SMC

TRADING GUIDE
Smart Money Concepts · XAUUSD · Beginner to Advanced
Order Blocks · Fair Value Gaps · Liquidity · Premium & Discount · Market Structure · Inducement

PREMIUM & MARKET

ORDER BLOCKS FAIR VALUE GAPS LIQUIDITY DISCOUNT STRUCTURE INDUCEMENT
 TABLE OF CONTENTS

01 Order Blocks (OB) Beginner → Advanced

02 Fair Value Gaps (FVG) Beginner → Advanced

03 Liquidity Beginner → Advanced

04 Premium & Discount Zones Beginner → Advanced

05 Market Structure Beginner → Advanced

06 Inducement (IDM) Beginner → Advanced

07 Putting It All Together Full Trade Flow

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 CHAPTER 01

Order Blocks (OB)

■ BEGINNER — WHAT IS AN ORDER BLOCK?

An Order Block (OB) is the last candle before a big, strong move in price. It shows where big banks and
institutions placed their orders. Price often comes back to these zones before continuing in the original
direction.

Think of it like this: a big bank wants to buy 1,000,000 units of gold. They cannot buy it all at once — so they
leave 'orders' at a price level. When price comes back to that level, those orders get filled and price moves
again.

Bullish Order Block Bearish Order Block

• Last RED (bearish) candle before a big • Last GREEN (bullish) candle before a
move UP big move DOWN
• Shows where banks placed BUY • Shows where banks placed SELL
orders orders
• Price returns here — you look to BUY • Price returns here — you look to SELL

■ INTERMEDIATE — HOW TO FIND AN OB

• Find a strong impulsive move (big candles with momentum)
• Go back to the LAST opposite-colored candle before the move
• Mark the HIGH and LOW of that candle — that is your OB zone
• Wait for price to retrace back into that zone
• Look for confirmation (small rejection candle, BOS on 1m)

OB Type Entry Candle Entry Zone Direction Invalidation

Last bearish candle before Price closes below

Bullish OB High to Low of that candle BUY
up-move the OB

Last bullish candle before Price closes

Bearish OB High to Low of that candle SELL
down-move above the OB

OB that failed (price broke

Breaker Block Revisit from other side Reversal Price fails to react
through)

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 ■ ADVANCED — MITIGATION & BREAKER BLOCKS
A Mitigated OB is an OB that price has already returned to and reacted from once. Once mitigated, it loses
strength. A Breaker Block forms when price breaks through an OB — that OB flips to the opposite direction.
For example, a failed Bullish OB becomes a Bearish Breaker Block.

The best OBs are on Higher Timeframes (H1, H4) and have a Fair Value Gap
PRO TIP (FVG) just above or below them — this confluence makes the zone extremely
strong.

WARNI Not every last candle before a move is a valid OB. Look for OBs that form at key
NG HTF levels, after liquidity sweeps, and accompanied by strong displacement.

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 CHAPTER 02

Fair Value Gaps (FVG)

■ BEGINNER — WHAT IS AN FVG?

A Fair Value Gap (FVG) is a gap or imbalance in price. It forms when price moves so fast that it 'skips' over a
price area, leaving a gap between candles. These gaps act like magnets — price tends to come back and fill
them.

FVGs form because institutions pushed price so aggressively that not enough buyers AND sellers were
present at that price. The market will eventually return to 'balance' that area.

How FVG Forms 3-Candle Rule

Candle 1 Normal candle

Candle 2 Big momentum candle (the displacement)

Gap between Candle 1's HIGH and Candle 3's LOW = the
Candle 3
FVG

■ INTERMEDIATE — TRADING FVGS

• Identify a 3-candle imbalance pattern on your chart
• Mark the zone: Top = High of candle 1, Bottom = Low of candle 3
• Wait for price to retrace back INTO this zone
• Enter when price shows a reaction (rejection wick, small BOS)
• Target: opposite side of the move (where price came from)

Bullish FVG Bearish FVG

• Forms during a strong up-move • Forms during a strong down-move
• Price leaves a gap below current price • Price leaves a gap above current price
• When price drops back into it — BUY • When price rallies back into it — SELL
• 50% of FVG is the ideal entry • 50% of FVG is the ideal entry

■ ADVANCED — FVG CONFLUENCE & INVERSE FVG

An Inverse FVG (IFVG) forms when price completely fills through an FVG without reacting. The FVG then
flips to the opposite direction — a Bullish FVG becomes a Bearish IFVG. This is a strong signal that

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 momentum has shifted.

