Introduction to Smart Money Concepts

 

In this article we will talk about a retail trader and smart money traders, how both have a different view of the market?  Why do our stop losses get hit every time we take an entry? Why does the market turn after we buy?

Whenever you took a trade from where your stop loss was hit or your break even was hit, the market then moved to where you predicted.

Or it happens that we take small profits and take big losses from the market.

How does it all happen? All these are market traps and liquidity. 

All these are made by big banks, institutes, or your operators do all the work on their behalf.

How do they know where your entry is and where your stop losses are?

They will only come in where the retail trader has more orders, they will manipulate the market there and then take the market where they want it to go.

They will deliberately create breakouts, make you believe that the market is now selling after the breakout, then the small retail traders like us will sell behind them, then they will sell the market again.

How to do it all?

Smart money people have a lot of money, they can steer the market in any direction they want, that's why they are also called market makers. 

We are just Retail Traders, and we look at Supply Demand, Fibonacci Levels, Order blocks, Fair Value Gaps, we use many other tools. Still we are not very successful. 

So what should we do now? 

I hope you will change the way you look at the chart, how it actually works.
And we will tell you what we are doing wrong.

    

 

See in the picture above there is a big fish called smart money, like banks, institutes, insurance companies, they have a lot of money. 

 

Where we are buying or selling, creating liquidity, then these smart money guys come in, take our stop losses and make a lot of money.

 

Now the question arises that how do they know where our orders are placed? Where have we placed stop losses?

The brokers we use, these smart money people, pay them to extract our entire data.

Then what should we do now to avoid harm?

We have to enter the market only when smart money enters the market, because when these big fishes enter the market, they leave their footprints, we must get an indication that yes, smart money is now in the market. 

All we have to do is understand why the market has rallied from here, then we can trade behind them and make a lot of profit.

The strategy of Smart Money Concept works only on their footprints.

Now you can see in the picture below which is a general price action commonly used by people, support resistance, trend line, fake out, Fibonacci tool and many other tools are used in the market.

First of all we see that the market in the picture above created a Resistance No. 1, when the market touched the trend line twice, people started to enter the market for sale, some people even succeeded in making the main profit.

These were the people who knew a little about the structure of the market or took a little profit and exited the market, not greedy.

A lot of people entered the market when the market hit Resistance No.1 for the fourth time and started to go down a bit.

Now most of the people sitting in the Sell here are creating liquidity, meaning putting stop losses.

Now that retail traders have placed enough sell orders at this Resistance No.1, liquidity creates all of them with stop losses above this level.

Now the market made a sudden upward move, broke the previous structure, took everyone's stop losses, drove retail traders out of the market.

Now the market has bought from the bullish Engulfing Candle, now buyers have been introduced in the market.

Now check out Resistance No. 2 streaming from here. Some of them sat in buy quickly, some bought on pullback, which means they will wait for retracement and then buy.

Now they may be setting their own stop-losses, but this time the market suddenly went down and ate all the buyers' stop-losses.

You will notice in the picture that the trend line is also visible below Resistance No. 1 and 2. 

 

Price action traders just wait for their break then buy or sell.

You see, even after the break of the trend line, the market has gone back three times.
 

Now when this trend line broke below Resistance No. 2 and people started sitting in the sell, then the market showed its work and suddenly went bearish, took all stops and then blushed.

Finally, you can see that when the market reaches Resistance No. 3, there is no break of structure for the first time.

Now the retail traders have realized that this is a good selling area, it will be very profitable to sell from here. A lot of people started selling it as a double top.

The market went down a bit and then suddenly moved up with a breakout structure.

Here the market makers took enough stop losses of the sellers and drove them out of the market.

Now the retail trader will not have the courage to buy now.

We all place our stop losses at each high and low level where they are hit.

And you've probably noticed that the market always takes your stop loss and then makes the next move.

This was a typical price action that most traders see and make losses in this major market.

Now I am introducing smart money concepts in the picture below.

This chart is also similar to the previous chart but the view is different, in this chart we look at the market with smart money concepts in mind.

In this chart, three buy trades have been taken. The profit of the first trade is 1:11, the profit of the second trade is 1:15 and the profit of the third is 1:17.

Now think for yourself how much profit can be taken by keeping such a small stop loss.

Now, how has all this happened, how will we know on demand that we have to buy now?

Are these break of structures done? What is this Choch - Change or Character?

You can see in the picture that if the market reverses its high will be swiped otherwise it will not reverse.

There is a lot of logic behind it. A buy will not occur until the market breaks all of its previous highs.

Until the market breaks all its lows, the liquidity will not go back. All this is done by the smart money men, including big banks, institutions, insurance companies, who operate the market.

I will try to teach you true smart money concepts, how market manipulation is happening, how people are getting trapped, what are the reasons behind it?

We only think that we have to trade on support and resistance, on supply and demand traders are buying and selling and taking losses.

Understand one thing that where there is supply there is liquidity, where there is resistance there is liquidity.

Until the market collects liquidity, the market will not make its next move.

I hope that after looking at both the charts you will have an idea of which method is the best that can make you a profitable trader.

I will try to continue this course in future articles.