Direct from the desk of Dane Williams.
As I move deeper into creating forex trading content, I keep bringing up the concept of "smart money" while assuming everyone understands.
So today I’m going to no longer assume and answer what exactly is smart money in forex?
Smart money refers to the group of highly informed and influential participants in the foreign exchange market
These individuals and institutions possess the deep pockets required to move markets on their own and an intricate understanding of market dynamics.
At the forefront of smart money players are large financial institutions.
When I say large, I’m talking about commercial banks, hedge funds and even the central banks of nation states.
As you can see, these entities command substantial capital and therefore have the capacity to front-run and influence currency valuations.
In stark contrast, retail traders like you, are often dubbed the "dumb money."
I’m sorry…
I promise you that it's not me questioning your intelligence!
Rather, it's about the scale of your participation within the overall forex market when compared to the big players.
Imagine a scenario where smart money has a vested interest in a particular currency pair, say, the Euro/US Dollar (EUR/USD).
Perhaps they anticipate a significant change in Eurozone monetary policy that could affect the Euro's value.
In such a situation, smart money would start accumulating positions, discreetly building their exposure to the Euro while keeping a low profile.
Identifying large pools of liquidity sitting in the market and using their size and knowledge to stop hunt.
Thus getting their required position size on before the market moves in their direction.
This gradual accumulation can go unnoticed by retail traders and the price may appear stable or even slightly bearish.
However, beneath the surface, the smart money is always quietly positioning itself for a major move.
But as a retail forex trader, not all is hopeless.
The exciting part is that you can indeed benefit from smart money's moves.
Doing so involves staying informed and monitoring economic events and central bank decisions closely.
Additionally, you can utilise technical analysis to identify potential entry points aligned with likely areas of liquidity and smart money trends.
By keeping a watchful eye on certain indicators, price action and even sentiment analysis, retail traders like you can make informed decisions that align with the underlying direction smart money is taking.
Even moreso than just following on their coattails.
I’m talking about actually understanding the plays that they want to make, even before they make them.
It can be done.
Smart money in forex represents the informed and influential participants who can shape market trends.
Yes, it’s true that retail traders may be perceived as "dumb money" due to your limited account size and insider knowledge.
But with knowledge and strategy, you can align your trades with the smart money's movements, reaping the same rewards as those in the know.
Best of probabilities to you.