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Comparing ICT and Smart Money: Key Strategies for Mastering Crypto Trading
It has been said a lot about ICT and Smart Money concepts as the methodical holy grails to understand the forces behind every price pattern and consequent structure formations in the financial markets.
Traders employ and study these concepts to capitalize on the asset's price fluctuations by pursuing high-probability setups. Both approaches have similarities. However, their origins are subtly different.
Smart Money Wyckoff Strategies
The Wyckoff method is the cornerstone for understanding SMC. It establishes the guidelines for price chart analysis according to how the institutional players move the market upward and downward with a tendency to distribute and accumulate.
Specifically, SMC appoints four phases:
Accumulation
Uptrend
Distribution
Downtrend
Accumulation stages tend to form future demand zones, while distributions create supply. Uptrend and downtrend stages need momentum.
Key Smart Money strategies are an effort to find high-probability setups based on Wyckoff to spot where institutions are possibly playing. They include:
Breakouts with volume (BOS)
A phase shift from accumulation/distribution to an uptrend/downtrend implies a break in the market structure, typically referred to as BOS.
The third Wyckoff's law suggests that price changes need a volume increase to be effective.
Volume increases are a sign of smart money entering the market.
False Breakouts As Reversal Patterns (ChoCH)
When a phase shift does not sustain itself, it indicates a change of character (ChoCH). In a price chart, this movement is essentially a false breakout.
False breakouts followed by volume increases suggest that institutions seek liquidity to accumulate or distribute their holdings.
Following a downtrend, a ChoCH during an accumulation phase may indicate an ultimate buying for a reversal upside move.
Following an uptrend, a ChoCH during a distribution phase could be an ultimate selling for a reversal downside move.
Check out also: ICT vs SMC: Which is better for trading crypto?
ICT Market Structure Strategies
ICT proposes a more straightforward process based on intuitive indicators to spot relevant zones.
We can say that, while Smart Money concepts focus on a broader method, ICT compiles them into a set of techniques more suitable for mid-level trading. The latter means seizing opportunities by rapid price swings.
Two ICT indicators gather key principles for seizing market structure strategies:
Order Blocks
Fair Value Gaps
Have a look at the overview of ICT trading and its key concepts at Altrady!
Order Blocks Strategy
Unlike accumulation/distribution concepts, ICT identifies supply and demand through order blocks. Later, they can act as key levels for price bounces.
Traders can take advantage of this in two ways:
Spotting a historical order block in the chart and waiting for the price to approach it.
When the price gets around, traders can expect a break-through or a bounce.
Fair Value Gaps Strategy
Generally, when the price breaks through an order block or bounces from there, it will do it sharply, leaving an "empty" or non-traded area. ICT spots that area as an imbalance and calls it a fair value gap.
FVGs are one of the reasons why the price retest an order block. From an FVG, traders can also:
Seize a price reversal towards the non-traded area.
Use FVG as take-profit targets.
Anticipate a breakaway gap move, which is a strong move out and beyond an order block.
Conclusion
Smart Money theories rely on institutional behavior and use the Wyckoff method to understand how it drives and shapes the market. Essentially, Smart Money strives to discern the fundamentals of a market. ICT seems to take the Smart Money concepts (SMC) and clusters dynamic price action indicators that enable traders to seize specific patterns in the market.
