SMC & ICT: Guide to Trade with Smart Money

Success in trading is dependent upon the accuracy of market analysis (both fundamental and technical analysis). There multiple approaches that traders and investors have adopted to make the analysis accurate but the subjectivity involved in the analysis makes it questionable. Every approach has its limitations. SMC (Smart Money Concept) and ICT (Inner Circle Traders) strategies and concepts are developed to answer the questions and carve out something valuable. SMC and ICT provide much deeper insights related to market. The article explores the foundations of ICT and SMC and what are the differences and similarities between them.

Smart Money Concept (SMC)

Smart Money Concept refers to the notion that certain investors, mostly institutions and experienced trader (big money), have better information and understanding of the market. According to the concept, investors are considered to make more informed, strategic, and successful trades compared to retail traders. Retail traders are also known as dumb money.

Some resources claimed that Richard Wyckoff was the inventor of SMC but the concept of “Smart money” itself does not have a single inventor. The term SMC has been used for many years to refer to the investments made by institutional investors. The application of SMC in trading has been popularized by various traders and educators who have developed and shared strategies based on observing the behavior of the institutional traders. Wyckoff’s contribution is still Valuable. He is famous for VSA (Volume Spread Analysis) and Schematics.

The focus is on following the actions of these institutional investors, as their trades are believed to indicate market direction. Traders using the Smart Money concept often look for patterns that suggest where the big money is moving.

• Watching the order book to identify large orders.
• Identifying spikes in volume as potential indicators of institutional activity.
• Gauging market sentiment to infer where smart money might be positioning.

ICT (Inner Circle Trader) Concepts

These concepts were developed by Micheal J. Huddleston. These concepts are considered as set of advanced trading strategies. The methodology is focused on price action and market structure. It helps in understanding the underlying mechanics of the market.

ICT focuses on understanding how the market operates, especially how institutional traders manipulate price to trap retail traders. ICT concepts emphasize the importance of market structure, liquidity pools, and manipulation of prices by institutional traders.

• Understanding and identifying key market structures like higher highs, lower lows, etc.
• Recognizing areas where liquidity is likely to be, such as around previous highs/lows.
• Incorporating the idea of institutional manipulation, ICT strategies often focus on entries based on perceived manipulation of the market to trap retail traders.

Key Differences

SMC and ICT concepts revolve around understanding and trading in line with institutional market behavior. However, they differ significantly in their methodologies, focus and level of sophistication.

Core philosophy

SMC is developed on the idea that smart money or institutional investors have better access to the market information and resources. This allows institutional investors to make more informed decision and trade with harmony. Retail traders use SMC to identify the footprints of the institutional traders and trade using those footprints.

SMC approach is generally to track and mirror the activities of institutional traders through various indicators. According to SMC, their action signals the true market directions.

ICT, on the other hand, expose deeper insights. It provides more informed understanding of the underlying mechanics of the market. ICT does not rely on just following the path of institutional traders. The concepts are much focused on understanding and anticipating their actions by recognizing the pattern of market manipulation and market structure.

Technical approach and tools

SMC often uses more traditional technical analysis tools like volume indicators, order flow, moving averages, and sentiment analysis to gauge institutional activity. The focus is on detecting the presence and activity of institutional traders through visible market data such as large orders, sudden spikes in volume, or unusual price movements.

ICT places a strong emphasis on understanding market structure (e.g., identifying higher highs, lower lows, market swings, etc.). Traders learn to recognize key levels of support and resistance, liquidity zones, and other structural elements that influence market behavior.

ICT teaches traders to identify liquidity pools—areas where stop losses or pending orders are likely concentrated. These areas are often targeted by institutions to induce fake breakouts or stop hunts before reversing the market direction.

ICT traders learn to recognize “order blocks,” which are essentially areas on the chart where institutional orders are placed and can indicate potential reversal points.

Key Similarities

Both concepts shared several key similarities. The following are the similarities:

• SMC and ICT both are centered around understanding of institutional behavior. Retail traders using the concept aim to understand and align their trading strategies with the actions of these large traders.
• Both accept the notion that market is often manipulated by institutions to create liquidity. The most appearance is stop hunts, false breakouts, and price manipulations to trap retail traders.
• SMC and ICT emphasize the importance of understanding market structure. This includes identifying key levels such as support and resistance, swing highs and lows, and the overall trend of the market.
• Both SMC and ICT place a strong emphasis on liquidity. They teach traders to identify areas where liquidity is likely to be, such as previous highs and lows or areas with concentrated stop orders.
• Both concepts recognize the importance of trading psychology. They emphasize the need for patience, discipline, and emotional control, particularly because both strategies often require waiting for high-probability setups and avoiding impulsive trades.

SMC and ICT concepts revolve around understanding the actions and intentions of institutional traders and developing strategies that align with the “smart money.” They share a focus on market structure, liquidity, and disciplined trading, with an overarching goal of achieving consistent, long-term profitability by avoiding the traps set for retail traders.

Frequently Asked Questions (FAQs)