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SMC or smart money concepts is apparently is the strategy for big institutions such as banks, hedge funds, investment firms etc.
What I like about SMC strategies is that its very simple to understand and to execute on your trades.
For example SMC also integrates the laws of supply and demand in the markets, just like in the physical product and services markets.
And its simple to the point that you can even identify the supply and demand areas of an asset on a chart, displayed as two thick lines or “zones”, supply at the top, and demand at the bottom.
These two of course, being equivalent to the traditional technical analysis of support and resistance, where supply is resistance and demand is resistance.
To make it easier for me to convert the two in my head, I just think the opposite, so supply = resistance, demand = support
I’ve been looking into the methodologies of SMC and I must say, I find it that it makes sense when you see in the chart and how the price action agrees with smart money concepts ideas, more times than not, at least from my own backtests I’ve learned.
There are tons of information and videos online if you want to dig deeper on SMC, but in this post I want to share some initial results of a simple SMC strategy that I’ve been backtesting recently.
I’m also trying to tweak it and add more confluence to make it better, but for now, even at the basic strategy, the results are quite impressive as you will see and even you can go and backtest if you want…
Indicators needed: – we need 3 trading view indicators on the chart
- Q-Trend (tarasenko_)
- Smart money concepts (Lux Also)
- EMA 200
Rules for a buy trade
- Green CHOCH label must be printed
- The price must be above EMA 200
- Q-Trend must print a buy signal
- For my backtest, I set a fixed stop loss of 15 pips and take a profit of 30 pips, which gives it a risk reward of 1,2
Rules for a sell trade
- Red CHOCH label must be printed
- The price must be below EMA 200
- Q-Trend must print a sell signal
- For my backtest, I set a fixed stop loss of 15 pips and take a profit of 30 pips, which gives it a risk-reward of 1,2
– When green and red choc running parallel, do not place a trade.
– Do not take any trades after an extremely long candle.
– When green and red choc showing along with an EQL of the opposite colour, do not place a trade. ie red CHOCH with green EQL.
– Ignore the major green CHOCS at the top and at the bottom red CHOCS.
– Ignore signals where the signal is very close to the EMA line almost touching it.
– Choc has to be next to the Q trend buy/sell signal. If there is an opposite signal between Choch and signal then do not take the trade.
I backtested this strategy on a 15-minute chart with 20 trades.
As you can see from the initial results, the strategy looks promising.
It’s also simple to execute as there are only a few rules and doesn’t require much analysis.
I think it can also be improved by adding more confluence, perhaps a volume indicator to start with.