Smart money concepts explained without the hype

"Smart money concepts" (SMC) is a vocabulary for reading price action that grew popular on social media and trading forums. Strip away the branding and most of it describes ideas traders have used for decades: trends made of swings, areas where stops cluster, and fast moves that leave gaps behind. The vocabulary is useful. The claim that it reveals what banks are doing is not something any chart can prove.

This guide defines the main terms plainly, flags where definitions vary between educators, and shows what each concept needs before it can become a rule a computer can test.

Market structure

Everything in SMC starts with swings. An uptrend is a series of higher highs (HH) and higher lows (HL); a downtrend is a series of lower highs (LH) and lower lows (LL).

The tricky part is defining a swing. A common, codeable definition is a pivot: a high with N lower highs on each side. In Pine Script that's ta.pivothigh(high, 5, 5) — and because it needs five bars on the right, the swing is only confirmed five bars later. Any indicator that draws structure "instantly" is either using a different definition or repainting.

Break of structure and change of character

• Break of structure (BOS): price closes beyond the last swing in the direction of the trend — above the last high in an uptrend. It's read as continuation.
• Change of character (CHoCH): the first break against the trend — in an uptrend, a close below the last higher low. It's read as an early sign that the trend may be turning.

Educators disagree on whether a wick is enough or a candle must close beyond the level, and on which swings count (internal versus external structure). Pick one definition and stick to it.

Liquidity and sweeps

In SMC language, liquidity usually means resting orders — especially stop-losses — clustered just beyond obvious highs and lows: equal highs, equal lows, the previous day's high or low, the Asian session range.

A liquidity sweep (or grab) is a quick move through one of those levels that reverses back inside. The story is that the move triggered stops and filled larger orders before price turned. Whether or not that's the real cause, "trade through the previous day's high, then close back below it" is a precise, testable pattern.

Order blocks

An order block is usually defined as the last opposing candle before a strong move that breaks structure — for example, the last down candle before a sharp rally. Traders mark its range as a zone where price may react on a return.

This is where SMC is most subjective. "Strong move" needs a number (a range larger than 1.5 × ATR, say, or a move that causes a BOS), and you have to decide whether the zone is the full candle, the body, or something else — and how long it stays valid.

Fair value gaps

A fair value gap (FVG), also called an imbalance, is a three-candle pattern in which the wicks of the first and third candles don't overlap: the middle candle moved so fast it left a gap. A bullish FVG exists when the current low is above the high from two bars ago.

FVGs are the easiest SMC concept to code. This Pine Script v6 indicator draws them and ignores gaps smaller than a fraction of ATR:

//@version=6
indicator("Fair value gaps", overlay = true, max_boxes_count = 200)

minGapAtr = input.float(0.2, "Minimum gap (x ATR)", minval = 0.0, step = 0.05)
atr = ta.atr(14)

bullGap = low > high[2] and (low - high[2]) >= minGapAtr * atr
bearGap = high < low[2] and (low[2] - high) >= minGapAtr * atr

if bullGap
    box.new(bar_index - 2, low, bar_index, high[2], border_color = color(na), bgcolor = color.new(color.teal, 80))
if bearGap
    box.new(bar_index - 2, low[2], bar_index, high, border_color = color(na), bgcolor = color.new(color.red, 80))

If you're new to Pine, Pine Script v6 for beginners explains the syntax, and how to add a Pine Script indicator to TradingView shows where to paste it.

Premium and discount

Take a swing range from low to high. Above the 50% level is premium; below it is discount. SMC traders prefer buying in discount and selling in premium — essentially the familiar idea of buying a retracement. Many also watch a deeper zone, roughly 62% to 79%, often called the "optimal trade entry". The Fibonacci calculator gives you every level from a swing high and low.

Sessions and "kill zones"

Many SMC traders concentrate on specific windows — typically around the London and New York opens — when volume and volatility tend to pick up. The exact hours vary by educator. The market hours tool shows the sessions in your own time zone, which helps if you plan to add a session filter to a strategy.

A quick reference

The honest bottom line

SMC gives you a precise-sounding language for price action, and that's valuable: it makes you look at structure, liquidity and context. It doesn't remove uncertainty. Each concept has several competing definitions, and patterns that look obvious in hindsight are much less obvious at the right edge of the chart. The only way to find out whether your version has any value is to define it exactly, test it with costs included, and look at enough trades — see backtesting mistakes that inflate results.

Try it with Edgoro

Describe your exact SMC rules — "mark bullish FVGs larger than 0.3 ATR that form after a break of structure on the 15-minute chart, and alert when price returns into one" — and Edgoro writes the Pine Script v6 indicator or MT5 Expert Advisor for you to test. Start free.

Trading involves substantial risk of loss. No price-action framework predicts the market; nothing here is investment advice.