When we speak of “smart money”, we are referring to entities such as institutional investors, hedge funds, and investment banks.
Or, in other words, the big players.
Their trading volume is massive, and their actions cause market trends.
“Smart money trading” is about monitoring these influential players and determining when they might take buy or sell large amounts. They have the capacity to cause significant shifts in the market, and understanding when/where these shifts may occur can help us better time the market.
The core idea revolves around tracking the smart money.
Traders employing smart money strategies attempt to analyze and forecast where these large-scale players are likely to invest. It’s not merely about watching buy or sell orders ala order flow trading, the strategy is a tad more intricate and intuitive.
The smart money has the resources and the patience to distribute their trades, thereby preventing abrupt market disturbances.
It’s somewhat akin to strategically distributing your chips on a poker table.
Therefore, it involves looking for indications that suggest the likely direction of smart money. These hints can be discerned from price trends, volume alterations, or game theory.