The approach employed in trading the capital that is under the control of institutional investors, central banks, and other experts or financial institutions is referred to as “smart money concept.”
It is managed by expert investors who can foresee market trends and make the most of the profits.
Smart money was originally a gambling term, which refers to gamblers that have extensive knowledge of the activity that they wager on or have insider information that the common public is not able to access.
Institutional Smart Money trading is superior to any retail trading strategies on many levels. This does not mean retail trading strategies do not work at all. It just means Institutional Trading is more powerful and more accurate than anything the retail market offers.
Smart Money naturally has more access to knowledge and resources than retail traders or “Dumb Money” at their disposal. Tracking smart money investments will give you the true narrative and what to expect of price in the markets.
Who Discovered SMC?
Smart money concepts were invented and created by David J. Crouch – Founder and Owner – of Smart Money Concepts, Inc.
What Are Smart Money Concept Terms?
Smart money concept terms are usual terms used in moving the financial markets with size and force when it is controlled by central banks. It then becomes a joint force of large amounts of money and a good strategy where those investors ride on the success of smart money.
The most common terms used in smart money concepts are;
- BMS
- CHOCH
- SMS
- ORDER BLOCKS
- FAIR VALUE GAP
BMS
BMS – BREAK OF MARKET STRUCTURE denotes that the market is giving you its first indication that it is about to weaken or turn against you. When the price makes a new lower low and lower high, the structure is broken in this way: You have a lower high and lower low in this instance, which is your first indication that the market is ready to reverse lower. Although there is no assurance, the market is giving you a hint that “hey, there is a break in structure, the price might perhaps revert lower”
Every trader should normally trade in the direction of the Higher Time Frame BMS when this occurs when the price closes above/below a swing high/low.
There will always be the emergence of a new consolidation after the BMS, known as the RH.
CHOCH
A “CHOCH” is just a short acronym for “CHANGE IN CHARACTER” which is an initial shift in order flow that can sometimes signal a short- or even long-term price reversal for an asset, equity, or currency pair. Hours are generally considered a reversal pattern that SMC traders use on the higher-time frames for market direction and on the lower time frames to start looking for trades on the 1-minute chart.
Most SMC traders like to use ChoChs on all of the timeframes to get a sense of market direction and to start looking for intraday reversals or reactions to 15m POls (points of interest).
To use a ChoCh, you simply just need to look for a shift in order flow (the last level of demand or supply failing) on the timeframes that you trade.
It should be noted that ChoChs should only be used as a confluence and shouldn’t be something you rely on solely for getting market direction, or looking for confirmations on the lower time frames.
SMS
SMS -is a short form for SHIFT OF MARKET STRUCTURE which is a structural market change that is broadly defined as a shift or change in the way in which a market or economy functions or operates.
When people are buying, going long, you do see a strong parabolic move higher. Now, at what point should you be alert that, “Hey, this trend is about to reverse?”
We are looking for a shift of market structure, what you are looking for is a lower high and a lower low. At this point, you have a lower high, and when the price breaks below the area of support, you have a lower low: This tells you that this trend could be weakening. The trend could reverse, and you want to be careful down there.
ORDER BLOCKS
Order blocks are collections of orders from major banks and institutions that trade foreign exchange on the financial market. To increase the likelihood of profit, the big banks split a single order into a number of blocks rather than just opening a buy/sell order. In trading, these order groups are known as “order blocks.” The majority of currency pairs are successful for the order block trading method. Nevertheless, it is critical to remember that the financial market is incredibly unpredictable. Stop losses are used by traders because we anticipate the price. No trading system can guarantee a 100% profit.
FAIR VALUE GAP
Fair Value Gaps are most commonly used amongst price action traders and are defined as instances in which there are inefficiencies, or imbalances, in the market. These “imbalances” simply suggest that buying and selling are not equal. Fair value gaps are a very useful concept in price action trading, as they provide a trader with information about where a lot of orders were injected, creating this inefficiency in the market. This inefficiency can become a magnet for price in the future to resolve it, as there are many resting orders. A trader can use this information to target a fair value gap or to look for a potential entry for a long or short, making it a good POI.
In Conclusion
The smart money concept is believed to have a greater chance of success as institutional investors have better investment strategies that differ from those of retail investors. The bank-level trading strategy is a one-of-a-kind Smart Money Concept that combines highly accurate forecasting with cutting-edge trading indicators and tools.
