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The SMC style of trading has gained a lot of attention in 2023, but what is SMC?
SMC stands for 'Smart Money Concepts' and is a style of trading 'Like the banks'.
This was first made popular by a trader called 'ICT', and has since gained massive popularity.
This is different to the traditional style of trading which many people know as 'retail' trading. This is using common indicators and patterns to try and get an indication as to where price is going.
Retail concept examples:
- Head and shoulders
- Trendlines
- Moving Averages
- Support and Resistance
SMC concepts examples:
- Liquidity Pools
- Order & Breaker Blocks
- Break of Structure
- AMD
Learn what AMD theory is in this short video below.
The idea of SMC is to trade like the banks. This means avoiding trading in a way where the banks can manipulate you out by triggering stop losses before moving in the direction of your initial trade, which believe us, is a very common occurrence and can be extremely frustrating.
So should you only trade the SMC way? Well like everything in life there are Pros and Cons to both ways of trading. Let's look at some key differences between both.
SMC's - Pros:
Some traders have found success with Smart Money Concepts (SMC) trading. If it works for you, there's no reason not to use it. Understanding and profiting from price behavior consistently is more important than knowing the exact reasons behind price movements.
Price action, which SMC is based on, has a long history of producing results for many people across different assets, not just currencies. So, SMC does have a strong foundation since it builds upon price action principles.
For some individuals, presenting price action as SMC makes it easier to understand.
While the idea that large institutions specifically target retail traders may not be fully supported, it's possible that larger institutions sometimes take advantage of smaller traders, leading to certain market trends. Liquidity grabs, although presented differently by SMC, do exist. So, some aspects of SMC's theory may have validity.
SMC's - Cons:
Some of the ideas presented by Smart Money Concepts (SMC) may not make logical sense when considering the relevance of retail traders to larger players in the market. Fully believing in everything SMC presents could lead to a misunderstanding of market fundamentals.
The theories behind SMC cannot be proven or disproven, as they are purely speculative. Only someone with insider knowledge could provide concrete evidence either way. This means that SMC's model of reality cannot be verified as correct, but it also cannot be completely refuted. Arguments about what institutions do are based on individual beliefs
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The use of different terminology by SMC can complicate the learning process for price action, especially if you are already familiar with the standard language of price action. It may also make it harder to share what you've learned with others who are familiar with the conventional price action terminology.
Many people are put off by the exclusive and mysterious image surrounding SMC. They feel that selling old concepts as if they are new is deceptive. Additionally, the use of the word "sell" here is literal, as while there are free SMC resources available, you will encounter paid resources while trying to learn SMC.
Overall, like many concepts of trading, SMC is a subjective theory and really depends on the person applying it. Some people find it to be their holy grail, while others can't seem to make it work.
Trial and error and investing in the right knowledge will help you decide whether SMC is something you want to apply to your own trading.
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