block followed by a bullish order block a liquidity void and a few fair value gaps within it you can notice that one of the fair value gaps is closer to the equilibrium Zone it is clear that the reference points are arranged based on how cheap the price can become when compared to the mean threshold so higher the relevance of an R item the cheaper the price is available in the discount Zone which increases a Traders profitability and proves his chances of success but you might already be aware of the fact that price will not pull back all the way down to absorve the liquidity price needs liquidity to move it doesn't matter from where it gets it this means the probability of price returning back to sweep the old low or the rejection Block in a discount zone is much lower prices might reverse from an order block or a fair value Gap this is why we should look for the least relevant array items first which is situated closer to the mean threshold and then only look for other reference points which are usually formed deep within the discount Zone another point to noce that not all these reference points will get formed within a discount Zone there might be occasions where you might get only a bullish order block and a bullish fair value Gap but there might be other situations where you might encounter a majority of these reference zones so the idea is not to force yourself into finding these reference zones if it is there it will be visible to you if it is not there don't go searching for a ghost that does not exist now once price trades below equilibrium and if the overall narrative is bullish it sets up buy conditions you can look for long trading setups from these reference areas within the discount Z as it increases the probability of a successful trade these reference areas are where buyers might step in to dve prices up from these discounted levels these setups are identified when the price returns to the discounted conditions allowing you to buy at favorable prices moving on let us look at the order of relevance of array items in a premium Zone it is also called a bearish premium array because our bias is to go short in the market here I have listed down the array items based on their hierarchy in a premium zone so the most relevant institutional point on the cell side is the old high followed by a bearish rejection block after which comes a bearish order block a bearish fair value Gap thereafter followed by a bearish liquidity void and then a bearish breaker block and the last reference point is the bearish mitigation block here also the relevance of liquidity ws and fair value gaps can be interchanged now just like the previous case we should start looking for the lowest array items in terms of priority because the price will not always retrace all the way back to grab the liquidity it can sweep the liquidity available anywhere in the bearish premium array and then reverse lower so start looking for the mitigation blocks first followed by the bearish breaker blocks the liquidity voids and so on also not all these array items get formed within the premium zone so don't just assume things follow what you have learned and apply it if it is not there it is not there as simple as that the same Concepts apply to short setups as well when the market takes liquidity forms a swing low And Trades above the equilibrium region you can wait for institutional reference points like bearish fair value gaps bearish order blocks Etc these reference zes are where sellers might dominate pushing the prices down from these premium levels if the overall bias is bearish you can take a short trade entry which will present you with a high probability trade setup so these are all the important things that you need to know about premium and discounts it is important to keep in mind that premium and discount Concepts should be used as a part of a comprehensive trading strategy Traders should consider other factors such as Market structure supply and demand zones and liquidity before making trading decisions these concept provides additional insights and can enhance decision making but they should not be relied upon as the sole basis for entering or exiting traes we have covered all the basic SMC Concepts in a very orderly manner giving emphasis to each and every concept if you have not yet watched this series of episodes I urge you to watch them because it could be the turning point in your trading journey I will link the complete SMC playlist in the description and in the eye button for easy access once you complete each episode I want you to go back to your favorite charts and apply what you have learned I want you to select the highest time frame for your chart analysis based on your trading style once that's done I want you to Mark the market structure that is identify the major swing structure and the internal structures then I need you to figure out where to find the inter internal and external liquidity areas and see how the price reacts in these areas or zones further I want you to identify and mark the major SMC reference areas these reference areas could be aut blocks fair value gaps rejection blocks liquidity voids Etc and finally based on the market structure and the trading bias you need to identify the premium and discount areas within a particular swing this is how the entire SMC chart analysis process looks like in brief as a beginner you need to keep identifying and marking them manually this will help cement the concepts in your head the trade entry process is yet another topic of discussion which we will cover in the second season of SMC course now analyzing multiple charts can turn out to be time consuming and combersome so we require some help this is where indic ators come into picture so in this video I will be talking about a few very useful and effective SMC indicators that will release a lot of Burden when analyzing charts keep in mind that all the indicators that I will introduce to you are available for free in trading view so if you think this series of videos are helping you in your trading all I am asking you in return is to like this video and share this video with your friends and fellow Traders and if you are new to this channel Chanel make sure to subscribe and also enable the Bell notification to stay updated on our latest videos before I talk about the SMC indicator I would like you to select the highest time frame depending on your trading style this time frame selection will vary from one Trader to the other if you know your trading style but you are unable to choose proper time frames I suggest you watch my detailed video on how to select time frames