How To Trade Smart Money Concepts | LuxAlgo

Summary

The 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

00:00

📈 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.

05:07

🚀 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.

Keywords

💡Price Action

Price action is a trading methodology that relies on the analysis of historical price movements to predict future price action. It is the core focus of the video, as it discusses an indicator that simplifies the process by identifying market structure, fair value, gaps, and order blocks. The video emphasizes that by understanding price action, traders can make more informed decisions without relying on additional indicators.

💡Market Structure

Market structure in trading refers to the arrangement of price movements that form patterns over time. In the video, it is highlighted by 'B' and 'CH', which stand for 'Break of Structure' and 'Change of Character', respectively. These terms are used to identify significant shifts in the market that can indicate potential trading opportunities. The video explains that changes in market structure can signal important entry and exit points for trades.

💡Order Blocks

Order blocks are areas on a price chart where there is a high concentration of buying or selling activity, often resulting in support or resistance levels. The video mentions two types: internal and swing order blocks, with the latter being more significant and indicative of higher time frame trading opportunities. These blocks help traders identify potential entry points for trades based on historical trading ranges.

💡Fair Value Gaps

Fair value gaps are price levels on a chart where there is an imbalance between supply and demand, typically represented by a cluster of three candlesticks. The video describes them as critical tools for trading, with bullish gaps marked in green to indicate support and bearish gaps in red to signal resistance. These gaps can act as magnets for price, suggesting that the market is likely to gravitate towards these levels.

💡Liquidity

Liquidity in the context of trading refers to the ease with which an asset can be bought or sold without affecting its price. The video discusses how areas of high liquidity, such as equal highs and lows, can be significant for trading as they often coincide with large amounts of stop losses, which can lead to price movements. Traders can use these areas to anticipate potential market reactions.

💡Mid Time Frame (MTF) Levels

MTF levels are trading reference points that represent previous highs and lows on higher time frames such as daily, weekly, and monthly. The video suggests that these levels can provide valuable trading opportunities as they indicate areas of liquidity and are less prone to manipulation, thus offering higher confidence for traders.

💡Premium and Discount Zones

These zones are used to mark the local range of the market and are divided by an equilibrium point. The video explains that premium zones are considered expensive, while discount zones are viewed as undervalued. For higher probability trades, the strategy is to sell in premium zones and buy in discount zones. This concept helps traders to identify overbought or oversold conditions in the market.

💡Swing Points

Swing points are significant price levels that represent either the highest high or the lowest low within a specific time frame. The video mentions that enabling swing points on the indicator adds more labels to the chart, highlighting these key structural points. Traders use swing points to identify potential reversals or continuations of market trends.

💡Strong and Weak Highs/Lows

These terms describe specific points of market structure that meet certain criteria. A strong high is one that has surpassed the previous swing low, suggesting it is less likely to be broken, while a weak high fails to do so, making it a target for the price to surpass. Similarly, a strong low is one that has made a higher high, indicating strength, whereas a weak low has not, making it more likely to be targeted by price action. These concepts help traders gauge the strength of market structure.

💡Break of Structure

A break of structure occurs when a second swing high or low is broken, indicating a significant change in the market's direction. The video uses this term to describe a moment when the market moves past a previously established high or low, which can signal a new trend. This is a critical signal for traders as it may suggest a shift in market sentiment and potential trading opportunities.

💡Smart Money Concepts

Smart money concepts refer to trading strategies that focus on market structure, order blocks, and liquidity to identify high-probability trade setups. The video discusses how these concepts have become popular and how the featured indicator simplifies their application. By using smart money concepts, traders aim to align their trades with the perceived actions of institutional or professional traders.

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