Smart Money Concept Indicator - Trading Strategy
The Smart Money Concept Indicator is an advanced indicator used by more experienced traders to identify important changes in the market structure.
There are multiple implementations of such market structure and pattern identification.
In Vestinda, we offer the LuxAlgo implementation. You can use the Supply and Demand zones to trade accordingly.
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What are Supply and Demand zones
Supply and demand zones are important concepts in trading that help traders identify areas of potential buying or selling pressure in the market. These zones are based on the principles of supply and demand economics, which suggest that price levels are influenced by the interaction between buyers and sellers.
In trading, a supply zone refers to an area on a price chart where selling pressure is expected to be strong, causing an imbalance between supply and demand and potentially leading to a price decline. A supply zone is typically marked by a previous price level where the market encountered significant selling activity and resulted in a reversal or a prolonged consolidation.
Conversely, a demand zone refers to an area on a price chart where buying pressure is expected to be strong, causing an imbalance between supply and demand and potentially leading to a price increase. A demand zone is typically marked by a previous price level where the market encountered significant buying activity and resulted in a reversal or a prolonged consolidation.
Traders often look for supply and demand zones to identify potential levels of support and resistance. When price approaches a supply zone, traders anticipate that sellers will outnumber buyers, leading to a potential price reversal or resistance. Conversely, when price approaches a demand zone, traders anticipate that buyers will outnumber sellers, leading to a potential price reversal or support.
To identify supply and demand zones, traders typically look for areas on the chart where price has reacted strongly in the past, resulting in significant price reversals or consolidations. These zones can be identified by observing areas of congestion, spikes in trading volume, or strong price reactions such as gaps or sharp reversals.
Once a supply or demand zone is identified, traders may use it to make trading decisions. For example, in a supply zone, a trader might look for opportunities to enter short positions or take profits on existing long positions. In a demand zone, a trader might look for opportunities to enter long positions or take profits on existing short positions.
It's important to note that supply and demand zones are not foolproof indicators, and their effectiveness may vary depending on market conditions and other factors. Traders often use additional technical analysis tools and indicators to confirm the validity of supply and demand zones and make informed trading decisions.
How to use the Supply and Demand zones in Vestinda
There are 4 indicators available for Smart Money Concept for now. These are Smart Money Concept Demand Block Top, Smart Money Concept Demand Block Bottom, Smart Money Concept Supply Block Bottom and Smart Money Concept Supply Block Top. We will explain it one by one.
Smart Money Concept Demand Block Top
This is the top price of the Order Block that identifies the Demand zone.
As explained above, a demand zone can be used by traders to identify possible entry signals for a Long position. If the Price goes below this level, a new Position can be opened.
Smart Money Concept Demand Block Bottom
This is the bottom price of the Order Block that identifies the Demand zone. Usually, if the Price goes further down and closes below this level, the Demand zone is invalidated. Some traders exit the position if the Demand zone is invalidated and does not act as a support.
Smart Money Concept Demand Block Bottom
This is the low price of the Order Block that identifies the Supply zone.
As explained above, a demand zone can be used by traders to identify possible exit signals for a Long position. If the Price goes above this level, it means the Price enters an area where there are more Sellers.
Smart Money Concept Supply Block Top
This is the top price of the Order Block that identifies the Supply zone.
If the Price goes above this level, it means the Price breaks the Supply zone and it could make new highs. The buyers are more powerful than the sellers here.
How to trade Smart Money Concept Demand and Supply zones
A way to trade the SMC Indicator is to buy when the price closes inside the Demand zone coming from above and to sell when the price enters a Supply zone coming from below. As this is a simple condition, we always recommend using additional indicators as filters and do plenty of backtesting to identify profitable scenarios.
In order to make the strategy more profitable you can try different approaches like not closing the position if there is no profit - or/and have a stop loss that can be a fixed percent or if the price breaks the Demand zone.
With such a simple strategy, here are the results for 1 year of BTC trading.
