To understand the layout of institutional large players, one must first grasp the professional terminology and core logic of SMC. These terms can help you identify changes in market structure and find high-probability entry points.
Quickly understand SMC core terminology. Mastering these abbreviations is the first step into the realm of smart money trading.
• SMC (Smart Money Concept): The concept of smart money, focusing on identifying institutional fund flows.
• MS (Market Structure): Market structure, used to determine whether the current trend is upward, downward, or sideways.
• BOS (Break of Structure): Break of market structure, indicating the continuation of the previous trend.
• CHOCH (Change of Character): Change in market structure, the first signal suggesting a possible trend reversal.
• OB (Order Block): Order block, an area where large institutional orders are concentrated.
• FVG (Fair Value Gap): Value gap, an unbalanced area created by rapid price fluctuations.
• Liquidity: Liquidity refers to the hidden stop-loss areas in the market, which are targets for institutions to acquire transaction volume.
Equilibrium Trading Strategy
After a period of strong price fluctuation, the price usually retraces to the area of supply and demand balance:
• 50% Equilibrium Line: The midpoint of a fluctuation, with the upper side being the premium area and the lower side being the discount area.
• Bearish Entry: Look for selling signals when the price rebounds upwards to the “premium area” (above the 50% area).
• Bullish Entry: Look for buying signals when the price retraces downwards to the “discount area” (below the 50% area).
Market Psychology and Wash Trading Techniques (Power of Three)
Institutional large players often manipulate retail psychology.
• Massive Selling: An abnormal volume occurs at high levels with stagnant prices, usually signaling distribution by the main force.
• Minimal Accumulation: After the price drops to low levels, a very small trading volume appears, indicating exhaustion of selling pressure, and the main force begins accumulation at low levels.
• Manipulation: Through false breakouts to lure longs or shorts, clearing out indecisive holders, and after washing the market, a real trend is initiated.
The core of trading is not predicting the future but judging who is stronger at the moment through structure and energy.