Price action and smart money concepts

Price action traders read the chart itself (swing highs and lows, where big moves started, where orders are likely waiting) rather than indicators. “Smart money concepts” (SMC) is a popular vocabulary for this, built around the idea that large players leave footprints. Here’s what the terms mean, and how FreeCharting’s free Price Action indicator marks them.

Market structure

An uptrend makes higher highs (HH) and higher lows (HL); a downtrend makes lower highs and lower lows. A swing high is a peak with lower highs on both sides; FreeCharting confirms one only after a set number of bars on each side (the swing length), so the swings don’t repaint.

Break of structure (BOS) and change of character (CHoCH)

A BOS is a close beyond the last swing in the direction of the trend: in an uptrend, a close above the last swing high. It says the trend is still working. A CHoCH is the first close beyond a swing against the trend, such as a close below the last higher low in an uptrend. It’s the earliest sign that control may be changing hands. In the diagram, two BOS lines confirm the uptrend before the CHoCH breaks it.

Order blocks

An order block is the last opposite-coloured candle before a move that broke structure: the last red candle before a rally, or the last green one before a drop. The idea is that large orders were filled there, and price often reacts when it comes back to that zone. FreeCharting draws each order block as a box extending to the right, and removes it once price closes through it (it’s “used up”).

Fair value gaps (FVG)

A fair value gap is a three-candle imbalance: the middle candle moved so fast that the first candle’s high and the third candle’s low don’t overlap. Little trading happened in that gap, so price often returns to “fill” it. FreeCharting ignores tiny gaps (smaller than a quarter of the average candle range) and removes each gap once price trades all the way through it.

Liquidity and sweeps

Stop orders cluster just beyond obvious highs and lows. A liquidity sweep is a wick that pokes through a swing high or low, triggers those stops, and closes back inside: the move grabbed the orders and reversed. FreeCharting marks sweeps with a small $ at the wick. A sweep followed by a CHoCH is a setup many price action traders look for.

Premium and discount

Take the current swing range, from the last swing low to the last swing high. The upper half is the premium zone and the lower half the discount zone, split by the 50% equilibrium line. The idea is simple: in an uptrend, prefer buying in discount rather than chasing price in premium. It’s the same logic as buying a 50% Fibonacci retracement.

Using the Price Action indicator

1. Open the chart, click Indicators and tick Price Action (BOS, CHoCH, order blocks, FVG).
2. Click the gear to adjust it: swing length (higher finds bigger, slower swings), how many order blocks to show on each side, and whether to show fair value gaps and premium/discount.
3. Hover any candle to see whether structure is bullish or bearish at that point.
4. Combine it with the Market tab’s liquidity heatmap to see real resting orders on crypto charts, and use a multi-chart layout to check structure on a higher timeframe.

Like any tool, these concepts describe what happened; they don’t promise what comes next. Practise with Bar replay before trading them with real money.

Frequently asked questions