When professional investors use funds to make key trading decisions, it is called the smart money movement. Specialists usually work for institutional banks, large funds, and other centralized financial organizations. The concept of smart money is useful not only for investing in securities but also in cryptocurrencies.
So, what is smart money? It is capital used by the largest, most experienced, and successful market participants. The concept of smart money is a set of tools that allow you to track the actions of top traders. It is difficult for an ordinary trader to understand what large investors are up to, but he can follow them and repeat their actions.
The trades made by experienced brokers are analyzed by middle-class investors, whose actions, in turn, are analyzed by other, less experienced traders. In this way, investors use other people’s experience and valuable information to build their own behavioral strategies.
The so-called smart money influences market conditions and can fluctuate the price in one direction or another. Some experts argue that the smart money concept does not always work better than the strategy of smaller players. One way or another, the movement of smart money is always closely monitored and studied by traders who, copying the behavior of professionals, earn a good income.
What does smart money trading give a player?
Reduced risk. Having successfully identified the trend of smart money, especially at the beginning of its movement, a trader increases his chances of a good profit, but the risks still remain.
Relative stability. Adherence to the smart money concept does not guarantee a quick and very high income, but it still allows you to define a reliable strategy, especially for those who do not know what to do.
About technical analysis
You can better understand what a smart money trade is by understanding the concept of technical analysis. This is a trading option invented by retail traders. It basically involves studying market dynamics using charts. It is used to predict the rise or fall of cryptocurrency prices. For the analysis, formulas, indicators, algorithms, and other tools are used to interpret quotes charts. However, the psychology of market participants still remains at the heart of a logically built structure.
Technical analysis has three pillars:
The market has to take everything into account. This means that any reasons that can affect the value of a crypto are already taken into account. The task of a trader is to be able to track and analyze the dynamics of price changes.
Quotes move according to trends. A trader should be able to identify these trends, their features, and the moments when one trend changes to another.
History always repeats itself. Cryptocurrency price movements on the market are based on human psychology. Patterns of player behavior tend to repeat themselves. This means that if a behavioral pattern has worked in the past, it will most likely work again, because human psychology does not change.
Difference in approaches
Technical analysis of the cryptocurrency market is carried out to determine the current trend and confirm forecasts of price increases or decreases. Traders do all this to achieve one goal: to choose the right moment to make a trade.
Proponents of the smart money concept do not follow the dynamics of price changes, but rather large market participants, relying on their experience, awareness, and knowledge of what to do.
To understand better what smart money and technical analysis are and which approach is more effective, it is important to understand the basics of trading and the nuances of the market. To do this, you will have to study a lot of information, conduct some analysis yourself, and practice. And it is easier and more efficient to do this with the Crypto Crew team and our community. Become a part of the team and increase your capital!