Floor 6: The Model
What is the smart money entry model?
The smart money entry model is a fixed sequence of events that must occur in order before a trade is taken: a liquidity sweep, a change of character, a displacement that leaves a fair value gap, an entry when price returns to that gap, a stop beyond the sweep, and a target at the opposing liquidity pool.
How to spot it
Each concept on the earlier floors describes one thing on a chart. The model is the claim that they belong together in a particular order, and that a trade should only be considered when every step has happened. Its value as a teaching tool is that it turns a vague feeling about a chart into a checklist that is either complete or not.
Read as a story, it goes like this. Price runs through an obvious high or low and takes the orders resting there: the liquidity sweep. It then reverses hard enough for a candle to close beyond the last swing against the prior trend: the change of character. That reversal contains a displacement candle that leaves a fair value gap. Price drifts back into the gap, which is the entry. The stop sits beyond the extreme of the sweep, and the target is the pool on the other side, the draw on liquidity.
Because entry, stop and target are all prices fixed by the chart, the reward to risk of the trade is known before it is placed. So is the position size, once you decide how much to lose if the stop is hit. Variations exist, using an order block or the optimal trade entry zone as the entry, but the order of events is the same.
The rule ForexLens uses
The rule the game uses: five steps in order. One, a sweep of a liquidity pool. Two, a change of character by a body close. Three, a displacement that leaves a fair value gap. Four, entry at the near edge of the gap on the first candle that trades back into it, with the stop beyond the extreme of the sweep. Five, the target at the opposing liquidity pool. Reward to risk is computed from entry, stop and target.
Step by step
- Sweep: a wick trades beyond a resting pool, such as an old low or equal lows, and closes back inside.
- Change of character: a candle closes beyond the last confirmed swing against the prior trend.
- Displacement and gap: the move that broke structure includes a displacement candle and leaves a fair value gap.
- Entry: price trades back into the gap. The entry is at its near edge, and the stop goes beyond the extreme of the sweep.
- Target: the nearest opposing liquidity pool. Compute reward to risk and position size before entering.
- If any step is missing or out of order, there is no trade.
Worked example
The chart below is a seeded, simulated scenario from the Model Builder game containing one complete sequence. Try to find the five events in order before turning the Lens on: the pool that was taken, the close that changed structure, the gap, the candle that came back to it, and the pool on the far side.
With the Lens on, the swept pool, the sweep, the change of character, the fair value gap, the entry candle and the target pool are all marked. The walk-through under the chart gives the candle number of each step, the entry, stop and target prices, the stop and target distances in pips, and the reward to risk that follows from them. Check the order of the candle numbers: each step completes after the one before it.
Remember that this chart was built to contain a clean example. On live charts most sweeps are not followed by a change of character, most changes of character leave no tidy gap, and many gaps are never revisited. The checklist is incomplete far more often than it is complete.
USD/JPY, 15-minute candles, simulated
Reading the chart, step by step
- Sweep: candle 47 trades to 153.330, through the swing high at 153.262 (candle 37), and closes back inside.
- Change of character: candle 50 closes at 152.865, beyond 152.967. Structure has turned down.
- Displacement and gap: candles 49 to 51 leave a fair value gap from 152.869 to 153.151.
- Entry: candle 52 trades back into the gap. The entry is the gap's near edge, 152.869, short. The stop goes beyond the sweep at 153.330: 46.1 pips of risk.
- Target: the opposing pool at 151.982, 88.7 pips from entry. Reward to risk is 1.92 to 1. On this chart, which was built to contain the sequence, the target is reached. A real chart owes you nothing.
These numbers come from the generated chart above. Change the seed and the prices change; the rule does not.
Takeaway: The model is a checklist with a defined entry, stop and target, and its main lesson is how rarely every box is ticked.
Common mistakes
- Skipping a step. Entering on a sweep alone, or on a gap with no structure break before it, is not the model. Every missing step removes part of the reasoning the trade is supposed to rest on.
- Finding the steps out of order. A gap that formed before the sweep, or a structure break that came first, does not count. The sequence is the point, and hindsight makes it easy to assemble the pieces in any order.
- Tightening the stop to improve the ratio. Moving the stop inside the sweep makes the reward to risk look better and makes the stop far more likely to be hit. The stop belongs beyond the extreme of the sweep.
- Judging the model by one trade. A complete sequence can lose and an incomplete one can win. The Replay Desk game grades whether your written checklist was complete, never whether the simulated trade made money.
- Seeing complete models everywhere. If every chart seems to contain the full sequence, the definitions have become loose. Use the mechanical rule for each step, and expect to pass on most charts.
Does it work? An honest note
This is the question that matters most, and the honest answer is that nobody has published reliable, independent evidence that this sequence produces a positive expectancy after costs. The performance figures that circulate with it come from people who are selling courses or showing selected trades, and they do not count as evidence.
There are reasons the model feels convincing that have nothing to do with whether it works. Each step is easy to find after the move is over. Losing examples are rarely shared. Several steps involve judgement when they are not defined mechanically, so two traders can label the same chart differently and both claim the model. And a high reward to risk ratio says nothing on its own: a trade aiming for three times its risk needs to win only about one time in four to break even before costs, but nothing guarantees it wins that often.
What the model does give you is structure: a written entry rule, a stop that is defined before entry, a target, and a size. That makes your own results measurable, which is more than most discretionary trading offers. The Reality Lab game then shows how widely results spread among simulated traders using an identical model. For the full discussion see does SMC work: the evidence and the criticisms.
Questions people ask
What are the steps of the smart money entry model?
Five, in order: a liquidity sweep, a change of character, a displacement that leaves a fair value gap, an entry when price trades back into the gap with a stop beyond the sweep, and a target at the opposing liquidity pool. If a step is missing or the order is wrong, the model is not complete.
Where do the stop loss and take profit go in the model?
The stop goes beyond the extreme of the sweep: below the sweep low for a long, above the sweep high for a short. The target is the nearest opposing liquidity pool, for example the buy-side liquidity above a prior high for a long. Reward to risk is the target distance divided by the stop distance, both measured from the entry.
Which timeframe is best for the entry model?
The sequence can be found on any timeframe, and no timeframe has been shown to be best. A common approach takes direction from a higher timeframe and looks for the sequence on a lower one, which is covered in multi-timeframe alignment. Lower timeframes give more setups and proportionally higher costs from spread.
Is the smart money entry model profitable?
No one can honestly tell you that it is. There is no independent, published evidence of a durable edge, results depend heavily on how each step is defined and on costs, and most retail traders lose money whatever method they use. The model is best treated as a disciplined checklist for study and for measuring your own decisions.
How can I practise the entry model?
Start with the Model Builder game, which asks you to pin each of the five steps on its candle on a simulated chart. Then the Replay Desk plays a chart bar by bar and lets you take the trade only when your checklist is complete. Both use simulated prices and play money.
Practise it
Reading about a rule is not the same as applying it. These games generate a fresh chart each round, ask you to find it first, and grade you against the same rule.
Model Builder
Put the sequence in order: sweep, change of character, displacement and gap, entry, target.
Replay Desk
Bar-by-bar replay. Take the trade only when your written checklist is complete. Graded on process, never outcome.