Question 1

What is a order block in trading?

Accepted Answer

A price zone where institutional traders (banks, hedge funds) placed large buy or sell orders, creating a significant supply or demand area. Order blocks typically form at the base of a strong price move. A bullish order block is the last bearish candle before a strong up-move; a bearish order block is the last bullish candle before a strong down-move. These zones act as future support or resistance because institutional traders often defend their entry areas.

Question 2

What is a fair value gap (FVG) in trading?

Accepted Answer

A price imbalance created when a strong directional candle leaves a gap between the wicks of the candles before and after it. Price tends to return and fill these gaps. Fair value gaps represent areas where buying or selling pressure was so strong that a price imbalance was left behind. Institutional traders view these as 'inefficient' price action. There are three types: bullish FVG (gap up), bearish FVG (gap down), and consequent encroachment (partial fills).

Question 3

What is a liquidity sweep in trading?

Accepted Answer

A market move where price deliberately pushes past a key level (swing high/low) to trigger clustered stop-loss orders before reversing direction. Institutional traders need liquidity to fill large orders. Retail traders tend to place stop losses at obvious levels — above swing highs and below swing lows. A liquidity sweep 'hunts' these stops to create the volume institutions need. This is also called a stop hunt or liquidity grab.

Question 4

What is a break of structure (bos) in trading?

Accepted Answer

A confirmed trend continuation signal that occurs when price breaks past the most recent significant swing high (in an uptrend) or swing low (in a downtrend). Break of structure is the backbone of smart money analysis. In an uptrend, BOS occurs when price makes a higher high by breaking the previous swing high. In a downtrend, BOS occurs when price makes a lower low. BOS confirms that the current trend remains intact and institutional money is still flowing in the same direction.

Question 5

What is a change of character (choch) in trading?

Accepted Answer

An early signal of potential trend reversal that occurs when price breaks structure in the opposite direction of the prevailing trend. While BOS confirms trend continuation, CHoCH signals that the trend may be shifting. A bullish CHoCH occurs in a downtrend when price breaks above the most recent lower high. A bearish CHoCH occurs in an uptrend when price breaks below the most recent higher low. Traders use CHoCH as an early warning to look for reversal setups.

Question 6

What is a equal highs / equal lows (eqh/eql) in trading?

Accepted Answer

Price levels where two or more swing highs (EQH) or swing lows (EQL) form at nearly the same price, creating a pool of resting liquidity that institutions target. Equal highs and lows are magnets for liquidity. Retail traders see double tops/bottoms as support or resistance and cluster their stop losses just beyond these levels. Institutions know this and often engineer moves through EQH/EQL to grab that liquidity before reversing.

Question 7

What is a strong / weak highs and lows in trading?

Accepted Answer

A classification system that labels swing points based on whether the subsequent move respected the level (strong) or is likely to be taken out (weak). A strong high is formed by a decisive rejection — price moved sharply away and hasn't returned. A weak high sits near current price with diminishing momentum, signaling it's likely to be swept. Smart money traders target weak highs/lows for entries and respect strong levels as genuine boundaries.

Question 8

What is a displacement in trading?

Accepted Answer

A sudden, powerful price movement driven by aggressive institutional buying or selling that creates large-bodied candles and often leaves fair value gaps behind. Displacement is the footprint of institutional urgency. When banks or funds need to move size quickly, they create displacement candles — large, full-bodied candles with little to no wicks. These moves typically create FVGs and confirm BOS/CHoCH events.

Question 9

What is a swing points in trading?

Accepted Answer

Local price peaks (swing highs) and troughs (swing lows) that form the building blocks of market structure. Every trend is defined by the relationship between consecutive swing points. Swing highs form when price makes a high with lower highs on both sides. Swing lows form when price makes a low with higher lows on both sides. The number of bars used to confirm a swing point affects sensitivity — fewer bars catch more swings but generate noise, while more bars show only significant structural pivots.

Question 10

What is a market structure in trading?

Accepted Answer

The pattern of swing highs and swing lows that defines the current trend direction — higher highs and higher lows for uptrends, lower highs and lower lows for downtrends. Market structure is the foundation of all technical analysis. Smart money traders map structure to understand the 'story' of who is in control — buyers or sellers. Structure breaks (BOS/CHoCH) are the key events that signal shifts in control. Multi-timeframe structure analysis reveals the big-picture trend and optimal entry points.

Question 11

What is smart money in trading?

