Contents of this article:
It is important to understand what makes assets grow and vice versa to stay on the cryptocurrency market and earn money. A successful trader knows how to analyze data and build the right behavior strategy. There are several methods of analysis, we will tell you what smart money is and how this concept differs from technical analysis.
What is smart money in trading?
When professional investors use funds to make key trading decisions, it is known as smart money movement. Professionals tend to work for institutional banks, large funds and other centralized financial institutions. The concept of smart money is useful not only for investments in securities, but also in cryptocurrencies.
So what is smart money? This is the capital, used by the largest, most experienced and successful market participants. The concept of smart money is a set of tools that allow you to track the actions of top traders. It is difficult for a simple trader to understand what big investors are up to, but he can follow them and repeat their actions.
Trades, which are made by experienced brokers, are analyzed by middle-class investors, and their actions, in turn, are analyzed by other, less experienced traders. Thus, investors use other people’s experience and valuable information to build their own behavior strategies.
The so-called smart money affects the state of the market and is able to fluctuate the price in one or another direction. Some experts argue that the concept of smart money does not always work better than the strategy of smaller players. The movement of smart money is always closely monitored and studied by traders who, by copying the behavior of professionals, get a good income one way or another.What does smart money trading give the player:
- Reduced risk. Especially at the beginning of the movement, the trader increases his chances of making good profits, but the risks still remain by successfully identifying the smart money trend.
- Relative stability. Following the concept of smart money does not guarantee a quick and very high income, but still allows you to determine a reliable strategy, especially for those who do not know what to do.
About technical analysis
You can understand better what a smart money trade is by understanding the concept of technical analysis. This is a trading option that retail traders have come up with. It basically consists in studying the dynamics of the market with the help of charts. It is used to predict the rise or fall in the price of a cryptocurrency. Formulas, indicators, algorithms and other tools that interpret quote charts are used for analysis. However, the psychology of market participants still remains at the heart of a logically built structure.
Technical analysis has three pillars:
- The market must take everything into account. It means that any reasons that can affect the value of the crypt are already taken into account in it. The task of a trader is to be able to track and analyze the dynamics of price changes.
- Quotes move according to trends. A trader must be able to identify these trends, their features and moments of change from one trend to another.
- Stories always repeat themselves. The movement of the cryptocurrency price in the market is based on human psychology. Player behavior patterns tend to repeat themselves. This means that if some behavior model worked in the past, most likely it will work again, because human psychology does not change.
Difference of approaches
Technical analysis of the cryptocurrency market is carried out to determine the current trend and confirm forecasts regarding the price increase or decrease. All these traders do to achieve one goal – to choose the right moment to make a deal.
Adherents of the concept of smart money do not follow the dynamics of price changes, but large market participants, counting on their experience, awareness and knowledge of what to do.
It is important to understand the basics of trading and the nuances of the market to understand better what smart money and technical analysis are, and which approach is more effective. You have to study a lot of information, independently conduct a single analysis and practice.
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Author: admin_cryptocrew
