Learn Smart Money Concepts (SMC): market structure, order blocks, fair value gaps, liquidity sweeps, and session kill zones — and how Diplyzer automates institutional-grade SMC analysis.
Smart Money Concepts (SMC) is a modern framework for reading market structure the way institutional traders — hedge funds, banks, and proprietary trading firms — actually move markets. It shifts the focus from lagging indicators to the actual footprints that large players leave in the price chart.
While retail traders are drawing trend lines and watching RSI, institutional desks are executing massive orders that create specific, identifiable patterns in price data. SMC teaches you to recognize those patterns — and Diplyzer automates the detection for you.
The Core Insight Behind Smart Money Concepts
Every price move in the market is driven by liquidity. Large institutions cannot simply click "buy 1,000,000 shares" at the market price — the act of buying that volume would move the price against them dramatically. Instead, they must hunt for liquidity: clusters of resting orders where they can fill their positions without causing excessive slippage.
The price action you see on a chart is, in large part, institutions hunting liquidity pools and engineering price movement to fill their positions at optimal levels.
SMC gives you the framework to identify:
Where institutions are likely building positions (Order Blocks)
Where unfilled orders are acting as magnets (Fair Value Gaps)
Where stop losses are pooled (Liquidity Zones)
When the market structure has genuinely shifted (BOS and CHOCH)
Market Structure: The Foundation
Before any SMC analysis, you must understand the market's current structural state. Price does not move randomly — it moves in structured waves of impulsive moves and corrective retracements.
Swing Highs and Swing Lows
The basic unit of market structure is the swing point — a local peak (swing high) or local trough (swing low). Structural analysis reads the sequence of these swing points to determine trend direction.
Uptrend structure: Successive higher swing highs AND higher swing lows
Downtrend structure: Successive lower swing highs AND lower swing lows
Ranging / Consolidation: Swing highs and lows are roughly equal — the market is in equilibrium
A Break of Structure (BOS) occurs when price breaks beyond a previous significant swing point in the direction of the current trend.
In an uptrend: Price breaks above a previous swing high → Bullish BOS (trend continuation confirmed)
In a downtrend: Price breaks below a previous swing low → Bearish BOS (trend continuation confirmed)
A BOS tells you the trend is intact. The broken structure level often becomes a future support or resistance level.
Change of Character (CHOCH)
A Change of Character (CHOCH) is a BOS that goes against the current trend — the first signal that the market may be shifting direction.
In an uptrend: Price breaks a swing low for the first time → Bearish CHOCH (potential reversal beginning)
In a downtrend: Price breaks a swing high for the first time → Bullish CHOCH (potential reversal beginning)
A CHOCH is an early warning signal. It does not guarantee a reversal, but it tells you to start watching for one. Combine with other SMC elements for confirmation.
Ask Diplyzer:
AI Prompt
"Show me all Break of Structure (BOS) and Change of Character (CHOCH) events on [ticker] over the last 3 months on the 4-hour chart."
An Order Block (OB) is the last opposing candle before a significant impulsive price move. It represents the zone where institutional orders were placed — the exact level where smart money entered their positions.
How Order Blocks Form
When institutions place large buy orders, they do it in a controlled way:
Price moves sideways or slightly bearish (institutions accumulate quietly)
A sharp bullish impulse move launches from this area (institutional orders fully filled, price launches)
The last bearish candle before that launch becomes the Bullish Order Block — a potential support zone if price returns
The same logic applies in reverse for Bearish Order Blocks — the last bullish candle before a sharp bearish impulse.
Why Order Blocks Matter
Order blocks often act as magnets — price tends to return to them to "fill" remaining institutional orders (a process called mitigation). When price returns to an unmitigated order block, it frequently bounces sharply as those institutional orders re-engage.
Mitigated vs. Unmitigated Order Blocks
Unmitigated OB — Price has not yet returned to the order block zone. High potential for a reaction if/when price returns.
Mitigated OB — Price has already returned to and filled the zone. Less likely to act as a strong support/resistance in the future.
Ask Diplyzer:
AI Prompt
"Identify all unmitigated bullish order blocks on [ticker] on the daily chart. Which are closest to current price?"
A Fair Value Gap (FVG) — also called an imbalance or liquidity void — is a gap in price caused by a three-candle formation where the market moved so aggressively that trading was "skipped" between the high of the first candle and the low of the third candle.
What Creates a Fair Value Gap
FVGs form during strong impulsive moves. When price moves rapidly in one direction, it leaves behind zones where buyers and sellers never had a chance to trade at equilibrium. The market "owes" a revisit to these zones.
Bullish FVG — The candle high of the first candle does not overlap with the candle low of the third candle (gap above). Forms during bullish impulses. Acts as a support zone on retracements.
Bearish FVG — The candle low of the first candle does not overlap with the candle high of the third candle (gap below). Forms during bearish impulses. Acts as a resistance zone on pullbacks.
Trading Fair Value Gaps
FVGs are high-probability entry zones for traders aligned with the overall trend:
Wait for a bullish impulse to create an FVG
Wait for price to retrace back into the FVG zone
Look for confirmation (bullish candlestick patterns, RSI turning up)
Enter long with stop below the FVG
Ask Diplyzer:
AI Prompt
"Find all active, unfilled Fair Value Gaps on [ticker] on the daily chart. Are any near current price?"
Liquidity Zones are areas where large numbers of stop-loss orders from retail traders are likely concentrated. Institutional traders know where these stops are — and they engineer price to reach them before reversing.
