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Smart Money concepts involves identifying the strategies that the big whales, like banks, hedge funds, and institutions, employ in order to move their money and carry out price action in such a way that they can make the small traders take the bait while also generating liquidity for their own positions. In contrast, conventional technical analysis uses mainly the patterns and indicators that are part of the chart, and smart money trading really searches in deep for the reasons behind the patterns. It’s a matter of figuring out how price is fabricated through liquidity grabs, fake breakouts, and stop hunts. The traders in question do not open positions the way retail traders do, therefore, they need greater volumes and this is achieved by them usually moving the market in the opposite of the desired direction first, which works to their advantage to enable them to trigger stop losses and in general, produce fear allowing them to collect orders before they push the market to where they want it to go. Concepts like order blocks, fair value gaps, liquidity zones, and market structure shifts are all part of this approach. Smart money traders pay attention to the price levels where liquidity is likely to be found and institutions are most likely to offer those being the levels above the highest points and below the lowest points in a particular timeframe. Moreover, they take into account those trade inefficiencies or gaps that the exchange rate may exploit for a new equilibrium. The main tip is to do business with the institutions and not go against them, by forming the strategy based on their footprints rather than going where crowds lead you. It involves more waiting, pinpointing, and making a mental shift from seeking trades to treating them like the people who move most of the market volume.
I used to rely a lot on patterns and indicators, but after I learned about Smart Money, everything changed. I came to understand that large players manipulate the market by setting up traps to entice individual traders; it is not a random market. Things like fakeouts, stop hunts, and liquidity grabs? All of that is a component of their plan. Order blocks, fair value gaps, and the location of liquidity are now my main concerns. I'm waiting, observing how the price responds at critical points, and attempting to move with the institutions rather than against them instead of chasing trades. Although it's a mental adjustment, it has significantly altered my trading style.
