Why smart money concept is important?
To Identify the real trend of the market and change in trend
To catch the impulsive move of the price
1 week for Structure
1 week for Inducement
1 week for Order flow
1 week for Order Block and imbalance
Identify: BOS/CHOCH > IND> HH/LL > OB/Imbalance
For Extra confirmation, We need: OB > Eng L
STRUCTURE-MAPPING
Here we will learn structure mapping.
What is a break of structure (BOS)
What is a Change of Character (ChOCh)
How to identify BOS and ChoCh
Corrective move: Minor Structure
Impulsive Move: Major Structure
Bullish market: if the price sweeps low then we will get a big move on the upside and when the price sweeps high we get a small down move.
Bearish market: if the price sweeps high then we will get a big move on the downside and when the price sweeps low we get a small up move.
BOS: When the Major Structure breaks (By candle closing) the Minor Structure
CHOCH: When the expected Minor Structure breaks (By candle closing) the range of the previous Major Structure
BOS/CHOCH => Break Of major structure
Inducement: Break (with closing or by wick) of internal high (for downtrend) / internal low (for uptrend) of the Major Structure.
For Downtrend
Lower High To Lower Low => Major Structure
Lower Low To Lower High => Minor Structure
When the Price close below a Lower Low => Break Of Structure (BOS) is confirmed
When the Price close above a Lower High => Change Of Character (ChoCh) is confirmed
For the Downtrend, a Lower low is confirmed after an inducement, and a lower high is confirmed after BOS.
How to confirm Lower Low and lower high
When the market takes the inducement (Recent internal high) then only we will plot a lower low and the high made by price will be lower high.
Before taking inducement it doesn’t matter how much the price is dropped it will be part of the internal structure.
Condition For BOS:
For Uptrend
Higher Low To Higher High => Major Structure
Higher High To Higher Low => Minor Structure
When the Price close above a Higher High => Break Of Structure (BOS) is confirmed
When the Price close below a Higher Low => Change Of Character (ChoCh) is confirmed
For an uptrend, a higher high is confirmed after an inducement, and a higher low is confirmed after BOS.
How to confirm Lower Low and Higher high
First internal low/high must be taken out after the Break Of Structure then only we can mark higher high/ lower low
When the market takes the inducement (Recent internal low) then only we will plot a Higher high and the low made by price (For that particular structure) will be a higher low.
Before taking inducement it doesn’t matter how much the price is raised it will be part of the internal structure.
Note: We have to track every small movement of the market and we must identify how it takes inducement.
If the market takes out the recent internal high then the Lower Low of the structure will be confirmed.
If the market takes out the recent internal low then the Higher High of the structure will be confirmed.
We have to mark each Inducement and then the corresponding lower low or higher high.
How to confirm Lower High and Higher Low
We will confirm it after Inducement and then BOS, we will mark the lowest point for the uptrend and the highest point for the downtrend as Higher low and Lower High.
Whenever the behavior of the price changes we call it a Change of Character (ChOCh)
When the market is bullish and the price breaks the previous Higher high then we call it a break of structure (BOS) and when the market is bearish and the price breaks the previous Lower low then also we call it a break of structure (BOS)
BOS: it will work as a continuation
After BOS we will get a pullback
ChOCh: will work as a reversal
The break Of Structure must be confirmed by closing, not by the wick.
IFC / IMBALANCE / ORDER BLOCK / ORDER FLOW
An imbalance is also known as a fair value gap (FVG) or inefficient price action.
Why Imbalance is created?
Because of unhealthy price action up or down move of the market.
Most of the time market will reverse to fulfill this imbalance then the market will continue its move.
Every Imbalance has equal value; its size does not matter.
Most of the time market reverses to fulfill extreme imbalance of the trend (structure).
If 1st and 3rd candles do not have any imbalance then there is a rare chance that the market will reverse to that level.
The extreme imbalance has the highest probability but If you do not get an imbalance at the top/bottom then go down/up Slidely to find the imbalance between the 1st and 3rd candles.
Because this is the level where we get most of the reaction from the market.
We have to mark the imbalance for the downside leg if the market gives a break of structure for the downside.
We have to mark the imbalance for the upside leg if the market gives a break of structure for the upside.
Note: How to select the 1st candle?
For a downtrend, the candle makes a lower high.
For an uptrend, the candle makes a higher low.
We have to look for imbalance after the BOS and inducement.
