How To Trade Smart Money Concepts | LuxAlgo
Summary
TLDRThe video script introduces a powerful trading indicator that simplifies the process of identifying market structure, fair value gaps, and order blocks, enabling traders to focus on making buy or sell decisions. It covers the basics of smart money concepts, which involve trading based on price action without relying on traditional indicators or patterns. The indicator, available on TradingView, marks out key areas such as internal and swing order blocks, fair value gaps, and equal highs and lows. It also provides mid-time frame levels and premium/discount zones to enhance trading strategies. The script includes examples of how to use the indicator for entering trades, emphasizing the importance of market structure and fair value gaps. It concludes with a recommendation to explore more resources on Lux Algo and smart money trading concepts for further insights.
Takeaways
- 📈 **Price Action Trading**: The indicator is designed to aid in price action trading by automatically identifying market structure, fair value, gaps, and order blocks.
- 🔍 **Smart Money Concepts**: The popularity of smart money concepts has grown, focusing on market structure, order blocks, and liquidity to identify trading entries and exits.
- 🔑 **Free Indicator Tool**: A free indicator available on TradingView simplifies smart money concepts for new traders by marking out key trading elements.
- 🔧 **Customization Options**: Users can customize the indicator by enabling or disabling features like F value gaps, swing points, and strong/weak highs and lows.
- 📊 **Market Structure**: The indicator displays market structure with 'B' for break of structure and 'C' for change of character, signaling the severity of the break.
- 📉 **Order Blocks**: Order blocks represent areas of potential support and resistance, offering good trade entry points, with distinctions between internal and swing order blocks.
- 🟢🔴 **Fair Value Gaps**: These gaps are critical trading tools, with bullish gaps marked green for support and bearish gaps marked red for resistance.
- 🔄 **Equal Highs and Lows**: The indicator highlights areas of equal highs and lows, which are likely areas of liquidity and potential stop-loss concentrations.
- 📅 **MTF Levels**: Mid-time frame levels are displayed to show previous highs and lows on higher time frames, indicating areas of liquidity and trading opportunities.
- 💰 **Premium and Discount Zones**: The indicator marks out premium (expensive) and discount (undervalued) zones, advising to sell at premium and buy at discount for higher probability trades.
- 🚀 **Trade Entry Examples**: The script provides examples of how to use the indicator to enter trades, such as waiting for price action below the midpoint of a fair value gap or after a break of structure.
Q & A
What is the main purpose of the indicator discussed in the video?
-The main purpose of the indicator is to simplify the process of trading based on price action by automatically identifying market structure, fair value, gaps, and order blocks, allowing traders to focus on making buy or sell decisions.
What are 'Smart Money Concepts' in trading?
-Smart Money Concepts refer to a trading style that uses price action without relying on traditional indicators or patterns. It focuses on market structure, order blocks, and liquidity to identify potential entry and exit points for trades.
How can a trader find the 'Smart Money Concepts' indicator on TradingView?
-To find the 'Smart Money Concepts' indicator on TradingView, go to the indicators tab, use the search bar to type in 'Smart Money Concepts by Lux Algo', and then enable the indicator.
What does the 'B' and 'CH' notation represent in the market structure section of the indicator?
-'B' stands for 'Break of Structure' and 'CH' stands for 'Change of Character'. Both are important for identifying significant changes in the market structure, with 'CH' indicating a break of the most recent swing high or low, and 'B' indicating a break of a second swing high or low.
How can traders differentiate between internal and swing structures?
-Internal structures are represented by dashed lines and are essentially structures within a larger price range. Swing structures are represented by solid, thicker lines and signify a more significant, higher time frame break of structure.
What is the significance of turning on the 'Swing Points' option in the indicator?
-Turning on the 'Swing Points' option adds more labels to the chart, highlighting significant points of structure such as higher highs or lower lows, which can be crucial for identifying potential trading opportunities.
How do 'Order Blocks' function in the context of the indicator?
-Order Blocks are areas where support and resistance are likely to be found, offering potentially excellent entries for trades. They come in two types: internal and swing, with swing order blocks being more significant and appearing on a higher time frame.
What are 'Fair Value Gaps' and how are they represented on the chart?
-Fair Value Gaps are areas of price imbalance represented by three candlesticks. A bullish Fair Value Gap is marked with a green box, indicating support, while a bearish Fair Value Gap is marked with a red box, signaling resistance. These areas can act as magnets for price movement.
How can 'Equal Highs and Lows' be used in trading?
-Equal Highs and Lows represent areas where liquidity is resting, often with a large amount of stop losses located just above or below these levels. Traders can expect the market to test these levels before a potential reversal occurs.
What are 'Mid Time Frame (MTF) Levels' and how do they help in trading?
-MTF Levels are the previous highs and lows on higher time frames such as daily, weekly, and monthly. They indicate areas of liquidity and can present great trading opportunities, with the advantage of being less prone to manipulation and offering higher confidence levels.
