Is SMC Profitable? 144 Backtests on USD/JPY

Smart Money Concepts (SMC) divides price action into ideas such as market structure, liquidity sweeps, order blocks and fair value gaps (FVGs). Unlike RSI, SMC has no single accepted formula. Two indicators can use the same BOS or order-block label while disagreeing about swing confirmation, candle bodies and wicks.

This test therefore covers two rules that can be reproduced from OHLC data: a close through a confirmed swing and a wick through a confirmed swing followed by a close back inside. The rules do not identify institutional orders. They translate two SMC labels into observable price patterns.

Across USD/JPY in 2024 and 2025, 11 of 12 hourly structure-break settings were profitable in both years. No M15 or H1 liquidity-sweep setting survived both years.

Structure breakLiquidity sweep12 settings per timeframe

What this SMC test measures

There is no standard SMC calculation, so the swing definition comes first:

1. A swing high must be strictly higher than the same number of bars on each side.
2. A swing low must be strictly lower than the same number of bars on each side.
3. The swing becomes actionable only after the right-hand bars have closed.
4. Equal highs or lows do not qualify as swings.

With three bars on each side, a pivot is not known until three bars after the plotted swing. Marking the pivot on the earlier candle is useful for drawing a chart, but entering there would use future information. Every trade in this test waits for confirmation.

A structure break closes beyond the swing

An upside structure break occurs when the close crosses above the latest confirmed swing high. The rule opens a long, then exits and reverses when a close crosses below the confirmed swing low. The downside rule is the mirror image.

Some SMC implementations separate BOS from CHoCH according to the prior trend state. That classification depends on which earlier swings define the state. This article avoids assigning the label after the fact and tests one condition directly: whether the close crossed a confirmed swing.

A liquidity sweep wicks through and closes back inside

A bullish liquidity sweep trades below the latest confirmed swing low but closes above it. A bearish sweep trades above the confirmed swing high and closes below it.

OHLC records that candle shape, but it does not show whether stop orders were present or who traded. “Liquidity sweep” refers to the price rule defined above, not an observation of trader identity or the order book.

SMC settings and how to read them

MT4 and MT5 do not include one standard SMC indicator. Third-party implementations use different definitions and inputs, so matching names do not guarantee matching signals.

In Formiq, select “SMC market structure” from the backtest condition list. The condition does not add a new line to the chart. It evaluates the relationship between each candle and the latest confirmed swings.

Increasing the swing setting from 2 to 8 removes smaller pivots and reduces the number of trades. On the 2025 hourly structure-break rule, swing 2 produced 290 trades, swing 3 produced 201, swing 5 produced 127, and swing 8 produced 89–95.

The research also varied an internal expiry window that is not shown in the settings screen. Windows of 50, 100 and 200 bars gave the same result at swing 2 and swing 3. Some swing-8 results changed between 50 and 100 bars, while 100 and 200 were identical in every tested cell. Because the window did not change the default swing-3 result, it is not exposed as a user setting.

How this was measured

Each rule and timeframe has 12 parameter settings. The out-of-sample check also selects and transfers settings only within those same 12 choices.

Eleven of 12 hourly structure-break settings survived both years

A setting counts as profitable when annual net pips are above zero. The final column is the median annual net across the 12 settings in 2025.

The hourly structure break kept 11 of 12 settings profitable in both years. The default swing-3, 200-bar setting made 2,177.2 pips in 2024 and 2,214.2 pips in 2025.

The H4 structure break moved the other way: all 12 settings were profitable in 2024, but only three were profitable in 2025, when the median fell to −1,951.4 pips. A structure-break label alone does not carry the same result across timeframes.

The default structure break profited with a low win rate

The following table uses the default swing-3, 200-bar settings in 2025.

The M15 and H1 structure breaks won only 36–41% of their trades, but their average wins were about twice their average losses. The M15 and H1 liquidity sweeps won more than 57% and still lost money because their average losses were larger.

The H4 liquidity sweep made 1,241.1 pips from 56 trades. That sample is too small to select a setting from the win rate alone before testing another year or market.

The prior-year winner transferred only on H1 and H4 structure breaks

The best 2024 setting was applied to 2025, and the best 2025 setting was applied to 2024. Each cell below reports net pips in the year receiving the setting.

Swing 3 with a 50-bar validity window was the best H1 structure-break setting in both years. Swing 2 with a 50-bar window was also the best H4 structure-break setting in both years. The M15 structure-break winner and the M15 and H4 liquidity-sweep winners all turned negative when transferred.

The halves of 2025 were uneven. The default H1 structure break made 260.9 pips in the first half and 1,929.2 in the second. The default M15 liquidity sweep moved from +54.8 pips in the first half to −1,467.7 in the second.

ADX and FVG filters did not increase hourly net pips

Adding ADX(14) to the default H1 structure break reduced 2025 net from 2,214.2 pips to 919.2 at ADX 20 and 293.2 at ADX 25. The trade count fell from 201 to 151 and 114.

Requiring the structure break and a newly formed FVG on the same candle produced the following hourly results.

The FVG filter raised the win rate in one row but never exceeded the unfiltered 2,214.2-pip net. This test requires a structure break and FVG creation on the same candle. It does not model a sequence of sweep, structure shift and later return to the gap.

Fixed stops and targets did not transfer across timeframes

Adding a 30-pip stop and 60-pip target changed the M15 liquidity sweep from −1,410.5 to +599.7 pips in 2025. The same exit lost 442.7 pips on H1 and 615.2 on H4. The 20/40 and 50/100 exits also failed to improve all three timeframes.

For the H1 structure break, opposite-signal exits made 2,214.2 pips. Fixed 20/40, 30/60 and 50/100 exits made 98.1, 991.5 and 1,342.5 pips. Every fixed exit reduced net in that cell.

The M15 rules paid the largest spread bill

Moving the spread from zero to 0.3 pips reduced 2025 net by trade count multiplied by 0.3 pips, within 0.1 pip after rounding.

The M15 liquidity sweep remained 1,098.5 pips underwater before spread, so costs do not explain the whole loss. The H1 structure break remained positive at a 1.0-pip spread, with 2,073.5 net pips. Slippage and live fill differences were not included.

Related articles

• Double top and bottom reversal test: the same confirmed swing points measured as two-turn reversal patterns
• Do fair value gaps really fill?: an SMC-related pattern compared with ordinary candles
• Fibonacci retracement levels tested: another popular chart structure tested against nearby controls
• How to build a backtest without code: repeat the structure-break and liquidity-sweep rules on another market

Notes

The sample covers USD/JPY from January 1, 2024 through December 31, 2025. Trades use the signal-bar close, a fixed 0.3-pip spread and 0.1 lot. A swing is never used before its right-hand confirmation bars have closed. OHLC cannot recover the intrabar path or trader identity, so the test does not claim to observe institutional orders.