For highest probability entries, look for FVG + OB overlap. When an FVG sits inside or directly above/below
an Order Block, the confluence creates an extremely strong institutional zone.

On XAUUSD, FVGs on the 5m–15m chart during London and New York sessions
PRO TIP
are the most reliable. Avoid trading FVGs during low-volume Asian session.

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 CHAPTER 03

Liquidity

■ BEGINNER — WHAT IS LIQUIDITY?

Liquidity is where a lot of stop-loss orders are sitting in the market. Banks and big institutions need large
amounts of buy/sell orders to fill their own massive positions. They HUNT these stop orders to get their
orders filled.

As a retail trader, your stop loss IS the liquidity banks are hunting. Understanding this lets you predict where
price will move BEFORE it happens.

Liquidity Type Where It Sits Banks Hunt It To...

Buy-Side Liquidity (BSL) Above Equal Highs / Swing Highs Fill SELL orders — then price drops

Sell-Side Liquidity (SSL) Below Equal Lows / Swing Lows Fill BUY orders — then price rises

Just beyond obvious

Stop Hunts Trigger retail stops before reversing
support/resistance

Small swing points that look like

Inducement Lows/Highs Trap retail traders going wrong way
entries

■ INTERMEDIATE — IDENTIFYING LIQUIDITY ZONES

• Equal Highs (EQH): Two or more highs at the same level — BSL sitting above
• Equal Lows (EQL): Two or more lows at the same level — SSL sitting below
• Previous Day/Week Highs & Lows: Major liquidity targets
• Round numbers (e.g. 4,500 / 4,550 / 4,600): Retail stop clusters
• Obvious support/resistance levels on HTF charts

On your XAUUSD 5m chart earlier, we saw EQH (Equal Highs) labeled at 4,562. This was a buy-side
liquidity pool. Price swept those highs to grab that liquidity BEFORE the true move down continued.

The direction of liquidity sweep tells you the NEXT direction. Price sweeps
KEY
BUY-SIDE liquidity → then drops. Price sweeps SELL-SIDE liquidity → then rises.
INSIGHT
Wait for the sweep, THEN enter.

■ ADVANCED — LIQUIDITY VOIDS & ENGINEERING

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 A Liquidity Void is a price area with very little transaction history — price moved through it rapidly. These
areas offer no support/resistance, so price tends to travel quickly through them to reach liquidity on the other
side.

Engineered Liquidity is when institutions deliberately move price to create liquidity. They push price up to
create retail buy orders, then reverse and take those orders as their sell positions. This is the core of SMC —
understanding that you are being manipulated and using it to your advantage.

Never place your stop-loss at an obvious level (previous swing high/low, round
WARNI
numbers). Institutions know exactly where retail stops are. Always place stops
NG
BEYOND the institutional OB or structure, not at the obvious level.

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 CHAPTER 04

Premium & Discount Zones

■ BEGINNER — THE SIMPLE RULE

Premium and Discount is about finding VALUE in the market. The concept is simple:

DISCOUNT Zone (BUY) PREMIUM Zone (SELL)

• Below the 50% midpoint of a move • Above the 50% midpoint of a move
• Price is 'on sale' — cheap • Price is 'expensive' — overpriced
• Look for BUY opportunities here • Look for SELL opportunities here
• Institutions accumulate positions here • Institutions distribute positions here

■ INTERMEDIATE — USING THE FIBONACCI TOOL

Use the Fibonacci retracement tool to find Premium and Discount zones. Draw it from the swing LOW to
swing HIGH of a move.