How do 'Premium and Discount Zones' work in the context of the indicator?
-Premium and Discount Zones mark out the local range of the market and divide it with an equilibrium point. Premium zones are considered expensive, and discount zones are considered undervalued. For higher probability trades, traders should look to sell in premium zones and buy in discount zones.
What is the strategy for entering a trade using the indicator's 'Fair Value Gaps'?
-To enter a trade using Fair Value Gaps, traders should wait for the price to trade below the midpoint of the gap. They can then enter a long position with a stop loss just below the Fair Value Gap and set a target for a 1:1 or 1:2 risk-reward ratio.
Outlines
📈 Introduction to Smart Money Concepts Indicator
The video introduces a powerful trading indicator that simplifies the process of identifying market structure, fair value gaps, and order blocks. It emphasizes the importance of focusing on the essential aspects of trading by allowing the indicator to do the heavy lifting. The script provides a comprehensive guide on how to use the indicator, including enabling and customizing its various features such as F value gaps, market structure, and order blocks. It also explains the significance of different types of lines and points on the chart, like internal structure, swing structure, strong or weak highs and lows, and how they can influence trading decisions. The video promises to demystify the advanced features of the indicator for new users and help them profit from trading.
🚀 Utilizing the Indicator for Trade Entry
This paragraph delves into practical examples of how to use the indicator for entering trades. It discusses the importance of fair value gaps and how to wait for the right conditions, such as when the price trades below the midpoint of the gap, to enter a long trade. The video also covers the use of confluence and support levels to determine entry points. Additionally, it explores the concept of order blocks and market structure in a trending market, explaining how to identify and react to breaks in structure and order blocks for potential trade entries. The script concludes with a reminder to check out more videos for further insights and offers a discount link for Lux Algo in the video description, encouraging viewers to subscribe and share the content.
Mindmap
Keywords
💡Price Action
💡Market Structure
💡Order Blocks
💡Fair Value Gaps
💡Liquidity
💡Mid Time Frame (MTF) Levels
💡Premium and Discount Zones
💡Swing Points
💡Strong and Weak Highs/Lows
💡Break of Structure
💡Smart Money Concepts
Highlights
The indicator serves as a 'Holy Grail' for traders focusing on price action by identifying market structure, fair value, gaps, and order blocks.
It simplifies the process for new traders by automatically marking out key trading elements, allowing them to focus on making buy or sell decisions.
Smart Money Concepts have gained popularity, focusing on price action without relying on traditional indicators or patterns.
The indicator can be found and enabled on TradingView by searching for 'Smart Money Concepts by Lux Algo'.
After enabling, order blocks, structure, and liquidity are visually marked, with the option to turn on F value gaps.
The indicator may initially seem advanced, but the video provides a comprehensive guide on its terms and effective usage.
Market structure is displayed using 'B' for break of structure and 'C' for change of character, indicating the severity of a break.
Different line types represent internal structure (dashed) and higher time frame breaks of structure (solid).
Swing points and strong or weak highs and lows can be toggled on to highlight significant structural points.
Order blocks denote areas of likely support and resistance, offering potential trade entries.
Fair value gaps are critical, marked with green boxes for support and red boxes for resistance, acting as price magnets.
Equal highs and lows, when toggled on, show areas of resting liquidity and potential stop-loss concentrations.
MTF levels indicate previous highs and lows on higher time frames, presenting trading opportunities with less manipulation.
Premium and discount zones divide the market range with an equilibrium point for higher probability trades.
Examples demonstrate how to use the indicator for entering trades, including waiting for price action confirmation post-structure break.
Confluence of previous highs and lows can provide additional support levels for trade entries.
The indicator offers various settings to customize the trading experience according to individual preferences.
For higher probability trades, it's recommended to sell at premium zones and buy at discount zones.
The video concludes with a guide on how to get Lux Algo with a discount using a provided code.
