Recently, I’ve been digging deeper into the order flow system, and I’m increasingly finding that this is genuinely interesting. Simply put, what we need to learn about order flow is actually the concept of smart money—SMC. At its core, it’s about studying how institutions and big operators think.

In the market, there are basically two types of people: retail traders and institutions. Retail funds are small, and their entry and exit are relatively free, but institutions are different. When people are deploying hundreds of millions or tens of billions of dollars, they simply can’t enter and exit as freely as we do. So, the core issue institutions face is liquidity. They need more orders to complete their trades, and at that point they have no choice but to act against the prevailing price trend.

This leads to the concept of a cost-recovery mechanism. Institutions want to go long, but if there aren’t enough sell orders below, what can they do? They first smash the market downward, eating the stop-loss orders and breakout orders from retail traders to obtain liquidity. Then the price rebounds, and they sell some at the top to let the price come back so their short positions can be covered. This process is called cost recovery. Retail traders get trapped passively, while institutions trap themselves actively—the purpose is completely different.

Let’s use an example. Suppose an institution plans to buy 100 million worth of chips, but it only completes 50 million. They notice that at the 8.5 area—8.5 in “8.5”—there are a lot of sell orders. Then they first push the price down to eat up that liquidity. After doing so, the price rallies upward; their own short position gets trapped, but that’s fine. They sell some up there at a profit to let the price fall back and cover their position. At the same time, they can also pick up additional liquidity. That’s the logic of order flow.

It sounds a bit complicated, but it’s clear once you look at the chart. On the left is a long setup. After the institution completes the position-building area, why would it keep sweeping downward? Because below, it’s stacked with long stop-losses and short breakout orders. Once it gets this liquidity, the price runs upward for a while. Then it sells some at the top to recover costs, and afterward it continues to push up without any hesitation. That white-box area is the “fair value gap” we’ll learn next—the reasonable value gap.

So how do you tell whether they’re doing cost recovery or continuing to smash the market down? This is where the concepts of discount and premium come in. Use Fibonacci: above 0.5 is the premium zone, below 0.5 is the discount zone. Longs only look for opportunities in the discount zone, while shorts only look for opportunities in the premium zone. This way, you can clearly explain the smart money three-step process: accumulation, manipulation, and distribution.

The short setup follows the same logic. First, the institution absorbs the buy-side liquidity in preparation to short, but there are still a large number of buy-side breakout orders sitting above. So it actively pulls the price upward, trapping itself, with the goal of eating the liquidity above. After it finishes, it turns around and smashes downward. If there are still long positions trapped, it goes and buys some orders below to lift the price and reduce the trap. That’s why order flow also has a nickname—“pinning,” and it has both a high win rate and a favorable risk-reward ratio.

Why do we need to survive like a flying fish? Because flying fish have a suction cup on their back that can stick to any object, especially sharks. It follows the shark to places with food, eats, then detaches and attaches to a new host. This is completely different from what we previously learned—Bollinger Bands, trend lines, and moving averages. From now on, we need to learn to think like smart money.

The content of this course mainly comes from the YouTube trader ICT. He has more than 30 years of trading experience. His lectures can be a bit verbose and hard to understand at times, but they’re truly classic. Almost all SMC concepts on YouTube come from him. The traders listed below—some learn directly from him, some learn indirectly. Some acknowledge it, and some don’t. If you want to study order flow in depth, I recommend going straight to the master’s courses, including what he’s still updating now—he still posts tweets every day and streams live, with tons of practical insights. Even the videos updated in 2023 still contain unexpected details and techniques. It feels like this person’s mind is endless, and what he shares is probably only a small fraction, since he’s been deeply focused on this for 30 years.

When I first learned order flow, my path was: I read Diman’s book first, then read Zizai’s articles, and then watched videos from the Turkish big brother, and only later did I watch ICT’s course. To be honest, my English was too poor, and I couldn’t follow the first two episodes, so I gave up. Later, when I watched videos from supply and demand-focused traders, it felt like I suddenly connected the governing lines—then going back to ICT and Zizai’s content, I could understand it. Now I mostly cycle through these people, and my focus is still mainly on ICT.

My learning method is very simple: three steps. First, do a quick overview, then knock down each part one by one. For example, in ICT’s course—out of two hours, maybe one and a half hours is just talking about mindset, and the real actionable core content is only about 30 minutes. My habit is to first download the subtitles, then skim through quickly like reading a book. If it’s useless, I move on immediately—if it’s useful, I mark it. Then I match the progress bar/timestamps with the corresponding parts of the video, and finally I write down my understanding and the questions I still have. This is, for me, the most efficient method. I rewatch key videos several times.

Second, actively discover the 20% that matters most to you. During the learning process, you will definitely encounter all kinds of problems. Bring these questions directly to articles or videos and search for answers. For example: what to do if multiple FVGs appear, how to set FVGs on small timeframes, and so on. Third, integrate everything so it becomes coherent and well understood.

I’m sharing my learning path and methods, but the purpose isn’t to have you learn the same way. Everyone’s learning approach is different, and so are their cognition and the skills they master. So the learning path, and even the notes, will be different too—that’s completely normal. I think the important things you consider important might already be something you know, and the things I think are important might be things you don’t remember. So I’m sharing this only as a reference. In our technical team, our Dongzi didn’t watch supply and demand videos either, but he still learned well.

Finally, here are a few practical suggestions. First, what I will teach in the future will definitely not be pure ICT. I don’t have the capability—there’s simply too much content, and I also don’t want to learn it that way. I’m a person with subjective initiative, my own cognition, and a stable profitable system. I have the ability to integrate and connect existing knowledge. For example, we previously combined harmonic patterns with 12金k, wave theory with moving averages, Wyckoff with price action, and Chan theory with Trend 2.0 and 3.0—this is what I mean. So for order flow, I’m not interested (at least for now) in going in as deep as a 10,000-meter dive. More than anything, I’ll be responsible for getting you started, while the depth of your practice depends on you.

Second, I don’t recommend students who haven’t finished the required courses yet to learn SMC order flow. There is a threshold. If you don’t even understand basic institutional concepts—how higher highs and higher lows form trends, and how to analyze from large timeframes down to small timeframes—then learning will be even more difficult.

Third, learn with a skeptical eye. Ideally, during the teaching process you should find my mistakes—this is the proof that you’re thinking seriously and independently. Fourth, starting today, learn to view the market from the smart money perspective. Previously, we emphasized the importance of trend using price action, wave theory, and Chan theory. But from now on, you need to look at where the orders are and where the liquidity is. In one sentence: price action follows the trend, while order flow follows the big funds. Our perspective on the market must undergo a qualitative change.

Finally, I’ll assign a small homework task. I believe after you finish reading what I just shared, you’ll definitely have a few moments of “aha.” Write down the old knowledge points that suddenly clicked, and try to articulate your understanding. For example, I’ll start: so the true nature of the B-wave structure is like this. We already knew about the B-wave structure: after a down move, an isolated low forms, then price breaks that isolated low again, followed by a quick rally—that’s the B-wave pattern. But now, after learning order flow, we realize smart money swept my stop-loss—not because I had those few tens of dollars or hundreds of dollars that matter, but because there are more people like me placing stop-loss orders or breakout orders at this location. What attracts smart money is liquidity; I just happened to be one of the ones getting hunted. Just like the long setup example I mentioned earlier: after the B-wave breakout, it pulls back immediately. What they care about is the liquidity below, so this area most likely contains a large number of orders.

In the next lesson, we will officially begin and discuss in detail the principles of liquidity—what liquidity is, why we need to master liquidity, and why it’s important for learning other content.