Fibonacci Level Zone Meaning

0.0 (Bottom) Extreme Discount Very cheap — strongest buy zone

0.236 Deep Discount Strong buy area

0.382 Discount Good buy area

0.5 (Middle) Equilibrium 50% midpoint — divides premium/discount

0.618 Premium Good sell area

0.705 Premium Strong sell area

0.786 Deep Premium Very expensive — strongest sell zone

1.0 (Top) Extreme Premium Maximum price of the move

■ ADVANCED — COMBINING WITH OBS AND FVGS

The most powerful entries combine Premium/Discount with OBs and FVGs. The formula is: Wait for price to
reach Discount/Premium → Find OB or FVG in that zone → Wait for liquidity sweep → Enter with
confirmation.

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 For example on a SELL: Price rallies into Premium zone (above 50% Fib) → There is a Bearish OB at
0.618–0.705 Fib → Price sweeps Equal Highs (BSL) above the OB → Bearish displacement candle forms →
Enter SELL.

The 0.618–0.705 Fibonacci level (known as the 'optimal trade entry' or OTE) sitting
PRO TIP inside a Premium zone with a Bearish OB is the highest probability SELL setup in
SMC.

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 CHAPTER 05

Market Structure

■ BEGINNER — READING MARKET STRUCTURE

Market structure tells you WHO is in control — buyers or sellers. It is the foundation of all SMC analysis.
Before you learn anything else, master structure.

Structure Pattern Meaning Action

Higher Highs (HH) + Higher Lows

Bullish Buyers in control Look for BUY setups
(HL)

Lower Highs (LH) + Lower Lows Look for SELL

Bearish Sellers in control
(LL) setups

Ranging Equal Highs + Equal Lows No clear direction Wait — don't trade

■ INTERMEDIATE — BOS VS CHOCH

Break of Structure (BOS) — Continuation

A BOS occurs when price breaks a previous swing high (in uptrend) or swing low (in downtrend). It
CONFIRMS the current trend is continuing. This is NOT a reversal signal — it is a continuation signal. Use it
to enter in the direction of the trend after a pullback.

Change of Character (CHoCH) — Reversal

A CHoCH occurs when price breaks against the current structure for the FIRST TIME. In a downtrend, price
breaks a previous Lower High — this signals the trend may be reversing to bullish. This is the FIRST signal
of a potential reversal.

BOS — Continue the Trend CHoCH — Trend is Shifting

• Price breaks previous HH in uptrend • Price breaks previous LH in downtrend
• Price breaks previous LL in downtrend • Price breaks previous HL in uptrend
• Confirms existing trend • FIRST sign of reversal
• Enter on pullback to OB/FVG • Wait for confirmation before trading

■ ADVANCED — MULTI-TIMEFRAME STRUCTURE

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 Professional SMC traders use a Top-Down Analysis approach. Always start from the highest timeframe
and work down to your entry timeframe. The HTF structure always overrides the LTF structure.

Timeframe Purpose What to Look For

Weekly / Daily Overall bias Is the market bullish or bearish overall?

H4 / H1 Intermediate structure Where are the major OBs and liquidity pools?

15m / 5m Entry structure BOS / CHoCH to time the entry

1m Precision entry MSS (Micro Structure Shift) for exact entry point

NEVER trade against HTF structure on a LTF signal. If H4 is bearish and your 5m
RULE
shows a bullish CHoCH, DO NOT buy. The H4 trend will win eventually.

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 CHAPTER 06

Inducement (IDM)

■ BEGINNER — WHAT IS INDUCEMENT?

Inducement is a TRAP set by institutions to trick retail traders into entering the wrong direction. It looks like a
perfect entry — and that is exactly the point. The banks CREATE these fake setups to generate the liquidity
they need.

When you feel STRONGLY that a trade is obvious and everyone can see it — that feeling is dangerous. If it
looks too perfect, it is probably inducement.

