Are you trading in a bullish market using Smart Money Concepts (SMC) and finding it challenging to spot higher highs and higher lows in real-time? Don’t worry; you’re not alone. Many traders face this difficulty. In this article, we’ll break down how to identify higher highs and higher lows in a bullish market using simple language. Whether you’re a beginner or an experienced trader, understanding these concepts is key to making better trading decisions.
Before we dive in, if you’re new to Smart Money Concepts, it’s important to get familiar with some basic market structure ideas like Market Structure, Break of Structure (BOS), Change of Character (CHOCH), and Inducement.
Identifying Higher Highs in a Bullish Market
In a bullish market, prices generally make higher highs. However, not every high is a significant or “structural” high. To spot a valid higher high, you need to understand inducements. An inducement is a move in the market that tempts traders to take positions, often leading them into a trap set by larger market players.
To identify a valid higher high, first, find the inducement by looking for a price move that seems to lure traders into thinking the market will reverse. Then, wait for a swing high to form a peak before the price retraces. Watch for the inducement sweep, where the price retraces downward to “sweep” the inducement, taking out stop-loss orders and gathering liquidity. The last swing high formed before this inducement sweep is your valid higher high. When the price breaks above this higher high, it’s called a valid Break of Structure (BOS). Each time the market breaks structure to the upside, look for another inducement sweep to confirm the next higher high.
Identifying Higher Lows in a Bullish Market
Just like with highs, not every low in a bullish market is a valid higher low. To confirm a valid higher low, ensure you’ve identified a valid higher high using the steps above. After the inducement sweep and higher high confirmation, the price will form a swing low a temporary dip before rising again. If the price moves up from the swing low and breaks the previous high, this swing low becomes a valid higher low. Every time there’s a break of structure to the upside, look for a liquidity sweep where the price dips to collect orders before moving up again and then the next break of structure to confirm the higher low.
Identifying Structural Lows After a Bullish Change of Character (CHOCH)
A Change of Character (CHOCH) signals a shift in market trend, such as moving from bearish to bullish. To find the structural low after a bullish CHOCH, mark the last lower low made before the CHOCH. This point is crucial because it’s where the bearish trend ended and the bullish trend begins. Recognizing this structural low helps you understand where the new upward trend is starting from. After each Break of Structure (BOS) to the upside, look for an inducement sweep and another BOS to confirm new higher lows.
Identifying Structural Highs After a Bullish CHOCH
When the market changes from bearish to bullish, you’ll also need to identify the structural high. Start by identifying the inducement a price move that acts as a trap. Wait for a swing high to form after the inducement. Look for the inducement sweep, where the price may retrace to sweep the inducement. The last swing high before the inducement sweep is your structural high. As the bullish trend continues, the price is expected to rise and break previous highs, forming new higher highs. After each break of structure, look for another inducement sweep to confirm these higher highs.
Bringing It All Together
Understanding how to identify higher highs and higher lows in a bullish market helps you align your trades with the market’s direction. By paying attention to inducements, swing highs and lows, and breaks of structure, you can make smarter trading decisions. Remember, practice makes perfect. The more you apply these concepts, the better you’ll get at spotting them in live markets.
Frequently Asked Questions (FAQs)
An inducement in trading is a price move designed to lure traders into taking positions that may not align with the larger market trend. It’s often a trap set by big players to gather liquidity. Understanding inducements is crucial because it helps you avoid false signals and align your trades with the smart money. By identifying inducements, you can better spot valid higher highs and higher lows in a bullish market.
A Change of Character (CHOCH) indicates a shift in market sentiment, such as moving from a bearish trend to a bullish one. It’s significant because it marks the point where the previous trend ends and a new one begins. Recognizing a CHOCH helps traders adjust their strategies to align with the new trend, making it easier to identify structural highs and lows that are relevant for future price movements.
Not every high or low is a structural point because only specific highs and lows meet certain criteria that make them significant. Structural highs and lows are confirmed through patterns like inducement sweeps and breaks of structure. These points are important because they reflect genuine shifts in market momentum, unlike random price fluctuations that may not indicate a true trend.
A liquidity sweep occurs when the price moves to trigger stop-loss orders or capture pending orders, collecting liquidity before moving in the intended direction. In confirming higher lows, a liquidity sweep helps validate that a swing low is significant. When the price dips to sweep liquidity and then rises to break the previous high, it confirms that the low is a valid higher low in a bullish market.
To apply these concepts, practice identifying inducements by looking for price moves that seem to trap traders. Monitor swing highs and lows, paying attention to their formation after inducements. Watch for breaks of structure to confirm that the price breaks previous highs or lows to validate trends. Be patient and wait for all the confirming signals before entering a trade. By incorporating these steps into your trading routine, you’ll be better equipped to identify true market trends and make informed trading decisions.
