Trade Execution Explained - Smart Money Concepts

Summary

This lecture dives into the execution protocol within smart money concepts, focusing on how to effectively enter trades, place stop-losses, and set targets. The process is broken down into clear steps, including defining entry points based on PD arrays, managing stop-losses using previous accumulation or distribution phases, and setting targets at liquidity pools. Through practical examples, the speaker demonstrates how to apply these concepts in real trades, reinforcing the importance of confirming smart money participation and timing alignment with price. By following the protocol, traders can confidently execute and manage their trades.

Takeaways

• 😀 Trade execution requires three key components: entry, stop-loss, and targets. Having these elements allows for effective trade management.
• 😀 In a buy program, the entry is determined by the discount array, while in a sell program, the entry is based on the premium array that must act as resistance for the sell program to continue.
• 😀 The stop-loss (or invalidation level) is defined by the previous stage of accumulation or distribution, combined with Smart Money Theory (SMT). This evolves as the trade progresses.
• 😀 For the buy program, the stop-loss is placed at the SMT swing low from the previous stage of accumulation, and for the sell program, it's placed at the SMT swing high from the previous stage of distribution.
• 😀 SMT (Smart Money Theory) plays a critical role in identifying areas where smart money has entered the market, which helps in setting stop-losses and confirming trade direction.
• 😀 Target 1 is the original consolidation, the buy/sell liquidity pool. Target 2 is the drawn liquidity, where a trader aims to fully exit the trade.
• 😀 Partial exits are made at Target 1 (original consolidation) as price may reverse after taking external liquidity, and the runner is held until Target 2 (drawn liquidity) is hit.
• 😀 The entry point in a buy program is where price reaches the discount array, and in a sell program, it's where price hits the premium array, confirming a reversal.
• 😀 Trade execution is based on a structured formula: Entry + Invalidation Level + Target = Execute. This ensures precise trade management and planning.
• 😀 Real-life execution examples showcase how to apply Smart Money Concepts in practice, using price action, SMT, and time to confirm entries, manage stop-losses, and set targets for successful trades.

Q & A

What are the three key reference points required to execute a trade in Smart Money Concepts?

The three key reference points required to execute a trade are: entry, stop-loss, and targets. These define where the trade will begin, where it will be invalidated, and where the trader expects price to move.

How are entries defined in a Smart Money Concept trade?

Entries are defined using the PD array's invalidation level for the current delivery program. In a buy program, the discount array must act as support for price, while in a sell program, the premium array must act as resistance.

What is the role of the 'PD array' in determining entries?

The PD array acts as the invalidation level, marking the point at which a trade can be entered based on price action. It defines whether price is likely to continue in the direction of the trend or reverse.

How does the Smart Money Concept define a stop-loss placement?

Stop-loss placement is determined by the previous stage of accumulation or distribution, combined with SMT (Smart Money Trading) confirmation. In a buy program, the stop-loss is set at the SMT swing low, and in a sell program, it is set at the SMT swing high.

What does 'SMT' stand for, and why is it important?

'SMT' stands for Smart Money Trading. It indicates that smart money is involved in the move. SMT confirmation ensures that the trade has a higher probability of success because smart money is not likely to allow a position to go against them.

How does the concept of 'original consolidation' relate to trade targets?

The original consolidation refers to the buy-sell liquidity pool. In a buy program, target one is set at this original consolidation level, as it is where buy liquidity is concentrated. In a sell program, target one is set at the original sell-side liquidity.

Why is partial profit taken at the 'original consolidation' level?

Partial profits are taken at the original consolidation level because price may take out external range liquidity and form a new buy or sell program. This minimizes risk while allowing a portion of the trade to run toward the final target.

What does 'draw liquidity' mean in the context of trade targets?

Draw liquidity refers to the price level where liquidity is drawn or targeted after the initial consolidation. It represents the final target in both buy and sell programs, where traders aim to fully exit their positions.

How does time alignment with price play a role in executing trades?

Time alignment with price ensures that the execution occurs at a favorable moment. In the script, it's emphasized that trades should align with specific times (e.g., 9:45) to increase the probability of successful execution.

What happens when price moves past the invalidation level in Smart Money Concepts?

When price moves past the invalidation level, it confirms the trade direction. For a buy, the PD array must act as support; for a sell, it must act as resistance. This movement validates the entry, and the stop-loss can be adjusted accordingly.