February 20, 2024
6
min read
Smart Money Concepts (3/6): How to identify and use EQH and EQL
Notes:
These indicators and concepts are specifically designed for TradingView.com
Settings and Indicator
Go into INDICATORS and type in Smart Money Concepts
SMC in Indicators
Go into Settings and follow these settings
How they form
EQH and EQL form the exact same way that patterns form on charts. The reason is because EQH and EQL just represent double top patterns and double bottom patterns. EQL and EQH are only used to represent double tops and bottoms in stock price charts and no other type of pattern. A double top occurs when a stock's price rises to a certain level, drops, and then rises again to the same level before falling once more. This pattern indicates that the stock is likely to experience a bearish reversal. On the other hand, a double bottom occurs when the stock's price falls to a certain level, rises, and then falls again to the same level before rising once more. This pattern indicates that the stock is likely to experience a bullish reversal. Smart Money Concepts utilizes EQH and EQL to represent these patterns in a clear and easily understandable manner.
How to Identify EQL and EQH
To identify EQL and EQH the indicator will automatically plot a line that says EQH or EQL. However this goes beyond algorithmic trading so in general traders typically use technical analysis tools that allow them to visualize price charts and patterns. EQL (Equal High) is identified when a stock's price reaches a certain level twice and fails to break above it. This level represents a resistance level, and the failure to break above it indicates that the stock is likely to experience a bearish reversal. On the other hand, EQH (Equal Low) is identified when a stock's price falls to a certain level twice and fails to break below it. This level represents a support level, and the failure to break below it indicates that the stock is likely to experience a bullish reversal. So you only look for a price level where it can't seem to break above or below.
How to trade
When there is a double top (EQH) or double bottom (EQL) you have to use this tool in confluence with other SMC tools like Order Blocks and BOS/CHoCH. For example is there is am EQH which came after an uptrend it could indicate weakness in the bull run (hence why EQH are in red), which shows that there is a chance that the price will break the necklace (the support line made in the middle of the double tops), causing a bearish CHoCH. Here is an example below.
In cyan we have highlighted two EQH after a small bull run (price goes from roughly 94 to 96.5 then two EQH appears in red indicating weakness in that run), then pink happens as a result (the two EQH after the small run causes a bearish CHoCH leading to great short entries)
So the best way to think about it is the following steps; First figure out the direction of the run, so for example in the previous snapshot it was a small bullish run. Once the run has been identified, wait and see if an EQH or EQL appears indicating that the direction of the run is wearing out. So in our example the trend was upwards until two red EQH appeared indicating weakness. Now if we have weakness spotted (in the form of EQL or EQH) we need to check confluence with other indicators such as orderblocks and BOS/CHoCH. In our example above if you look you will see the bearish order block form as the second EQH is plotted hence short entry #1, and then a bearish CHoCH that follows which would be short #2. So overall waitr until you see an EQL or EQH and find confluence with the CHoCH or an order block.
Other concluding remarks
No other remarks. Remember however that while EQL and EQH patterns can be reliable indicators of potential reversals, they are not foolproof and should be used in conjunction with other technical and fundamental analysis tools. Additionally, traders should always be aware of market conditions and news events that may affect a stock's price and potentially invalidate the EQL or EQH pattern. Finally when a stock's price reaches an EQL or EQH level, observe the behavior of the price action and volume to help confirm the potential reversal. For example, if the stock's price approaches an EQH level with low volume indicating a lack of buying pressure, it may indicate that the stock is losing momentum and could soon experience a bearish reversal. Conversely, if the stock's price approaches an EQL level with high volume and strong buying pressure, it may indicate that the stock is gaining momentum and could soon experience a bullish reversal.
