Smart Money Strategy Backtest: 68% Profit?
43sThe promise of a high win rate and profit percentage from a backtest, combined with the controversial smart money concept, triggers curiosity and debate among traders.
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This video presents a backtested trading strategy based on Smart Money Concepts (SMC) applied to the EUR/USD pair over three months. The strategy uses a two-step approach: first analyzing market direction and order blocks on the 1-hour timeframe, then waiting for a change of character (CHoCH) on lower timeframes to enter trades. The backtest, conducted with a $10,000 account and 2% risk per trade, yielded a 68% profit despite a modest win rate, with key advantages including simplicity, CHoCH as a filter, and trailing profits.
Chapters
[00:02]
Strategy Overview
The strategy is based on Smart Money Concepts, backtested on EUR/USD for three months using Soft4FX on MetaTrader 4. Initial account: $10,000, risk per trade: 2%. Trading hours: London open to New York close.
[00:53]
Step 1: Market Direction and Order Blocks
Analyze the 1-hour timeframe to identify market direction and high-potential order blocks. Example: demand in control, broken structure to upside with inefficiency, leaving a perfect order block demand zone with room to move higher before reaching higher timeframe supply zone.
[01:20]
Step 2: Entry with Change of Character
Wait for price to reach the order block, then look for a change of character (CHoCH) formation on lower timeframe as entry reason. If no CHoCH, no trade. Stop-loss placed below the swing low.
[01:51]
Entry Scenarios
Two scenarios: (1) If CHoCH creates an inefficiency/order block, place buy order a spread size above the order block with stop-loss below swing low. (2) If CHoCH does not create an order block, place buy order at the middle of 618-786 Fibonacci retracement levels.
[02:17]
Profit Taking: Trailing Stop
Trail profit by repositioning stop-loss below each new order block as market moves, until reaching higher timeframe supply zone. This allows capturing significant profits without pressure.
[03:02]
Advantages of the Strategy
1) Simple and easy to implement with minimal indicators. 2) Using CHoCH as entry reason avoids losses when market ignores order blocks. 3) Trailing profits captures large moves (once in 10 trades) for high risk-reward, though requires patience.
[04:15]
Backtest Results
Over three months on EUR/USD, the strategy achieved 68% profit despite a low win rate. The presenter notes that live trading results would likely be lower due to emotional factors.
The Smart Money Concept strategy, while having a low win rate, can yield substantial profits through trailing stops and disciplined entry using change of character. However, live trading performance may be lower due to psychological factors.
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Tutorial Checklist
1
00:53
Analyze 1-hour timeframe to determine market direction and mark high-potential order blocks.
2
01:20
Wait for price to reach the order block, then look for a change of character (CHoCH) on lower timeframe.
3
01:51
If CHoCH creates an inefficiency/order block, place buy order a spread size above the order block with stop-loss below swing low.
4
02:04
If CHoCH does not create an order block, place buy order at the middle of 618-786 Fibonacci retracement levels.
5
02:17
Trail profit by moving stop-loss below each new order block until reaching higher timeframe supply zone.
Study Flashcards (8)
What is the initial account size used in the backtest?
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What is the initial account size used in the backtest?
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$10,000
00:26
What risk per trade is used in the backtest?
easy
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What risk per trade is used in the backtest?
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2%
00:26
What time frame is used for analyzing market direction and order blocks?
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What time frame is used for analyzing market direction and order blocks?
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1-hour timeframe
00:53
What is the entry reason for a trade?
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What is the entry reason for a trade?
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A change of character (CHoCH) formation on lower timeframe after price reaches the order block.
01:20
What are the two scenarios for placing a buy order?
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What are the two scenarios for placing a buy order?
hard
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1) If CHoCH creates an inefficiency/order block, place order a spread size above the order block. 2) If not, place order at the middle of 618-786 Fibonacci retracement levels.
01:51
How is profit taken in this strategy?
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How is profit taken in this strategy?
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By trailing the stop-loss below each new order block until reaching the higher timeframe supply zone.
