Updated: Aug 16, 2021
You see these terms everywhere on the internet: smart money trading, smart money strategy, smart money course etc. People use smart money for every single trade they take, which is ridiculous. Smart money, in my opinion, means people that actually know how a market works and know how to trade. They don’t just draw a line and enter, but they know the probabilities are in their favor, they know how to allocate risk etc. It’s all planned out. In this article you are going to read more about the bullshit people promote around the concept of smart money trading.
I have recently written another blog about this concept, which might be helpful. Click here.
Smart money explained
Smart money is often referred to as big banks trading the markets. Generally speaking, this is about the interbank market. These big players don’t just take trades based on random lines, but they trade based on data. They use fundamental data to build a long-term picture, but also use other statistics.
It’s important to realize that most of the trading is not done to cause or to profit from directional moves, but most of the trading in forex is done to fill orders and to hedge. This is what the interbank market is all about. This does not mean you can’t profit from trading forex. If you take the same approach as the big players that make money, so being prepared and using data, instead of drawing lines and aiming for 1:200R trades, you might have a slim chance at making money.
Change your approach
As you might know, there are 1000’s of ways to make money in the markets. There is no right or wrong way to make money with forex trading. However, approaching trading from a smart money perspective can increase the chances of you making money. In my opinion, you don’t need to know how these big players trade in order to trade so called “smart money”.
On Instagram you see a lot of people promoting things like: trade like a bank, smart money trading, bank strategy etc. These guys have never worked at a bank and don’t know what they are talking about. They make it seem like banks are behind the scenes manufacturing trending moves and taking your stops. This is 100% bullshit. If people are promoting this, there is very high chance these guys don’t make money trading.
What you can do however, is find a methodology that fits with your personality, that gives you an edge. You can then do what smart money does, so working behind the scenes, gathering data, preparing & improving. That’s how you become smart money instead of cunt money.
How to become a smart money trader
You can become a smart money trader by knowing how big traders in the market need to operate. Keyword is need. A market is all about liquidity. If you want to buy, someone has to sell to you. The thinner the market, the harder this is. Forex is very liquid. However, big traders still need a lot of liquidity to fill their orders in an efficient way. By analyzing where liquidity is and how it’s being used you can get a view on what a bigger player in the market is doing and you can potentially join him.
To become a smart money trader in forex trading, you need to:
· Learn the right concepts
· Plan ahead
· Gather statistics
· Never stop improving
This is how you become smart money in forex trading. This is what you need to do. Start with learning the concepts of how a market actually works. So not trendlines and random indicators, but how does a market work? (Trendlines and indicators may have their place) Once you know what liquidity is and how it can be used, you can use this concept to build your own trading strategy. Without a strategy you are going to fail, that’s how the game works. You need a framework, a blueprint, to attack the markets. Otherwise, you are at the mercy of the markets, which never ends well.
So, learn the right concepts, build rules and start testing the strategy. How well has it performed in the past? What connects the winning trades? What stands out? Is there edge? This is what you need to know. Most people blame their psychology for their lack of results, when in reality they trade a strategy without edge. No edge means no profits.
In order to become a smart money trader, you need to plan ahead. Do you really think big traders just open up their laptop, draw some lines and enter an order? Of course not. 95% of retail traders lose for a reason. Be prepared. Know before you even enter a trade exactly why you enter, what the data suggests, what the probability of making money is and how you are going to exit the trade. Create as much clarity as possible and know your numbers.
Journaling, I have said it many times before, but this is the holy grail. No journal means almost zero chance at making money in the long run. You have to learn from your mistakes. You have to know what works and what doesn’t. You have to keep improving. If you want to become a smart money trader and want to become good at forex trading, you need a journal. If you don’t have one, make one as soon as you are finished with reading this article.
Gather statistics in order to improve your discission making, this is also important. We at CDFX Trading trade almost 100% mechanical. We are obsessed with stats. As soon as we enter a trade, we know the chances of making money, we know the chances of a retracement, we know the chances of losing, we know what we can expect in the long run. Gather stats about your trading and become a smart money trader.
Smart money trading is all about improving. Your edge might go away if you don’t work on it. Therefore, it’s vital to find ways to improve. Read articles such as the ones on this website. Listen to podcasts, read books, test things out and review your trades. This is how you learn, this is how you improve, this is smart money trading.
Let’s clarify something
Lamborghini’s, 1:300R:R trades, cocktails, you see it everywhere. Don’t fall for this, it’s a scam. This way of trading is almost 100% based on luck. People will tell you that it’s about reading the market structure and smart money trading, which is not true. They lie to you. They want to believe it because they don’t want to admit they are gambling. Everyone that trades is a gambler. If you aim for a 300R target, you are trading based on luck. The losing streaks you will have when trading this way, will kill your account and your emotional capital. It’s a very unhealthy way of trading. You can easily lose 50 times in a row. Are your prepared for that? These guys that show you these trades, don’t tell you this. They want to sell their courses. What if you miss that one winning trade? Then you will probably have 50 more losing trades before another winner and there goes your account.
Taking trades with these kinds of targets is not smart money trading, regardless of the method you use. This is cunt money trading. Stop doing it, focus on the process, find a way of trading that fits with your personality and build from there. It might be boring, it might not be popular, but this is the only way you are going to make money in the long run.
I hope this blog wasn’t to offensive or pessimistic, but this is just the reality about smart money trading and people need to realize that. There is so much bullshit out there today and people get scammed on a daily basis. I want to be real. This is smart money trading.
Don’t be discouraged by this blog. Read it again, write down the steps you can use to become a smart money trader yourself. Not by buying a lambo course, but by establishing a professional and real approach. By improving, by knowing your edge, by gathering statistics and by preparing. I hope you enjoyed this blog. If you are interested in our services, we provide: 1-on-1 forex coaching, fix your trading (1-on-1 session where we discuss your problems and make a plan to fix it) and long term wealth building, which is about investing in different assets. You can also contact us with any questions you have. We are always there to help and usually respond very quickly. Good luck with your trading journey.
PS, don’t forget to start that journal right now!