Transcripts
if you're trading based on price action then this one indicator will be your Holy Grail
it will automatically do the hard Lifting for you by identifying Market structure fair value
gaps and Order blocks so you can focus on the important stuff literally all you have to do
is press the buy or sell button whenever this indicator prints out a setup in this video we
will cover everything you need to know about this indicator and how you can use it to improve your
Trading
smart money Concepts have gone viral over the last year and everyone's trading them but for those of
you who are not familiar yet we'll summarize it quickly basically trading only using price
action with no indicators or patterns deviating from the traditional trading styles using Market
structure order blocks and imbalances along with liquidity smart Money traders are able
to identify exits and entries for trads however this can be a lot of work on your side so this
one free indicator covers everything about smart money Concepts making it easier for new traders
to succeed to find it we're going to go to tradingview.com as always in the indicators
tab we're going to pull it down to the search bar and type in smart money concepts by Lux algo after
enabling this indicator you'll see that order blocks structure and liquidity are marked out
for you to turn on F value gaps which you want to do go to the settings of the indicator and scroll
down to turn it on I suggest extending them to Five Points this helps you see them better on
the chart this indicator at first may seem very Advanced to you especially if you're a new user
but after watching this video you will learn all the terms and how to effectively use this
indicator to profit in trading first we'll start out with Market structure this will be displayed
by B and CH h BOS stands for break of structure and C stands for change of character both are
going to be important the difference between them is the amount of structure or the severity of the
break so the change of character will be displayed when the most recent swing high or low are broken
with a candle close above or below the swing point when break of structure is displayed it means that
a second swing high or low was broken you'll also notice some different types of lines there's one
with a dashed line and one with a solid thicker line the structure with dashes are internal
structure that is basically structure inside of a bigger price Lake this would be swing structure
swing structure are the big solid lines and this is a more significant higher time frame break of
structure this is going to be a more critical signal in the market structure section we can
also see two additional options that we can turn on we have swing points and strong or weak highs
and lows I recommend playing around with these and seeing what works best for you but when we turn on
swing points we can see more labels are added to our chart this option is to highlight significant
points of structure like whenever it makes a higher high or lower high Etc strong or weak
highs and lows are specific points of structure that meet this criteria a strong High has broken
past the swing low so now that high should be strong and it shouldn't be taken out the same
goes for a strong low it has made a higher high so now that low should be considered strong but
what makes a weak higher low a weak high is when it fails to break past a previous swing low now
the high will be targeted meaning price will likely take out the high because it's a weak
one and when the low breaks that weak High it should become a strong low similarly a weak
low is when it fails to break past the previous swing High typically then we would look for the
low to become targeted next we're going to talk about order blocks order blocks are an area where
support and resistance are likely found and can offer potentially excellent entries for trades we
have two types of order blocks internal and swing just like structure swing order blocks are more
significant and on a higher time frame compared to the internal order blocks which we typically
see inside the swing structure we also have fair value gaps something I'm sure you've heard of and
are a critical tool in my trading these are imbalances on the chart that are made up of
three candlesticks a bullish fair value Gap is marked as a green box on the chart designating
support and a bearish fair value Gap is marked in a red box signaling resistance these areas
can act as magnets for price and typically we expect price to gravitate towards them you can
use them as a way to enter a trade after a valid setup has formed next on our list is equal highs
and lows turning on this option in settings will show you areas of equal highs and equal lows these
are areas where liquidity is resting meaning there's likely a large amount of stop losses
located just above or below them whenever you see them you can expect the market to take it
out before a potential reversal occurs coming in next is MTF levels meaning mid time frame
levels you can turn this on and then there'll be three levels that you'll see the daily weekly and
monthly they show you the previous highs and lows on these higher time frames there are also areas
of liquidity and these can present great trading opportunities remember every time frame is valid
in trading but the bigger the time frame the less prone to manipulation they are and the
higher confidence that we get have in these levels as Traders finally we have premium and discount
zones basically it marks out the local range of the market and divides it with an equilibrium
point this is the midpoint between the premium and the discount areas premium we basically view
as expensive and discount we basically view as undervalued for higher probability trades you
want to sell when we're at premium and buy when we're at discount exclusively now that we've
covered pretty much everything this indicator offers offers we can move on to some examples
of how we would use this to enter trades the first example we'll use the default settings but we're
going to turn off all the order blocks and turn on Fair Value gaps also we'll disable the auto
threshold and extend it up to Five Points lastly we'll turn on swing points in this example we're
looking at ethereum and what we can see is that it's been ranging for a long time what we see
the indicator doing is highlighting that it's making higher highs and higher lows then we see
a change of character following up by a break of structure a big impulsive candle shows that
the momentum came in and played out on the chart now we're convinced that the market is likely to
continue and Trend higher so we want to enter a long trade we can see that there is a large fair
value Gap what we want to do is wait for price to trade below the midpoint of the fair value
Gap we also have Confluence of the previous highs as an additional level of support we
can enter long at that area with our stop just below the fair value Gap and our Target can be
a 1 to2 or a 1:3 risk reward board ratio for our second example we're going to turn those order
blocks back on and we're only going to be using the internal order blocks and Market structure
for this first thing we want is a trending Market whether it's up or down in this example we have a
bullish case indicated by our higher highs and again higher lows first we want to see a low
taken out this is logical because this is where liquidity is resting after our stop Hunt is over
we want to see an order block paint but we also want it to break structure so as we can see we
have a break of structure right above an order block now we want to wait for price to retrace
to this area we can either place a limit orders or we can wait for price to tap the area first
and enter based on reaction with a market order so now we can drop down to a lower time frame
and wait for this break of structure we can then enter on a newly created fair value gap or order
block with our stop loss below the most recent swing low and we can Target the local high by
now you should understand pretty much everything this indicator has to offer I do have a lot more
videos on Lux algo smart money Concepts and just trading in general so check them out for
more background information to get Lux algo look in the video description below for the
link to sign up and you'll get a discount using my code I hope you found this video helpful and
make sure to subscribe hit the like button and share this out to someone who might enjoy it
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