Smart Money Concepts in Forex – What Are They?

It is a good idea to visit forex forums from time to time. If you are a frequent visitor of forex forums, you probably have heard about “Smart Money Concepts Forex.” 

Do you know what Smart Money Concepts (SMC) trading is all about? The above-mentioned strategy is quite interesting. 

We can say SMC is just another name for price action. The above-mentioned strategy involves utilizing forex concepts. For example, supply and demand, as well as price patterns. Just imagine that someone came up with new names and somewhat altered the description of the above-mentioned concepts. 

It is noteworthy that “Smart Money Concepts Forex” is more than just a forex trading strategy. Without exaggeration, it is an entire philosophy about how the markets work.

To cut a long story short, it states that market makers, namely hedge funds, banks, and others,   

are manipulative entities, and that furthermore, they are actively making life difficult for retail traders.

According to the strategy mentioned above, as a retail trader, you should base your strategy on what is going on with the “smart money” (i.e., the money belonging to market makers).

The history of SMC forex is quite interesting, to say the least. It originated with the Inner Circle Trader (ICT). As a reminder, Michael J. Huddleston is behind the Inner Circle Trader. 

Interestingly, the program mentioned earlier offers some free resources. However, it also offers a paid forex mentorship. 

Terminology 

Let’s take a look at several terms used by SMC traders. 

We can start with order blocks. It is used in order to discuss supply and demand. According to some traders, order blocks are a more “refined’ concept compared to regular supply and demand. 

Have you heard about breaker blocks and mitigation blocks? They refer to support and resistance. 

What about fair value gaps? 

It refers to an imbalance. There are various types of gaps. As a reminder, all of them were identified a long time ago. Importantly, some examples are exhaustion gaps, runaway gaps, breakaway gaps, and common gaps. 

Main challenges of SMC 

The strategy mentioned above is controversial for several key reasons. Unfortunately, the theory behind “Smart Money Concepts Forex” isn’t correct. In spite of the fact that the strategy mentioned above can work, it isn’t new.

What’s wrong with the theory behind SMC? Let’s find out! 

According to SMC traders, manipulations by “smart money” actors are why certain SMC patterns are forming. However, it doesn’t provide any evidence that the above-mentioned manipulations are occurring or are responsible for the patterns. 

It is no secret that banks, hedge funds, and other main players move the markets. However, it isn’t true that banks and other main players are trying to get rid of retail traders. The role of the main players in the markets is to create liquidity. 

To make a long story short, market makers aren’t afraid of retail traders. Why should they? Retail traders don’t play in the same league.

Is market manipulation a myth? The situation is more complicated than it may appear at first glance. It’s not a myth. We need to note that it does happen, however, not in the way that the above-mentioned strategy describes. 

Regular retail trading and SMC 

It is noteworthy that traders who endorse SMC believe that they are trading like the market makers and not like other retail traders. In reality, they don’t trade like the market makers. They are trading exactly like other retail traders. 

Many traders aren’t happy about fancy terminology. Inner Circle Trader has made a fortune thanks to SMC. It is totally legal to teach various methods to traders. Moreover, they are teaching methods that can be useful.

The problem is that some traders think that presenting these old concepts as if they are brand new is dishonest in some way.

The strategy mentioned above uses old concepts. To cut a long story short, they didn’t invent the wheel. They just changed the name to something else. So, it is the same wheel but with a different name.

The question is, “does it make sense to learn all the terms mentioned earlier?” It is up to you to decide.   

Advantages and disadvantages of SMC 

We need to mention that SMC works for some traders. If SMC works for you, feel free to use it. 

As a reminder, price action has a long history of producing results for many people across not just currencies but other assets as well. 

It is important to note that SMC is the same as price action, just with a different name. As a result, it does have a solid core. So, feel free to learn more about price action. 

While the theory that main players are targeting retail traders is uncertain, it does seem feasible to suggest that main players may occasionally go after retail traders, generating some of what we are seeing. 

Let’s move on to the disadvantages of SMC. 

First of all, you need to be extremely careful with SMC. For instance, some of the theory elements of the above-mentioned strategy don’t appear to make a lot of sense when you think logically about how insignificant retail traders are to the market makers. 

Moreover, the problem with SMC is that it isn’t possible to prove or disprove the theories behind the strategy. Remember, theories behind “Smart Money Concepts Forex” are purely speculative. 

So, no one has the ability to verify SMC’s model of reality. However, we can’t refute its model of reality either. Unfortunately, there isn’t much we can do in order to solve the issue. 

Terminology is a weak point of SMC. People who are familiar with the standard language of price action may find it boring and unnecessary. Furthermore, the terminology may make it harder for you to share what you learn with others who are used to the regular price action language.

Besides, many traders are turned off by the elitist mystique surrounding the above-mentioned strategy.

Do you really need to use SMC? 

 Many traders aren’t interested in SMC due to various reasons. It isn’t hard to understand their feelings towards SMC. 

The question is, “Should you trade using SMC?” Fortunately or unfortunately, there is no right or wrong answer. 

As stated above, many traders are not big fans of SMC. However, there are traders who have nothing against it. 

So, if you do like how SMC expresses its terminology as well as techniques, feel free to use it. However, you need to keep in mind that SMC is a repackaged form of price action trading. It isn’t something new. 

But there is nothing wrong with that, as good old-fashioned price action trading is a proven 

method that has been profitable for a lot of traders. 

Popular Forex trading strategies 

It isn’t possible to discuss all forex trading strategies. As you can see, it is important to gather more information about various strategies. We can’t finish this article without day trading and position trading strategies.

Let’s start with the day trading strategy. It refers to the process of trading currencies in one trading day. It is possible to apply the above-mentioned strategy in all markets. However, it is mostly used in the forex market. 

The idea behind the strategy mentioned above is to open and close all trades within a single day. It is important to keep in mind that no position should stay open overnight in order to reduce the risk. 

Interestingly, day traders usually stay active over the day, monitoring and managing opened trades. Importantly, they are mostly utilizing 30-minute as well as 1-hour time frames in order to generate trading ideas. 

Many of them tend to base their trading strategies on the news. For instance, interest rates, elections, and economic statistics, among other factors, affect the market. 

What’s interesting is that day traders take into account risk factors. For example, a common decision among day traders is setting a 3% daily risk limit.

Part two

Let’s take a position trading. It is a long-term strategy. As opposed to day, the strategy mentioned above is primarily focused on fundamental factors. 

You don’t have to take into account minor market fluctuations when it comes to the strategy mentioned earlier, as they don’t influence the broader market picture.

Did you know that position traders are closely monitoring central bank monetary policies?

They also monitor other fundamental factors in order to identify cyclical trends. 

Successful position traders may open just several trades over the entire year. Still, profit targets in these trades are likely to be at least several hundred pips per each trade. 

Position trading is more suitable for traders who aren’t in a hurry, as their position may take weeks, months, or even years to play out.

In conclusion, “Smart Money Concepts Forex” is controversial for several reasons. So, you need to take into account various factors when it comes to the above-mentioned strategy.