SMC Trading Strategies
Lesson 1
Key Levels (IRL and ERL)
Discover which levels cause impulsive reactions in the chart.
Published by Trader Tips,
Published by Trader Tips,
Chapter 1
What are Key Levels?
Key Levels are where large amounts of Liquidity (unfilled orders) sit, which is why they are targeted by Smart Money in order to fill their large trades.
When a Key Level is hit, it usually creates a large reaction that can typically result in a reversal move.
The reactive moves made after a Key Level is hit is what we use for framing our trade setups.
Examples of Key Levels.
There are 2 types of Key Levels:
Swing Highs, Swing Lows and FVGs are all levels that can contain large amounts of Liquidity, which means they can all be Draw on Liquidity targets.
When price hits one of these sensitive levels, we usually see some sort of reaction move with a lot of volume.
However, it's important to understand that whilst the concept of Key Levels is fractal on all timeframes, meaning the logic is the same for every timeframe, we will always expect the mitigation of a higher timeframe Key Level to have a larger reactive move, compared to when a lower timeframe Key Level is hit.
For example, if a 4 Hour Swing High is hit, we can expect a bigger reaction move in price compared to if a 5 Minute Swing High was hit.
What are Key Levels?
Key Levels are where large amounts of Liquidity (unfilled orders) sit, which is why they are targeted by Smart Money in order to fill their large trades.
When a Key Level is hit, it usually creates a large reaction that can typically result in a reversal move.
The reactive moves made after a Key Level is hit is what we use for framing our trade setups.
Examples of Key Levels.
There are 2 types of Key Levels:
Swing Highs, Swing Lows and FVGs are all levels that can contain large amounts of Liquidity, which means they can all be Draw on Liquidity targets.
When price hits one of these sensitive levels, we usually see some sort of reaction move with a lot of volume.
However, it's important to understand that whilst the concept of Key Levels is fractal on all timeframes, meaning the logic is the same for every timeframe, we will always expect the mitigation of a higher timeframe Key Level to have a larger reactive move, compared to when a lower timeframe Key Level is hit.
For example, if a 4 Hour Swing High is hit, we can expect a bigger reaction move in price compared to if a 5 Minute Swing High was hit.
Chapter 2
Mitigated vs Unmitigated Key Levels
When a Key Level is touched for the first time, it is 'mitigated'. If the level hasn't been touched yet, it is 'unmitigated'.
'Mitigated' = Level has been hit.
'Unmitigated' = Level hasn't been hit.
We only consider unmitigated Key Levels as valid liquidity targets. When the level has been touched once, it becomes a mitigated Key Level and can no longer be considered a future Draw on Liquidity target.
Mitigated Swing Points vs Unmitigated Swing Points
Unmitigated Swing High (Untouched) vs Mitigated Swing High (Touched).
When a new Swing High or Swing Low is created, it is formed as an unmitigated Key Level.
At a later date, these unmitigated levels may be targeted as a Draw on Liquidity target.
When the level is touched for the first time, whether we see a large or a small reaction, it's considered mitigated and no longer acts as a Key Level that might potentially act as a Draw on Liquidity in the future.
So in simple terms, we only use a Swing High or Swing Low as a potential Draw on Liquidity target until it has been touched for the first time.
When the level has been touched, we consider the Liquidity Pool of unfilled orders absorbed.
Mitigated FVGs vs Unmitigated FVGs
Unmitigated FVG (Untouched) vs Mitigated FVG (Touched).
When a new FVG is created, it is formed as an unmitigated Key Level.
At a later date, these unmitigated FVGs may be targeted as a Draw on Liquidity.
When the FVG is touched for the first time, whether we see a large or a small reaction, it's considered mitigated and can no longer act as a Draw on Liquidity target in the future.
So in simple terms, we only use a FVG as a potential Draw on Liquidity target until it has been touched for the first time.
When the FVG has been touched, we consider the liquidity pool of unfilled orders absorbed.
Mitigated vs Unmitigated Key Levels
When a Key Level is touched for the first time, it is 'mitigated'. If the level hasn't been touched yet, it is 'unmitigated'.
