I will teach you how to trade liquidity grab, a trap, inducement, order block and imbalance.
I will share with you my Smart Money Concept strategy for trading forex.
We will study a real SMC trading setup that I took on a live stream with my students.
Trend Analysis With Structure Mapping
The first step in our trading strategy will be the analysis of a market trend on a daily time frame with structure mapping.
Analyzing GBPNZD on a daily time frame, we can see that the conditions for a bullish trend are met.
Liquidity Zones Analysis
The second step will be to find liquidity - supply and demand zones on a daily time frame.
According to our rules, here are 3 liquidity zones that I spotted on GBPNZD. We see 2 demand zones and 1 supply zone.
Test of Liquidity Zone
The third step will be to wait for a test of a liquidity zone.
And on that step, we should remember an important rule:
We will wait only for a test of a liquidity zone that ALIGN with the market trend.
It means that we will wait for a test of a demand zone in a bullish trend.
We will wait for a test of a supply zone in a bearish trend.
The only demand zones that meets these criteria on GBPNZD is Demand Zone 1.
It aligns with a bullish trend.
We don't consider Demand Zone 2, because a bearish violation of a Demand Zone 1 will be a Change of Character and a violation of a bearish trend.
And here is how a test of a liquidity zone should look like. The price should simply reach that.
Liquidity Grab & Imbalance
After we identified a test of a significant liquidity zone that aligns with a market trend, we will start analyzing lower time frames.
We will look for a liquidity grab, order block and imbalance on 4H and 1H time frames.
Here is a liquidity grab that is confirmed by a bullish imbalance.
We see a false violation of a liquidity zone, followed by a high momentum bullish candle.
It will be our strong bullish signal.
Order Block Zone
In order to identify the entry point, the next step will be to identify the order block zone.
According to our rules, here is the order block zone on a 4H time frame.
Entry Level
Our entry level will be the level of the upper boundary of the order block zone.
Here is such a level on GBPNZD.
A buy limit order should be set on that level.
Please, note that in that particular case we don't need a 1H time frame analysis, because we have a confirmation signal on a 4H time frame. We will analyse an hourly time frame only when THERE IS NO SIGNAL on a 4H time frame.
Stop Loss & Take Profit
Safe stop loss should be below the lowest low of a bearish movement.
To safely calculate a stop loss in pips for the trade, simply take 0.5 ATR - Average True Range.
For Average True Range indicator, take the default settings - 14 length.
Here is a safe stop loss level on GBPNZD. ATR is 55 pips. Our stop loss for the trade is 28 pips.
Take profit for the trade will be based on the closest 4H liquidity - supply zone.
That is the closest supply zone that I spotted on GBPNZD on a 4H time frame.
Your target level should be a couple of pips below a supply zone.
That is a perfect target level.
Look how perfectly the market reached the target!
As you can see, that trading strategy is quite complex and combines different important elements. But what I like about this SMC trading strategy is that it truly makes sense.
The intentions of Smart Money are crystal clear here and the trade execution rules are straight forward.