Accepted Answer

Refers to institutional traders — banks, hedge funds, market makers, and central banks — whose large orders move markets and create predictable patterns that retail traders can follow. The 'smart money' concept is based on the idea that institutional traders leave footprints in price action. Because they trade in such large sizes, their orders create order blocks, liquidity sweeps, and structural shifts that can be detected. Smart money concepts (SMC) is the methodology of identifying and trading alongside these institutional patterns.

Question 12

What is a confluence in trading?

Accepted Answer

When multiple independent technical signals align at the same price level or time, creating a higher-probability trade setup than any single signal alone. Confluence is the difference between gambling and trading with an edge. A bullish order block sitting inside a discount zone, near an unfilled FVG, with oscillator momentum turning up — that's confluence. The more independent factors that agree, the higher the probability.

Question 13

What is a premium / discount zones in trading?

Accepted Answer

A framework that divides a price range into premium (upper half, above equilibrium) and discount (lower half, below equilibrium) zones to identify optimal entry points. Smart money traders buy in discount zones and sell in premium zones. The equilibrium (50% level) acts as the dividing line. In an uptrend, the best entries are in the discount zone of a pullback. In a downtrend, the best short entries are in the premium zone of a retracement. This simple framework dramatically improves risk-to-reward ratios.

Question 14

What is a accumulation, manipulation, distribution (amd) in trading?

Accepted Answer

The three-phase cycle that describes how institutional traders build, protect, and exit large positions — creating predictable price patterns at each stage. In accumulation, institutions quietly buy within a range. During manipulation, they engineer a stop hunt or false breakout to scare retail traders and grab liquidity. In distribution, they sell into the resulting momentum at higher prices. This cycle repeats on every timeframe.

Question 15

What is a multi-timeframe analysis (mtf) in trading?

Accepted Answer

The practice of analyzing the same instrument across multiple timeframes to align the big-picture trend with precise lower-timeframe entries. Professional traders use higher timeframes (daily, weekly) to determine directional bias and lower timeframes (15m, 1H) for entries. A bullish order block on the 4H chart that aligns with a daily FVG and a 15m CHoCH is a textbook multi-timeframe confluence setup.

Question 16

What is a breaker block in trading?

Accepted Answer

A failed order block that gets mitigated and then acts as a zone in the opposite direction — a bearish order block that breaks becomes bullish support, and vice versa. Breaker blocks form when institutional positions are overwhelmed by stronger opposing flow. The original order block fails (price breaks through it), but the zone doesn't become irrelevant — it flips polarity. Institutions who were trapped now need to manage their losing positions when price returns.

Question 17

What is a institutional order flow in trading?

Accepted Answer

The directional bias created by large institutional orders entering the market. These orders are too large to fill at once, so institutions accumulate or distribute positions over time. Institutional order flow creates predictable patterns: accumulation (buying in a range), manipulation (fake breakout/stop hunt), and distribution (selling at higher prices). Traders who understand this cycle can position themselves alongside institutions rather than against them.

Question 18

What is a stop hunt in trading?

Accepted Answer

A deliberate market move engineered by large players to trigger retail stop-loss orders clustered at obvious price levels, providing liquidity for institutional positions. Stop hunts are a form of liquidity sweep. Market makers and institutions know where retail traders place their stops (above/below swing points, round numbers, moving averages). They push price to these levels to trigger the stops, then reverse. Recognizing stop hunts is one of the most valuable SMC skills.

Question 19

What is a imbalance in trading?

Accepted Answer

A zone of one-sided price action where buying or selling pressure was so dominant that no meaningful two-way trading occurred, leaving an 'inefficient' area on the chart. Imbalances are closely related to fair value gaps. They represent areas where price moved too fast for the market to establish fair value. Price has a tendency to return to these areas to 'rebalance.' Imbalance zones are high-probability areas for entries and targets.

Question 20

What is a inducement in trading?

Accepted Answer

A minor structural level (minor high/low) that serves as bait to lure retail traders into positions before a larger move in the opposite direction. Inducement levels are 'traps' set within a larger structural move. They look like valid break-of-structure signals on lower timeframes but are actually minor levels designed to attract retail participation and create liquidity for the real institutional move.

Question 21

What is a mitigation in trading?

Accepted Answer

When price returns to an order block or demand/supply zone that was previously left unmitigated (untested), giving institutional traders an opportunity to manage their existing positions. Unmitigated order blocks represent institutional positions that haven't been revisited. When price returns to these zones, institutions may add to their positions, take profit, or hedge. Mitigated zones tend to be weaker on second tests, while unmitigated zones offer the highest-probability entries.

Smart Money Concepts (SMC) Glossary 2026