'Mitigated' = Level has been hit.
'Unmitigated' = Level hasn't been hit.
We only consider unmitigated Key Levels as valid liquidity targets. When the level has been touched once, it becomes a mitigated Key Level and can no longer be considered a future Draw on Liquidity target.
Mitigated Swing Points vs Unmitigated Swing Points
Unmitigated Swing High (Untouched) vs Mitigated Swing High (Touched).
When a new Swing High or Swing Low is created, it is formed as an unmitigated Key Level.
At a later date, these unmitigated levels may be targeted as a Draw on Liquidity target.
When the level is touched for the first time, whether we see a large or a small reaction, it's considered mitigated and no longer acts as a Key Level that might potentially act as a Draw on Liquidity in the future.
So in simple terms, we only use a Swing High or Swing Low as a potential Draw on Liquidity target until it has been touched for the first time.
When the level has been touched, we consider the Liquidity Pool of unfilled orders absorbed.
Mitigated FVGs vs Unmitigated FVGs
Unmitigated FVG (Untouched) vs Mitigated FVG (Touched).
When a new FVG is created, it is formed as an unmitigated Key Level.
At a later date, these unmitigated FVGs may be targeted as a Draw on Liquidity.
When the FVG is touched for the first time, whether we see a large or a small reaction, it's considered mitigated and can no longer act as a Draw on Liquidity target in the future.
So in simple terms, we only use a FVG as a potential Draw on Liquidity target until it has been touched for the first time.
When the FVG has been touched, we consider the liquidity pool of unfilled orders absorbed.
Chapter 3
What happens after a Key Level is Mitigated?
After a Key Level is mitigated, price can do one of 2 things:
Create a Continuation move.
Create a Reversal move.
Continuation Moves
A continuation occurs when a Key Level is hit, but doesn't cause a new Swing High/Swing Low to form. Instead, price continues to expand further in the same direction.
Expansion Close after mitigating Swing High - Bullish Continuation Signal.
We use Expansion Candle formations as a way to confirm when the market is creating a continuation move past the Key Level.
A continuation suggests that the mitigated Key Level was not the Draw on Liquidity target for where smart money wanted the trending move to reverse. Instead, the real Draw on Liquidity target is a different Key Level further in the direction it is currently expanding in.
Reversal Moves
Reversal moves occur when price reacts from the Key Level and creates a new swing point.
Price hits the Key Level (Swing High) and pushes back down, forming a new Swing High - Bearish Reversal Signal.
We use the creation of a Swing High or a Swing Low as the confirmation for when a reversal move is occurring.
When a reversal occurs after a Key Level is mitigated, we use it as confirmation that the Key Level was the correct Draw on Liquidity target and the market has now transitioned into a new phase of price action, targeting a new Key Level as the Draw on Liquidity target.
What happens after a Key Level is Mitigated?
After a Key Level is mitigated, price can do one of 2 things:
Create a Continuation move.
Create a Reversal move.
Continuation Moves
A continuation occurs when a Key Level is hit, but doesn't cause a new Swing High/Swing Low to form. Instead, price continues to expand further in the same direction.
Expansion Close after mitigating Swing High - Bullish Continuation Signal.
We use Expansion Candle formations as a way to confirm when the market is creating a continuation move past the Key Level.
A continuation suggests that the mitigated Key Level was not the Draw on Liquidity target for where smart money wanted the trending move to reverse. Instead, the real Draw on Liquidity target is a different Key Level further in the direction it is currently expanding in.
Reversal Moves
Reversal moves occur when price reacts from the Key Level and creates a new swing point.
Price hits the Key Level (Swing High) and pushes back down, forming a new Swing High - Bearish Reversal Signal.
We use the creation of a Swing High or a Swing Low as the confirmation for when a reversal move is occurring.
When a reversal occurs after a Key Level is mitigated, we use it as confirmation that the Key Level was the correct Draw on Liquidity target and the market has now transitioned into a new phase of price action, targeting a new Key Level as the Draw on Liquidity target.
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