SIMPLE
Inducement = A fake signal designed to trap retail traders so institutions can take
DEFINIT
their money and stop-loss orders as liquidity.
ION

■ INTERMEDIATE — RECOGNIZING INDUCEMENT

• A small swing high/low that forms BEFORE the real move
• Looks like a perfect support or resistance level
• Retail traders pile in thinking it's a reversal
• Price sweeps through it, triggering all those stops
• THEN the real move begins in the opposite direction

Inducement Type What It Looks Like What Actually Happens

Price breaks above resistance — retail

False Breakout Price immediately reverses down
buys

Price bounces off 'support' — retail

Fake Support Price breaks through and drops hard
buys

Small HL in a downtrend — looks like

Small Swing IDM Price sweeps it and continues down
reversal

Equal Highs/Lows Obvious level retail places stops at Institutions sweep it for liquidity

■ ADVANCED — INDUCEMENT → LIQUIDITY SWEEP → ENTRY

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 At the advanced level, you USE inducement to find your entry. The pattern is: IDM forms → Retail traders
enter wrong direction → Price sweeps IDM (liquidity grab) → Real move begins → YOU enter in the
real direction.

The inducement itself tells you WHERE the liquidity is and WHERE price is going to sweep BEFORE
entering. This gives you an entry with extremely low risk and high reward.

Ste
Action What You Do
p

1 Identify HTF bias (bearish example) H4 shows Lower Highs + Lower Lows → Bearish

2 Spot the Inducement Small rally creates a minor swing high (IDM)

3 Wait for sweep Price pushes up, takes buy-side liquidity above IDM

4 Look for OB or FVG Find a bearish OB or FVG in that swept area

5 Wait for CHoCH on LTF 5m shows bearish CHoCH after the sweep

6 Enter SELL Enter with SL above the sweep, TP at SSL below

The IDM sweep is often only 3–10 candles on the 5m chart. It happens fast. Set
PRO TIP
price alerts at the IDM level so you don't miss the reaction when price gets there.

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 CHAPTER 07

Putting It All Together

THE COMPLETE SMC TRADE FLOW

Here is how all 6 concepts combine into one complete trade plan. Every trade you take should follow this
exact flow:

HTF Bias
01 Check H4/D1 structure. Is it bullish or bearish? Mark major OBs and liquidity pools. This
gives you your trading direction for the day.

Find Liquidity
02 Identify where the buy-side or sell-side liquidity sits. Equal Highs, swing highs/lows, obvious
support/resistance. This is your TARGET.

Spot Inducement
03 Look for a small IDM level between current price and the liquidity. This is where retail will get
trapped before the real move.

Wait for Sweep

04 Wait for price to sweep the inducement AND the main liquidity pool. Do NOT enter during
the sweep — wait for it to complete.

Find Your POI

05 After the sweep, find your entry zone: a Bearish OB, FVG, or Breaker Block in Premium (for
sells) or Discount (for buys).

Confirm & Enter

06 Wait for a micro CHoCH or displacement on 1m–5m inside your POI. This is your entry
signal. Place SL above the sweep, TP at next liquidity.

QUICK REFERENCE — ALL CONCEPTS

Concept Beginner Summary Advanced Use

Order Blocks Last candle before big move Breaker blocks + OB confluence with FVG

Fair Value Gaps 3-candle price imbalance Inverse FVG, OTE zone confluence

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 Liquidity Where stop-losses are hiding Engineering liquidity, liquidity voids

Premium/Discount Buy low, sell high using 50% Fib OTE at 0.618–0.705 with OB confluence

Multi-TF top-down analysis, BOS vs

Market Structure HH/HL = bullish, LH/LL = bearish
CHoCH

Inducement Fake signal that traps retail Use IDM sweeps to time real entries

You have $10 and a full understanding of SMC. Your ONLY job now is to: 1)
FINAL R
Practice marking these concepts daily on TradingView. 2) Journal every trade. 3)
EMINDE
Never risk more than $0.10–$0.20 per trade. 4) Be patient — the best traders wait
R
for confluence, not just one signal. Master this system and the money will follow.

Good luck on your trading journey. Patience is a position. ■

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