Smart Money, Institutional Levels, Stop Hunting, Liquidity and Order Blocks…
These are terms that all traders will come across at some point and while for most retail traders these terms are typically associated with market manipulation and stop hunting, in reality they are simply the puzzle pieces that allow the market to work.
So let’s briefly demystify those terms shall we; markets are driven according to supply and demand. Supply and demand generates buy and sell orders in order to fill the supply or demand and this is what generates liquidity. Now obviously when we consider the broader market, the biggest providers of liquidity would be your banks, HFT firms and other large financial institutions. And these Institutions are what are referred to as Smart Money!
The obvious problem is that if all these institutions do the same thing there will either only be supply or demand and no liquidity. So in order to continually generate the required liquidity they create order blocks and proceed to buy or sell into these zones causing retail traders to see what appears to be a trend or pattern. Once retail traders see this emerging trend or pattern they also want in and will proceed to buy or sell into what they perceive to be the market direction. The smart money now has the liquidity it needs and can liquidate their own positions forcing the market in the opposite direction taking out your stops to create more liquidity for themselves allowing them to buy or sell the market back into the original direction to the frustration of the majority of retail traders who got stopped out.
Now using the Smart Money Indicator you will be able to identify major areas of Supply and Demand as well as past and future areas of market imbalance. These imbalance zones typically end up getting filled due to the fact that as the market accelerate out of areas of accumulation and distribution with lots of ‘Smart Money’ liquidity in play not all market participants will get equal chance to participate at these levels. This creates ‘imbalances’ in the market and price will eventually head back to these areas to give all markets participants a chance to explore fair-price. And this is exactly where the Smart Money Indicator shines, because it highlights these areas on the chart in order for you to know beforehand to exactly where the market will mostly likely ‘correct’.
Examples below of the accuracy of the indicator applied to different markets:
