Smart Money

"Smart Money" is shorthand for institutional participants, banks, hedge funds, and proprietary trading firms, whose order flow is presumed to drive intermediate and long-term market direction. Smart Money Concepts (SMC) is the framework of techniques for identifying and trading alongside this flow, typically by reading structural clues: Order Blocks, Fair Value Gaps, Liquidity Sweeps, and Break of Structure.

The core thesis is that institutions cannot execute large positions without leaving visible footprints because their orders are too big to be filled at a single price. Retail SMC traders therefore look for evidence of absorption (Order Blocks), displacement (FVGs), and liquidity-taking (sweeps) as proxy signals for institutional intent. The framework is criticized for being difficult to backtest rigorously, identifying "institutional" activity is subjective, but the underlying concept that large orders move price differently than small orders is empirically well-supported in market microstructure research.