Where this came from
Smart Money Concepts (SMC) has become extremely popular online over the past few years, especially in forex and crypto communities. Its lineage is usually traced to an American trading educator known as ICT (Inner Circle Trader), then reproduced, rewritten and packaged into courses many times over.
Position stated up front: the underlying observations have merit, but so does a fair amount of the packaging. This article explains the concepts and the criticisms. Judge for yourself.
The core assumption
SMC starts from a premise: price is driven by large capital — institutions and market makers — and large capital has a structural problem. Their orders are too big for the available counterparties.
Imagine buying ten thousand lots of a stock. Send it as a market order and you'll push price to a level you no longer want to pay. So large capital has to manufacture liquidity: push price down into the zone where it wants to buy, trigger retail stop-losses and panic selling, and absorb those sell orders as its own fills.
From this premise SMC derives a claim: certain marks left on the chart reveal where large capital acted and what it paid.
Is the premise reasonable? Partly. Large orders genuinely do need liquidity — that's basic market microstructure. But the step from there to "therefore this specific candle is an institution's cost basis" is a much longer leap.
One: Market Structure
This is the soundest of the three.
The definition is simple:
- Uptrend structure: each swing high is higher than the last, and each pullback low is also higher than the last
- Downtrend structure: each swing low is lower, and each bounce high is lower
BOS (Break of Structure): in an uptrend, price takes out the prior high — confirmation the trend is continuing.
MSS / CHoCH (Market Structure Shift / Change of Character): this is the important one. In an uptrend, price fails to make a higher high and then breaks the prior low — the first sign the trend may be turning.
Why this one holds up
Because it isn't new. This is the definition of a trend Dow Theory gave over a century ago, under different names. Changes in the pattern of swing highs and lows underlie every trend-following method there is.
How it relates to moving averages
MA alignment, as covered in the moving-average article, describes the same thing from another angle:
- Bullish MA alignment ≈ uptrend structure intact
- Alignment shifting from bullish through convergence to bearish ≈ structure changing
The difference: structure reads swing highs and lows — fast to react but subjective (what counts as a "swing" varies by observer). Moving averages compute an average — slower but objective, with no room for two answers.
This tool uses MA alignment precisely because it has to screen hundreds of stocks automatically.
Two: Order Block
Definition: the last opposing candle before an impulsive move.
- Bullish order block: the range of the last down candle before a strong rally
- Bearish order block: the range of the last up candle before a sharp decline
The claimed mechanism: that opposing candle is where institutions quietly built a position. Their orders weren't entirely filled, so when price returns to that zone the remaining orders re-engage and create support or resistance.
Is that credible?
The "institutions have unfilled orders there" part is unverifiable — nobody can see anyone else's resting orders. It's a story, not a fact.
But the zone often does act as support or resistance, and the reason may be far less mysterious:
Inside that opposing candle, a group of people entered at those prices and immediately watched price run the other way, trapping them. When price returns, they want out at breakeven. That's trapped supply — exactly the logic behind waiting for the bounce candle after a breakdown described in the shorting article.
Put differently: "Order Block" sounds arcane, but the phenomenon it describes is explained by trapped cost basis, without needing to assume invisible institutional orders.
How it relates to this tool
Pullback entries does something conceptually similar: find stocks that have returned to a zone representing a group's average cost. The difference is that we define the zone with a moving average, because that can be computed, whereas an order block has to be identified by eye on a chart.
Three: Fair Value Gap
Definition: across three consecutive candles, the first candle's high and the third candle's low do not overlap, leaving a portion of the middle candle's range as a gap.
The claimed mechanism: price moved so fast through that range that one side found no counterparty, creating an imbalance. The market tends to return and fill it, rebalancing the auction.
What is this really?
It's gap theory. Taiwanese technical analysis books have covered it for decades — common gaps, breakaway gaps, runaway gaps, exhaustion gaps, and the old line that gaps always get filled.
FVG is the same phenomenon under a new name, defined a little more precisely (via the overlap relationship across three candles rather than a simple opening gap).
Do gaps get filled?
Statistically, most gaps do get filled — but "most" isn't "always," and there's no answer for "within what time frame." A gap might fill in three days or in three years. If your position can't survive until then, the statistic doesn't help you.
What's different about Taiwan
Taiwan has a ±10% daily price limit and no 24-hour trading. Two consequences:
- Intraday imbalances are rarer — limit up and limit down cap how far price can travel unopposed, unlike forex
- Opening gaps are very common — overnight US moves and global news all land at the open
So on Taiwan daily bars, most of what looks like a gap is an opening gap, which is a different animal from a liquidity imbalance in a 24-hour market. It reflects an information gap, not an execution one.