02:17
What was the total profit percentage after three months of backtesting?
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What was the total profit percentage after three months of backtesting?
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68%
04:27
Why might live trading results be lower than backtest results?
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Why might live trading results be lower than backtest results?
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Because of emotional factors involved in live trading.
04:27
💡 Key Takeaways
💡
Strategy Based on Smart Money Concepts
Core premise of the video: a trading strategy derived from institutional trading concepts.
00:02
🔧
Change of Character as Entry Filter
Key technique to avoid false breakouts and losing trades when order blocks fail.
01:20
🔧
Trailing Profits with Order Blocks
Innovative profit-taking method that captures large trends without fixed targets.
02:17
📊
68% Profit Despite Low Win Rate
Demonstrates that a low win rate strategy can still be profitable with proper risk management.
04:15Full Transcript
[00:02] test of my trading strategy which I created based on the smart money trading Concepts after spending hours for the back testing we came up with pros and cons and exciting results about the win rate
[00:14] of this trading strategy which I will explain in this video explain in this video for the back testing I use soft4fx on metatrader4 which is a Forex simulator with real data that allows you to trade
[00:26] on the past and conclude the results I used ten thousand dollars for the initial account size and two percent risk per trade I back tested this strategy for three months and only looked for trading
[00:39] opportunities from London open till the New York close so first let me explain the strategy I used with all of the rules and then I will show you the results I got this strategy has two steps
[00:53] in the first step I analyze the market Direction and Mark high potential order blocks for trading in the one-hour time frame for example here we can clearly see the demand is in control
[01:06] the market has broken the structure to the upside with inefficiency leaving a perfect order block demand Zone behind also we have enough room for the price to go higher before reaching the higher time frame Supply Zone
[01:20] in the second step I wait for the price to get to my order block and zoom into the trade after the price reaches the order block for the entry reason I want to see a change of character formation to
[01:35] over and the market can potentially start to move to the upside if we see no change of character then we will have no trade for executing the trade I want my stop-loss protected below the swing low
[01:51] but here are two scenarios when executing the orders if the change of character move creates an efficiency therefore an order block I will place my buying position a spread size above the order block with my stop
[02:04] loss being a couple of Pips below the swing low but if the change of character move does not create an order block I will place my buying position precisely in the middle of the 618 and 786 Fibonacci
[02:17] retracement levels and for taking profits I will track my profit meaning that every time Market makes a new order block I will reposition my stop below the order block until we reach our higher time frame
[02:30] Supply Zone this way you can achieve a significant profit without any pressure keep in mind that everything I mentioned applies to the bearish scenario to learn more about smart money trading
[02:44] strategies check the links added to the description now let's back test this trading strategy for three months on euro dollar strategy for three months on euro dollar and see how things will work
[03:02] testing we came up with some of the pros and cons of this trading strategy the first advantage of this trading strategy is that it is very simple and instead of having multiple lines drawn on your chart and considering multiple
[03:17] indicators and factors this strategy is easy to implement and you know exactly the chart the second advantage of this strategy is using the change of character concept as an entry reason which can save you from
[03:32] losses many times sometimes the market ignores the order blocks which happens when the other side is highly in control so a change of character in lower time frames entry reason is helpful to not
[03:46] enter the losing trades the third advantage of this strategy is tracking the profits we have noticed that once in 10 trades the market goes highly in our favor so by tracking the profits we could gain
[04:01] risked so this system for taking profits is better than having a solid one to two target or Etc but it requires more patience and time now let's see the results of back
[04:15] testing so this is the overall result that we got after back testing this strategy on euro dollar for three months we have realized that although the win rate of this
[04:27] strategy is not that high but we gain 68 profit but remember in my opinion this percentage will be much lower if you traded live because you have to deal with the emotions
[04:40] so guys I hope you found this video interesting and helpful please remember to like this video And subscribe to our Channel if you still need to also if you have any questions or suggestions for the following videos let
[04:55] us know in the comments see you in the next episode