📌Foundations of Smart Money Concepts (SMC)

Alright now this is where the real fun begins. This is where you will start to understand the fundamentals of institutional approach towards the market.

Retail traders ( individual traders like you and me ) and Institutions ( big investment banks like Goldman Sachs and Morgan Stanley ) operate in the same financial markets, but their approach, execution and strategies are vastly different, the biggest difference would be the capital they trade with, they trade on an enormous amount of capital which by default gives them an edge. SEBI recently reported that 90% of traders lose money in the derivatives market. Contrary to what most believe, it's not always due to bad strategies or poor execution, the real reason is that retail traders unknowingly become “exit liquidity” for institutions.

What Does This Mean?

Institutions trade with massive capital, and they can’t just place regular orders like retail traders. Instead, they need liquidity, a large volume of orders in the market to execute their trades efficiently. Often, they can’t even place their full order at once without moving the market against themselves.

Example: How Institutions Manipulate Liquidity

Let’s say in a stock there are: 📈 18,000 buy orders 📉 13,000 sell orders

At first glance, buyers are in control, which might make retail traders believe it’s a strong buying opportunity. But this is exactly where institutions step in to manipulate liquidity.

🔹 Suppose an institution wants to buy 23,000 stocks; they can’t do it immediately because there aren’t enough sellers (only 13,000 sell orders exist). If they try to buy now, they’ll push the price up before they’ve even entered, reducing their profit potential.

🔹 So what do they do? Instead of buying immediately, they short sell first to drive the price lower. This forces retail traders to panic sell as their stop-losses get triggered.

🔹 Once the stop-losses get hit, a surge of forced selling creates fresh liquidity; now, there are enough sellers for institutions to execute their buy orders at a discount.

🛑 Retail traders panic and sell → Institutions enter at the best possible price.

💡 Key Takeaway

Retail traders often fall for these liquidity traps because they only see basic supply and demand, while institutions control the supply and create the demand. Instead of trading blindly, you need to understand institutional order flow and trade where the real liquidity is, not where the market "looks safe."

Another example:

The Retail Trader Trap

1️⃣ Price moves above a resistance level → Retail traders go long (buy). 2️⃣ Institutions push price down sharply, hitting their stop-losses. 3️⃣ Institutions buy at a discount, then push price back up.

🔹 Retail traders panic sell → Institutions enter at premium prices. 🔹 Retail traders FOMO into breakouts → Institutions exit with profit.

Now that you see how the market is stacked against retail traders, let’s dive into the next section, where you'll master the basics of market structure and learn how to trade with the smart money instead of against it.