If you have ever been wondering around reading every educational material about Forex or anywhere near social media, you have heard people talking about smart money concepts or SMC trading. But what is it? There are many different theories and strategies in Forex you need to learn more about, but there are always new strategies that can benefit you, as you might need to enter a new market or test a new strategy at some point. Here we will introduce Smart Money Concepts trading in detail to help you make an informed decision. Before giving this strategy a try in your trading, read this article.
Table of Contents
What is Smart Money Concepts Trading?
If you are familiar with price action, you won’t be surprised by the whole idea of smart money concept Trading. This article involves using the classic Forex concept, supply and demand, price action, patterns, support, resistant line, etc. But in this strategy, everything has been given new names and described differently. You will hear new terms and terminologies like “liquidity grabs” and “mitigation blocks,” but don’t be overwhelmed. When you realize all terms used in this strategy, you will understand that it is a more traditional trading approach than anyone.
The first and most important thing to understand about smart money concepts trading is that this is not a trading strategy specific to the Forex market but a philosophy about how all the markets work.
- Traders using this strategy believe that market makers, including banks, hedge funds, and massive corporations, are altering entities and actively making love difficult for retail traders.
- Traders using this strategy are looking at the “smart money,” which belongs to the market makers we have mentioned previously, to base their strategy.
Generally, you create your trading strategy based on how these market makers are trading. In this strategy, you’re almost always worried about supply, demand, and Market infrastructure. According to this strategy, market makers are manipulating supply, demand, and market structures, so when trying to anticipate their behaviors, you will be monitoring all the above-mentioned factors to create a valid strategy.
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What do you need to use SMC strategy
There are some requirements for every trader before using this strategy. Suppose you already have basic knowledge about Forex. In that case, if you are already familiar with every detail factor involved with the supply-demand chain, if you have basic knowledge about Market infrastructure, and if you have basic knowledge about multiple time frame analysis, and if you are patient enough to backtest this strategy for 1 2 3 months before real trading, this strategy is the best option for you.
SMC Forex Trading Terminology
As previously noted, there are many different and weird terms you might hear using this strategy which sounds highly technical. Don’t bother yourself with finding the basic vocabulary; we are providing you with an explanation of some commonly used phrases by SMC Forex Trading Terminology:
Order blocks: SMC traders use the term to discuss supply and demand, and they claim that order blocks are more accurate information regarding supply and demand, but others argue that.
Breaker blocks and mitigation blocks: These terms refer to the support and resistance lines.
Fair value gaps: The term describes an imbalance in the market.
Liquidity: The term refers to specific price points where orders accumulate.
By learning SMC terminologies, you will understand the similarities to Conventional trading ideas.
The smart money concept trading advantages
If you have been trading in Forex for long enough, you know that there is no one-size-fits-all strategy, and a perfect strategy that might work for everyone might not be the perfect one for you. Keeping that in mind, we discuss the benefits of using this strategy in the following:
- SMC trading is perfect for improving the Reward per Risk ratio.
- This strategy is perfect for improving the win rate.
- Using this strategy, you will experience a low drawdown in trading to take the trading funds challenge.
- One of the best strategies when trading Forex is to put your emotions out of the equation, and SMC trading is a perfect solution to avoid emotion in trading. Forex trading platforms will guide you to some extent.
- Using this strategy, you are required to set a limit order and take a rest.
- Traders using this strategy are confident in choosing the perfect time for entering and exiting trades.
Are you supposed to trade like Banks and large markets using this strategy?
We have previously talked about SMC Traders and how they study market makers’ behaviors, but they still need to trade exactly like them. Using this strategy, you will be interpreting and anticipating the future trades of Market makers. You’re not mirroring the actions of Banks and major market makers, but you are evaluating their behaviors to create and develop strategies that work well for your trading style. Using this strategy, you will understand how large Market participants are influencing the market. As we have discussed in previous articles, there are many different factors moving the market. Understanding the motives and factors determining the price and direction of the market is vital for a Forex Trader. The forex profit calculator will help them in this regard.
Furnishing old Concepts
Some believe that the smart money concept of trading is a new term with old Concepts. Traditional traders argue that SMC traders are repackaging all the strategies using fancy terminology. According to professional and traditional traders, SMC does not reinvent the wheel and only rebrands the wheel.
Advantages and disadvantages of SMC Trading
First, we are going to look at the advantages of smart money contract Trading:
- SMC Might not be the perfect strategy for everyone, and if it works for you, there is no reason not to use it.
- Using this strategy, you need to understand what price is doing and profit from its behaviors instead of learning why prices are moving the way they are.
- Price action is a traditional signal in Forex Market; using this signal in a new and rebranded strategy is also beneficial.
Now it is time to take a look at the advantages of SMC.
- Not every element of the smart money concept makes sense. Try not to believe in everything SMC presents to avoid misunderstanding Market fundamentals.
- All theories involved in smart money concepts are speculative, and no one can work to verify them, and no one can refuse them.
Is it recommended to use Smart money contract Trading?
As we have this cost earlier, the SMC strategy is a traditional strategy rebranded with new and fancy terminologies, but if it works for you, then by all means, go ahead and give it a try. Just remember that you are using old-fashioned price action trading in a repackaged strategy, and there is nothing wrong with that. On the other hand, if you are frustrated from learning strange and new terminology, just study price action because you will be learning the same thing anyway.
A rebranded strategy
You will hear the term smart money concept all over the Forex forums and social media, but the one thing no one is telling you is that the smart money concept is not a unique strategy; it just uses new terms and fancy words to describe old-fashioned signals and terms. If you’re not ready to bombard yourself with new terminologies, you can go ahead and learn price action because the whole idea is the same. And if you are just pleased with the new descriptions, go ahead and give it a try. The most important thing to remember is to learn price action and Market Movers no matter what type of strategy you’re using. There is no one-size-fits-all strategy, and the one you might find useful may not work for another person. If you’re not quite sure about using this strategy, you can give it a try using Aron Groups’ demo accounts. A demo account is a perfect tool to experiment newest strategies and markets in a risk-free environment. No matter how experienced or amateur you are, you can benefit from a demo account before trading real money.