Building an SMC Trade Setup from Scratch | Diplyzer Learning Center

This tutorial walks through building a complete SMC trade setup from the higher timeframe bias all the way down to the precise entry candle — the same top-down process that professional prop traders use daily.

The Top-Down SMC Framework

Professional SMC traders never start on the entry timeframe. They always start at the top and work down, aligning direction across timeframes before zooming in for precision:

Weekly/Daily → Structural bias (is the higher timeframe bullish or bearish?)
Daily/4-Hour → Find the key SMC levels (OBs, FVGs, liquidity zones)
1-Hour/15-Minute → Time the entry (kill zones, confirmation patterns)

Let's walk through this for EURUSD on a swing trade basis (same methodology applies to stocks, crypto, or any liquid market).

Step 1: Establish the Higher Timeframe Bias

Start on the weekly chart to understand the macro structure:

AI Prompt

"Show me the weekly chart structure for EURUSD over the last 6 months. Is the market making higher highs and higher lows (bullish), lower highs and lower lows (bearish), or ranging? Mark the most recent BOS and CHOCH events."

Run Prompt

Then drop to the daily chart to find the more immediate trend:

AI Prompt

"Show me the daily chart structure for EURUSD over the last 3 months. What is the current swing structure? Are the daily BOS events aligned with the weekly bias?"

Run Prompt

Decision point: If weekly is bullish and daily is bullish → Look for long setups only. If they conflict → Wait for alignment or trade very small. The best trades occur when all timeframes are aligned.

Step 2: Identify the Key SMC Levels

With the bias established, find the institutional levels on the daily chart:

AI Prompt

"On the EURUSD daily chart, identify: (1) all unmitigated bullish order blocks within the current discount zone (below the 50% retracement of the last major swing), (2) any fair value gaps that have not been filled yet within that same zone, and (3) any equal low liquidity (sell-side liquidity) that price might sweep before reversing upward."

Run Prompt

This gives you the "map" — you know:

Where price is likely to find institutional support (OBs and FVGs in the discount zone)
What the market may do before getting there (sweep the equal lows)

Step 3: Define Your Trade Levels

From the key SMC levels identified, define the specific trade parameters:

Entry Zone: The unmitigated OB and/or FVG in the discount zone — this is where you will look for the entry

Stop Loss: Below the OB low (for a bullish setup). The stop goes below the entire OB zone, not just below the FVG.

Target 1: The nearest buy-side liquidity level above — the equal highs or prior swing high that represents the nearest institutional profit target

Target 2: The higher structural high — if you are swing trading, where is the next major resistance in the higher timeframe structure?

Risk-Reward: The trade should offer at minimum 1:2 risk-reward (risk 1 to potentially make 2). SMC setups from confirmed OBs often provide 1:3, 1:4, or greater.

Step 4: Drop to the Entry Timeframe

Once price is approaching your daily OB zone, drop to the 4-hour chart for setup confirmation:

AI Prompt

"On EURUSD's 4-hour chart, is price currently at or approaching the daily bullish order block? Are there any 4-hour order blocks or FVGs within the daily OB zone that provide a more precise entry?"

Run Prompt

Then drop further to the 1-hour chart for entry timing:

AI Prompt

"On the EURUSD 1-hour chart, is price approaching the entry zone during a Kill Zone window (London Open 07:00-09:00 UTC or New York Open 12:00-14:00 UTC)? Is there a bullish SMC signal forming — a sweep of a 1-hour equal low followed by a reversal?"

Run Prompt

Step 5: Wait for the Confirmation Signal

Never enter blindly into an OB or FVG — wait for price to show you that the level is being respected:

Bullish confirmation signals (enter on the completion of one of these at your entry zone):

Bullish Engulfing: A bearish candle followed by a larger bullish candle engulfing it
Hammer: Strong lower wick rejection with small body near the top
Sweep and reverse: Price briefly breaks below the entry zone (sweeping the SSL), then returns above it with a bullish close

Entry mechanics:

Enter on the close of the confirmation candle (or the open of the next candle if conservative)
Stop below the low of the sweep/confirmation candle
Target the defined levels from Step 3

AI Prompt

"Has there been a liquidity sweep below the equal lows at [price level] on the EURUSD 1-hour chart? Did price close back above that level? Is there a bullish confirmation candle forming?"

Run Prompt

The Complete SMC Setup Request

Once you are comfortable with each step, compress the entire analysis:

AI Prompt

"Full top-down SMC analysis for EURUSD: (1) weekly and daily structural bias with BOS/CHOCH events, (2) all unmitigated bullish OBs and unfilled FVGs in the discount zone on the daily chart, (3) equal low liquidity zones that may be swept, (4) 4-hour structure near the daily entry zone, and (5) any 1-hour kill zone setups currently forming. I'm looking for a bullish swing trade entry."

Run Prompt

Adapting This Framework for Stocks and Crypto

For individual stocks:

AI Prompt

"Top-down SMC analysis for [stock]: daily chart structural bias, unmitigated order blocks in the discount zone, unfilled FVGs, and liquidity zones. Is there a high-probability long setup forming near any of these levels?"

Run Prompt

For crypto (24/7 markets):

AI Prompt

"Full SMC breakdown on Bitcoin on the daily and 4-hour charts: structural bias, active OBs, FVGs, recent liquidity sweeps, and any emerging kill zone setups during the New York session hours."

Run Prompt