accordingly I am predominant ly a swing Trader so the higher time frame for my analysis is usually the one- day time frame and if you are someone who trades intraday positions you can choose your higher time frame as the 1 hour or even the 15minute time frame once that is done you will notice a problem in the chart this is commonly observed in most Indian stocks and indes it is nothing but price gaps these gaps are a result of overnight Market sentiment these gaps become annoying when we start to Mark the market structure it does not provide a continuous price action due to which structure mapping can get a little bit complicated so a simple walk around this issue is to use an indicator keep in mind that in Forex and crypto markets there is no requirement of this indicator as the price is continuous as the market is open almost 24/7 now let's take a look at this indicator so open trading view in your browser or app app then open the chart you want to analyze for this case I will choose the Nifty index then I will select the 1 hour time frame and you can see a lot of Gap formations in the chart now go to the indicators icon and click on it a popup menu will appear on your screen on the left side of this menu select the section named technicals now on the search bar type in no Gap candles and then hit enter you you can see there is only one indicator available in that list which is created by iipa just click on this indicator now go back to the chart and you can see how the gaps are automatically filled by extending some candles keep in mind that this indicator should not be used while trading or taking a position in the live market this indicator should be used just to make the structure mapping process easier if you are a beginner or if the chart is too much crowded with price gaps I will turn this indicator on and off so that you can see what really happens in the chart you will instantly notice that gaps are filled just by extending one of the candles so there is no real logic in doing so therefore make sure to switch off this indicator once you have completed marking the structure now if you go to the settings of this indicator you will find that there are not really many adjustments to be made just keep everything as default but maybe you can change change the colors so that you can easily recognize where the price gaps were moving on there are a lot of smart money related indicators available in trading view indicator section the indicators that are used by a large number of Traders are the ones created by Lux algo just go to the indicator section and on the search bar type in Lux algo and you will see hundred hundreds of results showing up there are some smart money related indicators price action based indicators and a lot of others for the purpose of this video our focus is only on Smart money indicators by Lex algo a special mention to Lex algo for keeping these indicators absolutely free for retailers anyways I have starred or favored some of the best SMC indicators by Lex algo you can pause this video take a screenshot and type in the names and add these indicators to your favorite indicator section these indicators provides a lot lot of flexibility for Traders to choose only those Concepts which are actually required for your trades for example if you want the indicator to spot potential order blocks and breaker blocks then you can use the order blocks and breaker blocks indicator by Lex algo but if you only want order blocks and don't want the indicator to spot breaker blocks then you can select the order block detector indicator by Lex Alo and in case if you don't want the indicator to show order blocks but only spot breaker blocks then use breaker blocks with signals indicator for doing so so the scope of customization is endless I won't go into each and every one of these indicators because it will then become a very long video and I don't want to waste your valuable time by talking about the indicator settings it is actually not worth it so I leave it up to you to play with these indicators I think trading view has now limited the number of indicators on the chart up to just two for their basic plan now most beginners won't be able to afford trading new subscriptions even I was not able to afford trading you when I started out for such people using multiple indicators as a part of customization is not really a possibility but fear not there is an SMC indicator that is an allrounder it takes care of most of the useful SMC Concepts from mapping the external and internal structures to finding order blocks fair value gaps equal highs and lows multiple time frame highs and lows to figuring out the premium and discount areas it will satisfy more than 90% of your requirements and it will help Quicken your chart analysis by multiple folds the creator of this indicator is none other than Lex algo himself so go to the indicator section and on the search bar type in smart money Concepts and in the results you will instantly notice the first indicator by Lex algo that is used by more than 40,000 Traders just click on this indicator it will automatically apply all the concepts on the chart you will see a lot of markings like bows chalk equal highs equal lows strong lows weak highs order block sounds Etc after applying the indicator the chart looks kind of crowded so let's fix this in order to do that let us tab the indicator settings under the input section you will notice a lot of options for customizing the indicator let us take a look at each one of them and understand what is what so the first option says mode by default it is set to historical if you click on the drop- down menu there is another option named present if you want to know what these options mean just hover over or click on the I button on the right it asks if you want the indicator to Mark the historical structures also or do you just want the recent structure formations if you click on the present option you can notice that all the previous markings are removed and only the most recent structure is marked personally I like to keep this option set to historical as it gives me a general idea about the market trends and how it has played out in the past the second option says Style by default it is set to colored click on the drop down menu and you will find another option named monochrome hovering over the ey button it says indicator color theme if you select monochrome every marking will be set to gray it might help with keeping things simple but if you want the markings to look more bright and colorful choose the first option it depends on your personal preferences the next option is a tick