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Internal and External Liquidity in ICT

Internal and External Liquidity in ICT | Smart Money Concepts (SMC) Trading Introduction In the world of ICT (Inner Circle Trader) and Smart Money Concepts (SMC) trading , understanding liquidity is critical for anticipating market moves and aligning with institutional players. Two key types of liquidity every trader should understand are internal and external liquidity . This guide breaks down the difference between internal and external liquidity in ICT trading, why they matter, and how to use them to your advantage in your strategy. What Is Liquidity in ICT Trading? In ICT and SMC terminology, liquidity refers to areas in the market where orders are clustered — primarily stop-loss orders and pending buy/sell orders. These zones are attractive to smart money (institutions, banks, hedge funds) because they offer high-volume areas to execute large positions with minimal slippage. Liquidity is often hidden behind price action structures, and understanding where it's ...
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Fulcrum in Smart Money Concept

Fulcrum in Smart Money Concept: Unlocking the Key to Market Manipulation

Introduction

In the world of trading, Smart Money Concepts (SMC) has gained popularity for its institutional-based market approach. Central to this methodology is the fulcrum, a key zone where institutional traders—often referred to as "smart money"—accumulate or distribute positions before major price moves.

Understanding the fulcrum in Smart Money Concept can give retail traders a major edge, allowing them to align with institutional strategies and avoid retail traps.

What is the Fulcrum in Smart Money Concept?

In Smart Money Concepts, the fulcrum is a price level or zone where a significant shift in market structure occurs. It often marks a liquidity pool, order block, or breaker structure, signaling the intent of institutional players.

Think of the fulcrum as a pivot point—the area where smart money transitions from accumulation to markup, or from distribution to markdown.

Key Characteristics of a Fulcrum:

  • Appears near liquidity zones

  • Coincides with breaks of structure (BoS) or market structure shifts (MSS)

  • Often overlaps with order blocks or mitigation zones

  • Used by institutions to trap retail traders before moving price in the intended direction

Why is the Fulcrum Important in SMC Trading?

Identifying the fulcrum is crucial for entry precision and risk management. It helps traders:

  • Enter trades with institutional intent

  • Avoid false breakouts

  • Place stop-losses more strategically

  • Time entries near high-probability reversal zones

Example: How Institutions Use the Fulcrum

  1. Accumulate Liquidity below a support level

  2. Break Structure and create a false move to lure retail traders

  3. Return to the Fulcrum Zone (usually an order block)

  4. Execute the real move in the opposite direction

This behavior creates a market trap—and the fulcrum is the trapdoor.

How to Identify a Fulcrum Zone

To spot a fulcrum effectively:

  1. Look for Break of Structure (BoS): Identify where price invalidates the previous trend

  2. Mark the Last Down Candle Before Up Move (or vice versa): This often forms the order block

  3. Watch for Return to the Zone: This is where smart money mitigates positions

  4. Check Volume and Liquidity Pools: Confluence increases accuracy

Tools and Indicators to Use:

  • Volume Profile

  • Fair Value Gaps (FVG)

  • Order Block indicators

  • Market structure tools (BoS / CHoCH detection)

Trading Strategies Using the Fulcrum

1. Reversal Strategy:

  • Enter long or short at the fulcrum after confirmation (e.g., bullish engulfing)

  • Use tight stop-loss just below/above the zone

2. Continuation Strategy:

  • Wait for re-test of the fulcrum after a structure break

  • Enter on rejection with volume confirmation

3. Scalping the Fulcrum:

  • Use lower timeframes to identify micro-fulcrums for intraday trades

  • Focus on liquidity grabs around session opens

Common Mistakes When Trading the Fulcrum

  • Misidentifying zones that lack institutional relevance

  • Entering before confirmation (e.g., candle closes or volume spikes)

  • Ignoring higher-timeframe structure

Final Thoughts

The fulcrum in Smart Money Concept is more than just a level—it’s a psychological battleground where institutions play their hand. By understanding how to identify and trade around fulcrum zones, you can significantly enhance your market edge.

When combined with proper risk management and market structure analysis, the fulcrum becomes a powerful tool in aligning with institutional order flow.

FAQs

Q1: Is the fulcrum the same as an order block?
Not always. While many fulcrums form at order blocks, the fulcrum represents the intent behind the zone—it's where market momentum shifts.

Q2: Can I use the fulcrum on all timeframes?
Yes, but higher timeframes (H1, H4, Daily) are more reliable. Lower timeframes can be used for entries.

Q3: Does the fulcrum work in all markets?
It’s effective in forex, crypto, indices, and even stocks—any market with institutional involvement.


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