Trading cryptocurrency futures has proven to be one of the most risky ways to make money from crypto.
As traders constantly look for more trading strategies to help them gain an edge in the market, SMC trading strategy has become the lastest strategy amongst traders and in this article I’ll be talking about how to trade crypto with SMC strategy.
What is SMC
The term SMC can be defined as Smart money concept, it is a trading strategy which Big hedge fund managers and Financial institutions, uses in trading the financial market.
The trading strategy has been kept in the dark for a long time, away from retail traders, So institutional traders can keep on exploiting liquidities from retail traders in the market.
What is Liquidity
Liquidity in cryptocurrency refers to the ease with which a digital currency or token can be exchanged for another digital asset or fiat currency without affecting its value, and vice versa.
Since liquidity is a measure of the external demand and supply of an asset, a market with ample liquidity is indicative of its health.
In other words, a liquid cryptocurrency market exists when someone is willing to buy when you are looking to sell and someone willing to sell when you are buying. It implies that you can purchase this digital asset in the quantity you desire, profit from a trading opportunity, or, in the worst-case scenario, cut your losses if the asset’s value falls below your costs, all without significantly moving the market.
Liquidities in trading futures are regarded as Stop haunts, whereby the market makers have a psychological idea of where retail traders placed their stop-loss,
These Market makers, Big hedge fund managers, and institutional traders target retail traders to stop loss to use as a form of liquidity to enter the market.
How to Avoid being stop haunted
If you are a retail trader and your trading strategy a includes support&resistance, breakouts, trend lines, and chart patterns.
You are likely to be stop haunted by these market makers and the best way for you to avoid that is to learn the Smart money concept strategy (SMC).
The reason for learning this strategy is to know where the Market makers are placing their orders, then you can anticipate the movement of price is likely to go more in their favor because they trade with a larger amount of capital.
Anticipating this movement can give you an edge in the market to make you more profitable.
SMC trading strategy
Trading with SMC strategy, you are required to have basic knowledge of price action to grasp fully how this strategy works. There are four things to know before picking an entry, such as:-
- Phases of the market
- Market structure
- Break of market structure (BMS)
- Order block.
Phases of the Market
There are four stages in which the market is programmed in which are:-
- Accumulation phase
- Advancing phase
- Distribution phase
- Declining phase
Accumulation phase
This is when the price is accumulated by whales, investors, and spot traders.
During this phase, price tends to create a series of Imbalances, uptrends, and downtrends.
Advancing phase
This is when the price starts rallying in an uptrend.
During this phase, the price tends to form extensive bullish momentum, Creating a series of higher highs.
Distribution phase
This is when the price prepares itself for a sell-off by those who are taking profit from the asset.
During this phase, the price tends to show bearish signs.
Declining phase
This is the opposite of the advancing phase whereby price experiences a huge selloff
During this phase, the price turns into a downtrend to create a series of lower highs and lower lows.
Understanding market structure in trading SMC gives you an idea of what the current phase of the market is.
Market structure
The market is structured into two types of trends which are:-
- Uptrend
- Downtrend
Uptrend
This is when the price creates a series of Higher highs and Higher lows (HH&HL) to form an uptrend, increasing the price of the assets.
Example of an uptrend
Downtrend
This is when the price creates a series of lower highs and lower lows(LH&LL).
Example of a downtrend
Trading SMC strategy requires you to be able to identify the market trend,
Before entering a trade, try to identify the market trend to trade along with the trend
When the market is in an uptrend, you’ll are to buy long, and when the market is in a downtrend you are to sell short.
Break of market structure (BOS)
A break of market structure commonly known as(BOS) is when the price moves in a particular trend, then the price breaks its previous structure then retraces back to create a new one.
At the point of retracement, you’re to enter the market either long or short depending on the current market trend.
Order blocks
An order block is the last bearish candle before the bullish move that broke the structure.
An order block is a single candlestick where traders’ orders are placed awaiting a retracement to pick up orders and move in its intended direction.
There are two types of order blocks, which are
- Bearish order block
- Bullish order block
Bullish order block
This is the last bullish candlestick before a bearish move that broke market structure
Bearish order block
This is the last bearish candlestick before a bullish move that broke market structure.
SMC Entry strategy
To pick an entry, take profit and stop loss using SMC
First you identify market structure to know what type of trend the market is in,
Next, find a break of market structure (BOS) then place your entry at the order block before the break of market structure to target the new high as your Take profit.
Here’s a graphical illustration below.
Final thoughts
To perfect this strategy to use in your trading game, There are a lot of other things to learn such as Change of character (COCH), Shift of market structure (SMS), sell side liquidity (SSL),Buy side liquidity (BSL), etc
SMC is now the most popular trading strategy amongst crypto traders as at the time of writing this article because it gives higher probability setups.