box named colored candles this option will color the candles based on the current Trend as detected by the structure enabling this option also depends on your personal preference the next section says realtime internal structure this option displays the internal or minor Market structure on the chart the internal structure is not the major component in our analysis but if you're are someone who follows fastpaced trading styles by entering and exiting positions quickly grabbing only a few points then internal structure might come handy for you you have some customization options to change the color of the bullish and bearish internal structure markings as well as filtering only boss or chalk or both there is also a Confluence filter that will filter out all the non-significant internal structure breakouts for the time being I will just uncheck the internal structure option once we do that the chart becomes much more cleaner now on scrolling down the next section reads real time swing structure enabling this option will display the major swing structure you have lot of controls available first of all you can decide whether you want the indicator to display just the boss or the chalk or display both I will keep it as default you can also change the color of the markings however you like then there is another tick box reading show swing points enabling this option will Mark the higher highs higher lows lower highs and lower lows the default number is set to 50 you can increase or decrease this number to get the appropriate swing labels the next sck option is to display the most recent strong highs or lows and weak highs or lows this is also an important option so keep it enabled keep in mind that the market structure mapping may not always be 100% accurate there might be certain discrepancies so make sure to double check the outputs now scroll down again the next section is for order blocks here there are two options one is for internal order blocks and the other option is for swing order blocks the swing order blocks are considered as high probability higher reward to risk order blocks compared to the internal order blocks which are considered less effective both numbers are set to five by default it simply denotes the number of order blocks to be displayed you can change this number if you want the next option says order block filter by default it is set to ATR the drop down gives an additional option to use the cumulative mean range as the filtering method the I button clearly mentions that cumulative mean range is to be used only when the price data available is low meaning this might come in handy on illiquid assets since our focus is only on liquid assets we should keep the filtering method to the default setting of ATR you also have the option to change the color of the order blocks so as to set them apart for easier identification now scroll down again the next section is for equal highs and equal lows enable this sck box equal highs and lows help us figure out the market liquidity the first option says bars confirmation and it is set to three by default this is nothing but the number of candles used to confirm the equal highs and lows more the number of bars required lower will be the number of equal highs and lows marked and vice versa keeping this number high can help us find more purposeful equal highs and equal lows setting this number to a very small value like one can basically return a lot of results on the chart but they are noisy and less useful for us so play with the numbers to find your sweet spot the next option is threshold and it is set to 0.1 not all equal highs and equal lows are formed perfectly there will be some variations this setting will help us account for this Vari radiation information and help us detect such equal highs and lows which are not perfect keeping a lower value like 0.1 can help us provide closer results and will return limited results keeping it to zero will return perfectly equal highs and lows now when the sensitivity is increased to say like 0.5 it will return more results but the variance of equal highs and lows formed will be higher so try to keep this threshold value as slow as possible the next section is for fair value gaps you already know what fair value gaps are how they are formed and how they work once the checkbox is enabled the indicator will display fair value gaps on chart the next options is auto threshold also enable this setting as it will filter out all those failed and mitigated fair value gaps which are not significant anymore there is also an option to select the time frame in which the fair value gaps get formed by default it is set to the Chart time frame if you want the indicator to show fair value gaps from some other time frame for the purpose of taking Confluence traes then it is very much on the cards you can also change the color of imbalances also make sure to extend the fair value gaps so that it is visible clearly turn up this number to 25 or 30 or more on scrolling down the next section is to select the multiple higher time frame highs and lows lows options for daily weekly and monthly highs and lows are available enable all of them to get a reference of where the prices with respect to these levels it gives an idea about overvaluation and undervaluation of prices the last section says premium and discount Zs once enabled it will show the most recent premium and discount Zs within a particular price swing keep in mind that it will not Mark the PD Aras it will only display the premium discount and equilibrium zones to give you a general idea of where the price is trading at is it cheap or is it expensive so that is all the input customization settings in this indicator I would not say that the indicator is perfect and every marking is 100% so make sure you double check everything and if you have some knowledge on pinescript the source code is also available for free and you can make changes to customize the indicator according to your requirements we can also check out the other favored smart money indicators and decide upon which ones to use I hope this video will make your smart money analysis easier and if this video was useful please make sure to tap the like button and share this video with your friends and fellow Traders and if you're new to this channel do consider subscribing also enable the Bell icon to stay updated on our latest videos we value your feedback and suggestions so please leave your comment comments below and let us know what topics you would like us to cover in our future videos I appreciate your support and I look forward to seeing you in the next video till then bye