The Smart Money concept is based on understanding how to work with liquidity – this is the main parameter in the concept. It is also important to understand the logic of price formation, price delivery algorithms, correct work in zones of interest, realistic targets and effective work with structural patterns. Smart Money also requires constant development and adaptation to changing market conditions.
The difference between classic Tech. Analysis and Smart Money
Many traders have assumed that technical analysis and Smart Money are the same thing. However, this is not entirely true. Technical analysis is a method of analyzing an asset price chart to make trading decisions based on trend lines, support and resistance zones, and the price reaction in them. Smart Money, in turn, is a set of tools and techniques for analyzing asset price behavior in financial markets, based on price performance with liquidity and a deeper understanding of price formation. Smart Money requires a more detailed study of market mechanisms and market participants.
Benefits of Smart Money:
Deeper understanding of market structure:
Smart Money allows you to analyze not only price movements, but also the internal logic of price formation, identifying important areas for trading decisions.
Liquidity Analysis:
Smart Money’s approach focuses on liquidity, which helps to more accurately predict possible changes in price direction.
Support for long-term strategies:
This approach is applicable for both short-term trading and long-term investment decisions due to its flexibility and adaptability.
Improved timing of entries and exits:
Smart Money allows you to more accurately determine when to open and close positions, improving the quality of your trading decisions.
Application flexibility:
Smart Money can be applied to a variety of financial markets, from FX and equities to cryptocurrency and commodities, making it a versatile approach.
Minimizing market noise:
The approach helps you ignore small price fluctuations by focusing on more significant movements, which avoids overreacting to minor changes.
Disadvantages of Smart Money:
Difficulty to master:
Requires time and effort to understand all aspects of the market and analyze its structure, especially for novice traders.
Laboriousness of analysis:
A large amount of information, including price behavior and liquidity, must be analyzed on a regular basis, which can take considerable time.
Constant learning curve:
The markets are constantly changing, and successful use of Smart Money requires you to constantly improve your skills and knowledge.
Lack of guarantee of success:
Despite in-depth analysis, the approach does not guarantee successful trades 100% of the time and there are risks of making losses.
Dependence on market dynamics:
Smart Money is based on analyzing market activity, but changes can occur suddenly and not always predictable.
High entry threshold for beginners:
It can be difficult for beginners to master all elements of the Smart Money approach at once, which requires considerable effort and time to understand market mechanisms. This will be especially true if incompetent mentors are chosen, so the choice of training should be approached responsibly.