Does the smart money concept work in Forex?

Smart Money Concept in Forex The turning point between an uptrend and a downtrend where the left side represents the end of the uptrend and the right side represents the beginning of the downtrend, the pattern begins as a series of higher highs and higher lows. The sequence is changed when a low point is formed that has the same approximate values ​​as the previous low If there is an influx of liquidity, the price should rise from this low point.

Does the smart money concept work in Forex?

Instead of resuming the sequence of higher highs, a lower high occurs, and then the price slides back to the previous low for a third time. If a higher high occurs with expanding volume, this is considered healthy and normal in an uptrend but in an ideal scenario, a head and shoulders pattern sees volume diminishing at each high. Consecutive.

The peak, which forms the highest point of the head, is ideally supposed to occur on the decline. Greater volume than the previous high, which formed the left shoulder. The volume must diminish further at the third peak, where it forms the right shoulder. This indicates a lack of enthusiasm on the part of buyers who lose their will to continue buying at higher prices. If and when the neckline breaks, the breakout must occur at a high. Trading Volume Notice how trading volume decreased as the pattern formed.

Trading Forex in a bounce pattern

The volume under the head is low compared to the high that preceded it the volume is very low on this bounce from the neckline once the neckline was broken the volume started to increase as the price moved down in fact it started to rise before the breakout which confirms the selling pressure this works too If it’s not head and shoulders, you probably have a triple top that involves fluidity, and the neckline is the pivot point.

If you wish, use this pattern to your advantage. This is an area where many buyers remain trapped in losing trades. Since the price has risen from the neckline on several occasions, we can assume that many traders have been buying at this level, and we know that these… Buyers, as well as any buyers who entered at higher levels and are still in the trade, will hold losing positions.

Pushing the Forex market price down

If this losing neckline breaks, traders will be forced to sell, which would help push the price down. Aggressive traders will also close long positions and start selling as the price breaks through the neckline. This adds momentum and during this phase, you should see Increasingly large, the double liquidity run pattern also known as the main pattern is another popular smart money formation.

It is a trap to attract both buyers and sellers to take losing positions. First, the price breaks the swing high but then quickly reverses and fools all the buyers who tasted the breakout. The amateurs will enter in what looks like a clear breakout, then the professionals will push the market back in the other direction. This is the first wave. Liquidity The second part of the pattern consists of another trap price will fall and will break the swing low this time and trap sellers on the wrong side.

The contraction phase is when trading volume decreases

This is the second liquidity process designed to trap weak hands in the market. It is very difficult to make money as a retail trader if you do not know what you are doing. If you analyze this pattern you will notice that it has three faces to the market: expansion-contraction and trend. First, we have the contraction phase, which is when the market… The contraction phase occurs when institutional trading volume decreases, often leading to sideways movements.

The action is not an ideal phase for trading but a portion of retail traders take the bait in the hope of a breakout, you often see this phase during the Tokyo session Secondly, we have the expansion phase, which looks like an exciting phase for retail traders to expand characterized by a slight increase in trading volume, the market becomes more active in Breaking previous highs and lows.

Forex trading for smart money

Smart money takes advantage of this phase to accumulate accumulated positions at discounted prices. While inexperienced traders often fall into the trap of soft movements, it can be a difficult phase. As the market breaks out on both sides of the range, trapping most individual traders, we finally have the trend phase.

This is the stage in which the market makes a large and violent movement in one direction with increasing trading volume. During this stage, institutional traders use market liquidity to exit their trades. Previously accumulated positions, these three phases complete one market cycle, and once they are over, you can expect the market to go through these phases again.

Another example is during the contraction phase you will see periods of sideways movements you will notice the volume of institutions falling as a beginner, it is wise to avoid the contraction phase, then we have the expansion phase, double manipulation with two liquidity moves, first a breakout under the range as soon as they see the market breaking down, individual traders start selling thinking that It will continue to fall and then later when they see the market collapsing, they start buying assuming it will rise further.

But what they fail to understand is that smart money works differently, they sell when the price is above average and buy when it is below average if you look at the volume at that time. From the fake breakouts, you will see that it is low.

Summary

Finally, we have the trend phase where we see the price moving significantly and you will notice an increase in volume during this phase. You cannot control when or how these phases occur but if you try to understand you can improve your trading approach and get a better understanding of the market dynamics. Now let’s dive in with some money patterns. Smart Advanced Firstly, Accumulation is nothing but sideways market activity that occurs after an extended downtrend, this is the point where the smart money tries to gain positions without moving prices too much to the upside.