Lesson 21: The Footprints of Smart Money (Order Blocks & Liquidity)

Part of Module 6: Advanced Strategy & Smart Money Concepts

Introduction: Following the "Smart Money"

"Smart Money" is a term for the major players who move the market: central banks, major commercial banks, and large investment funds. Their actions leave "footprints" on the chart. Our goal is to learn to spot these footprints and trade alongside them.

Liquidity: The Fuel of the Market

Before we can find the footprints, we need to understand what Smart Money is looking for: liquidity. Liquidity is areas on the chart where a large number of orders (especially stop-loss orders) are clustered, typically above old highs and below old lows.

Analogy: Fuel for the Rocket. Think of liquidity as pools of fuel. Before Smart Money can launch a big move up, they often need to first push the price down just enough to "grab" the fuel (trigger the stop losses below an old low). This action gives them the massive volume they need to fill their huge buy orders before launching the price in the true direction.

Order Blocks (OB): The Footprint of Smart Money

An Order Block is the clearest footprint Smart Money leaves behind. It's the specific zone where they accumulated their massive positions right before a big, market-moving push.

The definition is very precise: An Order Block is the last opposing candle before a strong, impulsive move that breaks structure (BOS).

  • A Bullish Order Block is the last bearish (red) candle before a strong upward move that creates a BOS. This is a zone where Smart Money placed huge buy orders.
  • A Bearish Order Block is the last bullish (green) candle before a strong downward move that creates a BOS. This is a zone where Smart Money placed huge sell orders.

Putting It All Together: A High-Probability Trade Idea

This knowledge gives us a powerful, repeatable trading model:

  1. First, identify the market trend and wait for a clear Break of Structure (BOS).
  2. Next, identify the Order Block (the last opposing candle) that caused that powerful move. Draw a zone around it.
  3. Then, be patient and wait for the price to pull back and retrace into your Order Block zone.
  4. This retest of the Order Block is a high-probability area to look for an entry, with the expectation that the big institutions will defend their position and continue the trend.
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