How the three combine
The typical SMC workflow runs roughly like this:
- Read market structure direction on a higher timeframe (daily, 4-hour)
- Wait for an MSS confirming the direction may have changed
- Look back for the order block that produced the move
- Wait for price to return to that order block, often coinciding with an FVG
- Find an entry trigger on a lower timeframe, with the stop beyond the order block
The logic is internally consistent: confirm direction, wait for a retracement to a location with a rationale, place the stop where the idea is proven wrong.
Honestly, the skeleton isn't fundamentally different from many conventional approaches — confirm trend, wait for a pullback, enter at support or resistance, stop beyond the invalidation point. The difference is terminology and the granularity of the reading.
Does it work in Taiwan?
What transfers
- Market structure transfers completely, and maps onto MA alignment
- Trapped cost zones — whatever you call them — work in Taiwan too
- Gap analysis has a long history here
What doesn't
- It needs intraday data. The full workflow requires a lower timeframe for entries, which means intraday bars. This tool has closing data only and can't do that.
- Taiwan doesn't trade 24 hours. Much SMC teaching rests on concepts like liquidity sweeps and Asian-session highs and lows — features of the forex market with no Taiwan equivalent.
- Short-selling constraints. Margin shorting has collateral requirements, maintenance ratios, forced buy-ins, and possible regulatory restrictions. SMC's assumption of symmetry between long and short doesn't hold here.
What you can do with this tool
If you want to apply this thinking to Taiwan swing trading, a practical division of labour:
Use this tool for selection and direction:
- The MA alignment column in the screener is the objective version of market structure. Strict bullish → convergence → bearish *is* structure changing
- The Market Barometer confirms overall direction, matching SMC's "read the higher timeframe first"
- Pullback entries surfaces stocks back near a moving average, conceptually close to a return to an order block
Use your charting platform for entries:
Once you have candidates, open the daily chart yourself — look for obvious trapped zones, gaps, and candle structure. That part needs human judgement; the tool can't do it.
The honest part: what this method is criticised for
These criticisms belong here, because most SMC content online presents only the favourable side.
One: drawing lines in hindsight. Any chart contains dozens of formations matching the definition of an order block or FVG. Looking back, you only notice the ones that "worked" — the ones that didn't, you never marked. That's textbook survivorship bias, the same problem raised in the CAN SLIM article.
Two: it isn't falsifiable. When price doesn't reverse at an order block, the standard explanation is that it wasn't a valid order block, or that you should look at a higher timeframe. A method that always has an explanation cannot be tested. That's its greatest distance from anything scientific.
Three: no public quantitative validation. You can find endless SMC tutorials and winning screenshots, and very few rigorous backtests — explicit entry and exit rules, a full sample period, losing trades included. Methods that genuinely work usually survive that kind of examination.
Four: the terminology problem. Calling trapped supply an "order block" and an opening gap a "fair value gap" adds no information, but it does create a sense of possessing insider knowledge. That sense is frequently the basis on which courses and communities monetise.
Five: the "smart money" premise itself. Institutions exist and large orders do need liquidity, but the narrative of institutions coordinating to hunt retail stops anthropomorphises the market too far. Markets contain many participants with different objectives and horizons, competing with each other as much as with you.
So should you learn it?
My view: the concepts are worth understanding; the narrative doesn't need to be swallowed whole.
Worth keeping: the way it reads market structure, the sensitivity to trapped zones, the attention to gaps, and the discipline of confirming direction before waiting for a retracement. Those are good things — and SMC didn't invent them, it repackaged them.
Worth keeping at a distance: the worldview in which institutions are personally against you, and any explanation that can't be tested. If a method always has an excuse when it fails, its evidence when it succeeds isn't worth much either.
The most practical advice: whatever vocabulary you use, write down your rules, log every trade, and compute your hit rate and win/loss ratio. That's what saves you — not the terminology.
Who it's for
If you already trade swings and have your own judgement, SMC's market-structure reading works as a supplementary lens.
If you're new, learn moving averages, volume and sector behaviour properly first. The reason is straightforward: telling a valid order block from an invalid one requires a great deal of chart experience, and that experience only accumulates through the fundamentals.
The moving-average article and the CAN SLIM article are more useful starting points.
Use this tool in line with your own investing experience.
Nothing here constitutes investment advice.