If you’re struggling to consistently profit in Forex trading and have yet to see a clear edge in your trades, understanding how large financial institutions, also known as “smart money,” manipulate the markets is crucial. Without knowing their tactics, you’re essentially trading blind, often working against forces far bigger than yourself.
The SMC trading strategy is more associated with understanding market manipulations in terms of how big institutions place their trades. If you learn to spot such moves, you can align your trades to smart money rather than against them.
This guide introduces liquidity manipulation and teaches you how to use it on the part of banks, financial institutions, and huge entities in playing control over movements in the markets. You realize key levels that liquidity makes during its movement so that you may position yourself to achieve the same smart money does make.
4 Ways How to Align Your Trades with Smart Money?
1. Understanding Smart Money Manipulation
Why Smart Money Manipulates the Market
Large financial institutions, like banks, governments, and corporations, have huge sizes in their orders. For example, if a bank wants to execute a $1 billion order, they can’t just buy or sell all at one shot; they have to create liquidity. This is where they manipulate smaller traders to create fake market moves, trapping retail traders.
How Smart Money Executes This
Smart money creates manipulations near specific price levels. Retail traders often place stop losses below lows or above highs, creating liquidity that smart money can “hunt.” When prices trigger these stop-losses, they turn into buy or sell orders that allow the institutions to enter or exit positions at favorable prices.
How They Use Liquidity
Smart money knows that by shoving the price to specific liquidity areas, they can absorb a significant amount of retail trader positions, allowing them to fill their orders at an advantageous price. Having gathered a huge quantity of liquidity, they reverse the market, trapping traders who follow the fake breakout.
2. Key Liquidity Levels of Smart Money Manipulation
Types of Key Liquidity Levels
There are several critical liquidity levels smart money uses to manipulate the market:
- Previous Day’s Low/High: These levels often carry a lot of stop loss orders and represent areas where the market can be manipulated.
- Asia Session High/Low: Price often targets these levels during the market’s session transitions.
- Equal Highs/Equal Lows: When a price level is repeatedly tested, it becomes a target for manipulation.
Using those levels will guide you into foreseeing areas smart money could play trades for some market movement to occur. How to utilize is to observe what these places for manipulation and using them for strategizing your plays.
3. Liquidation Trading, Market Deliver and Liquidity
Once you know where liquidity is, the next thing you want to know is the market’s “delivery.” For instance, if the market is bearish, smart money will first look at a high liquidity area such as the Asia high or the previous day’s low. They will trigger stop-loss orders, and the market will go lower before reversing to fill their own orders.
Timing the Market Shift
With this strategy, one waits for the change in market structure. Once the important liquidity level is touched, smart money will change the direction of price, which becomes a good time for retail traders that have already identified manipulation, as this will be a confirmation through a little adjustment in market structure or simple Candlestick formation.
Making use of Multitime Frame Analysis
To enhance the reliability of your trades, you should merge analysis across multiple timeframes. The 15-minute chart will give you an idea of the larger trends, while the 1-minute chart gives you insights into more granular price movements that confirm changes in order flow.
4. Applying the Strategy
Step-by-Step Guide
- Identify key liquidity levels (previous day’s low, Asia session high, etc.).
- Watch for price to hit these levels, creating potential liquidity traps.
- Wait for a market structure shift or a candlestick formation that signals a change in direction.
- Take your position in the new direction once the market shows signs of reversing and heading toward the next liquidity zone.
Conclusion
The key to success in using this Liquidity SMC Trading Strategy is understanding large institutions’ influence on the markets. You need to identify main liquidity levels, wait for some confirmation of changes in market structures, and, as a result, trade smart money, considerably increasing your chances for success.