Equal Highs and Equal Lows
The most common liquidity pools form at:
Equal Highs — Two or more swing highs at roughly the same price level. Retail traders who sold at resistance placed their stop losses just above these levels. Institutions sweep above to trigger those stops (buying from the stop-outs) before reversing downward.
Equal Lows — Two or more swing lows at roughly the same price level. Retail longs placed stops just below. Institutions sweep below to trigger those stops (selling to the stop-out buyers) before reversing upward.
This "stop hunt" phenomenon — liquidity sweep — is one of the most reliable setups in the SMC framework.
Identifying a Liquidity Sweep
A liquidity sweep has three components:
Price briefly breaks beyond a liquidity pool (equal highs/lows)
Price quickly reverses back within the prior range
The reversal is accompanied by a strong bearish/bullish candle or pattern
Ask Diplyzer:
AI Prompt
"Identify all equal high and equal low liquidity zones on [ticker] over the last 3 months. Have any been swept recently?"
Global financial markets are driven by the major trading sessions — and within those sessions, there are specific windows called Kill Zones where institutional traders are most active and the highest-probability moves tend to occur.
The Four Major Kill Zones
Session
Kill Zone
Characteristics
Asian Session
20:00 – 00:00 UTC
Lower liquidity; sets the range for London to trade against
London Open
02:00 – 05:00 UTC
Major institutional activity begins; often breaks Asian session highs/lows
New York Open
07:00 – 10:00 UTC
The highest liquidity window; major reversals and continuations occur here
London Close
10:00 – 12:00 UTC
London institutions close their books; can cause sharp counter-moves
Why Kill Zones Matter for SMC
During kill zones, institutions execute their largest orders. This is when:
Liquidity sweeps are most common (stop hunts at session highs/lows)
New bullish or bearish order blocks are created
BOS and CHOCH events carry the most significance
Fair value gaps formed during kill zones tend to have higher fill rates
Ask Diplyzer:
AI Prompt
"Show me the London Open Kill Zone and New York Kill Zone on a 1-hour chart of EURUSD for the last 2 weeks. Mark where price reversed within each window."
In SMC, every impulsive move from a swing low to a swing high (or vice versa) creates a pricing range. Within this range, traders use the Premium/Discount model to identify where price offers optimal trade entry:
Premium Zone (above 50% of the range) — Price is expensive relative to the recent range. Smart money sells premium.
Discount Zone (below 50% of the range) — Price is cheap relative to the recent range. Smart money buys discount.
The ideal SMC trade: look for bullish setups in the discount zone of a bullish structure, and bearish setups in the premium zone of a bearish structure.
Ask Diplyzer:
AI Prompt
"Show me the current retracement on [ticker] from the last major swing low to swing high. Is price currently in the premium or discount zone?"
Here is how professional SMC traders stack their confluences before entering a trade:
Market Structure — Identify the higher timeframe trend (BOS direction on daily/weekly chart)
Premium/Discount Zone — Confirm price is retracing into the discount (for longs) or premium (for shorts)
Unmitigated Order Block — Look for a bullish OB in the discount zone
Fair Value Gap — Look for an FVG within or near the OB zone
Liquidity Sweep — Wait for a brief stop hunt below an equal low before the bullish reversal
Kill Zone — Time the entry to occur within a London or New York session kill zone
Confirmation — A bullish engulfing or morning star pattern on a lower timeframe to confirm entry
This is what professional prop traders call a confluence trade — every element independently signals the same outcome, dramatically increasing the probability of success.
Ask Diplyzer for a full SMC analysis:
AI Prompt
"Give me a complete Smart Money Concepts analysis on [ticker] on the daily chart. Include swing structure, BOS/CHOCH events, active order blocks, fair value gaps, and liquidity zones. Highlight anything near current price."
SMC was originally developed in the context of forex markets, which are heavily driven by institutional order flow. Session kill zones are particularly important in forex — especially London and New York open overlaps.
AI Prompt
"Run a full SMC analysis on GBPUSD on the 4-hour chart. Include order blocks, FVGs, and session kill zones."
Institutional accumulation and distribution in individual stocks creates classic SMC patterns. Order blocks near earnings report dates are particularly significant.
AI Prompt
"Identify any unmitigated order blocks on TSLA (Tesla) that formed in the 30 days following its last earnings report."
The 24/7 nature of crypto markets means traditional kill zones apply differently, but the core SMC principles hold. Liquidity sweeps at key levels are extremely common in crypto due to high leverage concentration.
AI Prompt
"Show me all liquidity sweeps on Bitcoin in the last month on the 4-hour chart. What happened after each sweep?"
Is SMC just another name for market structure trading? SMC is a specific framework within the broader category of market structure and price action trading. It synthesizes concepts from Inner Circle Trader (ICT) methodology, Wyckoff theory, and institutional order flow analysis into a cohesive system.
How does SMC differ from traditional support/resistance? Traditional support/resistance is based on historical price levels. SMC focuses on why those levels exist — specifically, the institutional order flow mechanics that create them. SMC adds the dimension of order blocks, FVGs, liquidity, and session timing, making the analysis more precise.
What timeframes work best for SMC? SMC analysis typically uses a top-down approach: monthly/weekly for overall bias, daily for swing structure, 4-hour for setup identification, and 1-hour or 15-minute for precise entry timing.
Experience Automated SMC Analysis
Diplyzer is the only conversational AI agent that automates full Smart Money Concepts analysis across any asset and timeframe — no manual line drawing, no indicator configuration, no complex scripting.
Ask Diplyzer:
AI Prompt
"Complete SMC breakdown on [your favorite ticker] — swing structure, BOS/CHOCH, order blocks, FVGs, and liquidity zones."