Smart Money Concept (SMC) Backtesting Guide
Step-by-Step Guide to Backtesting as an SMC Trader
Step 1: Master the Core Concepts of SMC
Before you begin backtesting, it's essential to fully understand the foundational elements of Smart Money
Concepts. These include:
- Market Structure: Learn to identify BOS (Break of Structure) and CHOCH (Change of Character)
- Liquidity: Recognize internal/external liquidity, equal highs/lows, and liquidity grabs
- Order Blocks (OBs): Last bullish/bearish candles before major moves
- Fair Value Gaps (FVGs): Price imbalances or inefficiencies
- Mitigation: Price returning to OBs or FVGs for entries
- POIs (Points of Interest): Key zones where price is likely to react
Resources:
- YouTube Channels: ICT (Inner Circle Trader), MentFX, The Trading Channel
- Free online courses, Discord groups, and mentorships (use caution with paid ones)
Step 2: Set Up a Proper Backtesting Environment
Use platforms that support historical price action and manual testing:
- TradingView: Excellent replay mode for manual backtesting
- Soft4FX: Works with MT4 for detailed testing
- Forex Tester: Advanced simulation with historical data
Choose one that fits your style and start practicing replay sessions.
Smart Money Concept (SMC) Backtesting Guide
Step 3: Define Your Backtesting Framework
To test effectively, decide exactly what you want to study. For example:
- Do OBs near FVGs lead to high-probability entries after CHOCH?
- Does price often return to 50% of the OB after BOS?
Steps to follow during each backtesting session:
1. Use the replay feature and scroll back several months
2. Establish higher timeframe bias (HTF structure)
3. Mark significant structure: BOS/CHOCH
4. Identify liquidity pools and POIs (OBs, FVGs)
5. Look for trade opportunities based on your chosen model
6. Log each trade with entry, stop loss, take profit, and reason for entry
7. Track results: win/loss, RR, trade model used
Use a spreadsheet or journal to track:
- Date/Time
- Pair/TF
- Setup type
- Entry/SL/TP
- RR achieved
- Outcome & observations
Step 4: Focus on One Setup at a Time
Avoid spreading your attention across multiple entry models. Start by backtesting a single, well-defined setup:
Smart Money Concept (SMC) Backtesting Guide
Example: CHOCH + OB + FVG entry after liquidity sweep
- Test this setup across different pairs and timeframes
- Identify patterns in successful vs. failed trades
Only after gaining confidence should you introduce additional setups.
Step 5: Build a Trading Playbook
As you backtest, take screenshots and notes on each trade. Create a structured trading playbook:
Include:
- Setup name
- HTF bias criteria
- Entry model checklist
- Example charts (wins and losses)
- Trade management rules
Your playbook becomes your personal guide to consistent execution.
Step 6: Tips for Effective Backtesting
- Label all structures and POIs on charts during testing
- Journal every trade (success or failure)
- Use video recordings or screenshots to review your sessions
- Test one pair at a time (e.g., EURUSD, GBPUSD)
Smart Money Concept (SMC) Backtesting Guide
Final Advice
Consistency is key. Backtesting isn't about finding a holy grail-it's about developing confidence, precision,
and trust in your edge. Use this guide to develop your own system, tweak it based on your results, and evolve
as a confident Smart Money trader.
Need help with a free backtesting journal or template?
Ask, and I can create a customizable version for you!
