The ‘Smart Money’ and The ‘Herd’
In financial markets, traders and investors—regardless of experience—often fall into common traps that lead to significant losses. Even major hedge funds aren’t immune to failure, as seen during the 2008-2009 financial crisis when thousands shut down.
The key to profitable Smart Money Trading Strategies lies in understanding the imbalances of Supply and Demand across different time frames. Profitable opportunities exist in both uptrends and downtrends, but sideways markets pose a challenge—one that can be navigated with the right approach.
There is a clear distinction between Smart Money Concepts and the Herd. The term “Herd Mentality” describes retail traders who follow the crowd, acting out of fear or greed rather than logic and strategy.
What Is a Herd?
By definition, a herd is:
- A large group of animals, especially hoofed mammals.
- A large group of people, typically sharing a common characteristic.
This term is fitting because, in financial markets, most traders react emotionally—much like a herd in a stampede.
A perfect example is i-Phone Sale. Every year, crowds gather outside stores for hours—sometimes even days—before doors open for massive sales. When the doors finally open, people rush inside, pushing and shoving, desperate to grab items before they’re gone. This behavior is driven by Fear of Missing Out (FOMO) & Fear of Losing Out (FOLO) —the same psychological force that influences buying and selling decisions in the markets.
How the Herd Thinks in Trading
The Smart Money—large institutions and professional traders—understand these emotional patterns. They know exactly why and when retail traders buy and sell. Across thousands of trading seminars and live events, a recurring pattern has emerged: retail traders tend to rely on the same flawed methods to make trading decisions, including:
- Technical Analysis – Using formulas based on past price data.
- Recommendations from mainstream sources – TV analysts, newspapers, brokers, etc.
- Fundamental Analysis – Predicting price movements based on company reports and news.
- Black Box Trading Systems & Robots – Software promising “guaranteed” profits through signals.
- Social Media Tips – Following unverified trading advice from online sources.
But here’s the hard truth:
- The chart never lies.
- Past price does NOT determine future price.
Most traders ignore volume—the most critical indicator of what’s really happening behind the scenes.
The Reality of Smart Money Selling
When Smart Money decides to sell, they don’t do it in a way that’s obvious to the average trader. Instead, they sell as price rises, right into the hands of uninformed investors who are lured in by the excitement of a rally.
This is where many retail traders fall into a classic trap. After waiting on the sidelines and hearing nothing but positive news, they finally jump in, convinced they’re riding a wave of momentum. But what they’re actually stepping into is a well-laid trap—a “sucker’s rally”—engineered by those who were already positioned long before the move began.
As Smart Money unloads its holdings, the inevitable happens: the price plummets. Panic sets in, and those who bought late scramble to exit. Some manage to get out at breakeven, while others watch helplessly as their stops are triggered, locking in painful losses.
This ruthless strategy, known as Stop Hunting, is how professional traders systematically extract profits from the market.
Every price bar on a chart tells a story—a battle between buying and selling. The key to deciphering this battle lies in Volume Price Analysis (VPA).
Ultra-High-Volume Candles: The Footprints of Smart Money
Smart Money operates covertly, but they always leave behind clues—footprints in volume—that reveal their real intentions. The most important clue? Ultra-high-volume candles.
Why Ultra-High Volume Candles Matter
Institutions, hedge funds, and professional traders trade with massive capital—far greater than any individual retail trader. Because of this, they can’t simply enter or exit the market in one move; doing so would cause extreme volatility and reveal their hand. Instead, they have to distribute or accumulate their positions strategically.
This is why ultra-high-volume candles are crucial. They appear when Smart Money is either:
- Accumulating Large Positions (Buying in a Downtrend) – When the price is falling, and suddenly an ultra-high-volume candle appears with a long wick and a close near the top, it often means institutions are absorbing the selling pressure. They are quietly accumulating shares while the Herd panics.
- Exiting Large Positions (Selling in an Uptrend) – When the price is rising, and an ultra-high-volume candle appears near a resistance level, it can signal that Smart Money is unloading shares while retail traders excitedly buy.
- Testing the Market for Liquidity – Sometimes, Smart Money deliberately creates a high-volume candle to test how much supply, or demand exists at a given level. If the price quickly reverses afterward, it signals a trap for retail traders.
How to Identify Smart Money in the Market through Volume
- Volume Climaxes at Market Extremes (Buying & Selling Climaxes)
-
- If a market reaches extreme highs with a sudden surge in volume, it’s a sign that Smart Money is selling into retail buying. This is a Buying Climax (BC).
- When prices drop sharply with massive volume, it often signals Smart Money is accumulating while the Herd panics. This is a Selling Climax (SC).
2. Fake Breakouts with Low Volume
-
- A price breakout with low volume is a trap. If Smart Money were truly participating, the volume would rise significantly.
- Example: If price breaks above resistance but volume is low, it means Smart Money is NOT buying, and a reversal is likely.
3. Volume Spikes Without Follow-Through
-
- If a large volume candle appears, but the price barely moves, it suggests absorption—Smart Money is accumulating or distributing quietly.
- Example: If the price is falling but suddenly stops on high volume, it’s a sign of Smart Money stepping in.
4. Divergence Between Price & Volume
-
- If the price is rising but volume is decreasing, Smart Money is not supporting the move.
- If the price is falling but the volume is rising, it could indicate Smart Money accumulation.
By mastering these volume clues, traders can avoid emotional traps and recognize when Smart Money is positioning for the next big move.
Now the final question may come into your mind is that:
How to Trade Like Smart Money?
The lesson is clear:
- Ignore the herd- but first, understand how they behave (Herd Mentality).
- Watch the volume —because price alone can be deceptive (Volume Price Analysis).
- Follow Smart Money —by spotting ultra-high-volume candles that reveal their true intentions.
Smart Money Concepts revolve around one undeniable truth: Ultra-high-volume candles are the key. These candles appear when institutions must execute large orders—whether accumulating or distributing their positions. And that’s where Volume Price Analysis (VPA) becomes a game-changer.
When you master VPA, you’re no longer just looking at price; you’re reading the real story of supply and demand, manipulation, and hidden institutional footprints.
The chart never lies—and those who learn to read it correctly will always stay ahead of the game.
Success in trading isn’t about chasing signals or blindly following mainstream analysis. It’s about shifting your mindset—understanding how markets truly work and positioning yourself accordingly.
Everything you need is right there in the chart. The question is: Are you ready to see it?
This article is just the beginning of your journey into Smart Money Trading Concepts. Now that you have a solid foundation, are you ready to go deeper?
In upcoming articles, we’ll break down every tactic Smart Money uses—from taking positions and luring in the herd to executing exits and even market manipulation, all through the lens of Volume Price Analysis.
Stay tuned—you won’t want to miss it!
Note: This article is part of Tradonomics’ Smart Money Secrets with Volume Price Analysis series. Explore it to unlock powerful trading insights and master Volume Price Action!