Smart Money in Cryptocurrency Trading: How to Recognize and Utilize the Large Capital Strategy

The concept of Smart Money refers to the method of analyzing the behavior of large investments and the movement of big capital managed by the largest market participants — major financial institutions, institutional investors, and other powerful players. This concept applies across all types of markets: stocks, currencies, cryptocurrencies, and other assets.

Key idea: large players can influence price formation and even control asset prices due to the huge volumes of capital they control. There is always a conflict in the market between the mass of small participants (“crowd” or “hamsters”) and professional players. Large capital constantly acts against crowd expectations and psychology, manipulating emotions (FOMO) and moving the market in the desired direction.

How does Smart Money differ from classical technical analysis?

Smart Money is essentially technical analysis but built on a deeper understanding of market behavior through the lens of (candlestick analysis). Traditional TA methods (patterns, indicators, formations) provide information that the “crowd” easily interprets, but this very fact makes them ineffective.

Classical technical analysis is a tool for manipulation by the big player. It deliberately draws those figures and patterns that less experienced traders want to see. The result is obvious: about 95% of small participants lose their funds. A “beautiful” bullish triangle suddenly breaks out in an “undirected” direction, reliable resistance suddenly breaks with a subsequent daily return — this is a classic trick to trap “hamsters’” stop orders.

Market structures as the foundation of analysis

The entire market consists of three basic structures that need to be recognized:

Upward structure (HH+HL) — sequentially updating highs while lows are rising. This characterizes a bullish trend.

Downward structure (LH+LL) — sequentially updating lows while highs are falling. A sign of a bearish trend.

Side movement (flat/consolidation) — movement without a clear direction, when the market fluctuates between visible lows and highs. Usually formed as a parallel channel. At this stage, there is a balance between supply and demand.

Consolidation often occurs when a large player accumulates a position or when interest in the asset declines. During sideways movement, the whale accumulates the necessary liquidity. A price breakout beyond the trading range is called a Deviance. This phenomenon often signals a trend reversal and a return within the sideways range.

Reversal points and structural movements

Swing points — moments when the price can change:

• Swing High: the main candle with the highest high, framed by two neighboring candles with lower highs. Signals a reversal downwards.
• Swing Low: the main candle with the lowest low, framed by two neighboring candles with higher lows. Signals a reversal upwards.

Break Of Structure (BOS) — updating the structure within the trend (a new high in an uptrend or a new low in a downtrend).

Change of Character (CHoCH) — a change in the market trend. The first BOS after CHoCH is called Confirm and confirms the change of direction.

Structures are divided into primary (major timeframes: 1W, 1D, 4H) — main trend, and secondary (smaller: 1H, 15min) — correction within the main trend.

Liquidity — fuel for the big player

Liquidity is the main resource for Smart Money. It consists of stop orders from smaller participants, located at obvious support/resistance levels, outside of figures and candle shadows. The big player hunts for this liquidity to fill their own position.

The greatest accumulation of orders is near significant highs and lows (Swing High and Swing Low) — these are liquidity pools.

When maxima/minima are equal (double bottom/top), liquidity grab occurs through the breakout of previous Swing points by candle shadows — known as the SFP (Swing Failure Pattern). Entry into a position: after the SFP candle closes, the stop order is placed beyond their shadow.

When a candle wick hits the liquidity pool, such a candle is called a WICK. The optimal entry is at the 0.5 Fibonacci level near the wick’s pin with a tight stop, providing the most favorable risk/reward ratio.

Imbalance and Disbalance on the chart

Imbalance (IMB) occurs when there is a mismatch between buy and sell orders. On the chart, it looks like a long impulsive candle with a body that “breaks” the shadows of neighboring candles. If shadows cross over the length of the impulsive body — this is not imbalance.

Imbalance acts as a magnet for the price. The big player will try to close this “gap” to restore balance in the market. Entry is made when the 0.5 Fibonacci level (breaks through half of the imbalance).

Orderblock (OB) — institutional activity zone

Orderblock — a place where a large volume was traded by a major player. This is a key liquidity manipulation zone where the whale fills their desired position. Sometimes, a large player opens a short-term losing position to show a false move.

Two types:

• Bullish OB: the lowest down candle that clears liquidity
• Bearish OB: the highest up candle with a similar function

Optimal entry — on retest of the orderblock or at the 0.5 Fibonacci level of the OB candle body with a stop behind the shadow.

Divergences as reversal signals

Divergence — a discrepancy between the movement directions of the price and an indicator. This is a reversal signal.

Bullish divergence: on the chart, lows are decreasing, but on the indicator (RSI, Stochastic, MACD) lows are rising. Signals weakness of sellers and a reversal upward.

Bearish divergence: on the chart, highs are increasing, but on the indicator (maxima fall). Signals weakness of buyers and a reversal downward.

The older the timeframe — the stronger the signal. On lower TFs, divergences often break. A triple divergence is a very strong reversal setup.

Volume analysis and its significance

Volumes reflect the actual interest of market participants. They show how strong the trend is:

• In a bullish trend, buy volumes increase; in a bearish trend, sell volumes increase.
• Price rises with decreasing buy volume can signal a quick reversal downward.
• Price falls with decreasing sell volume can signal a reversal upward.

Volumes help identify trend exhaustion and potential change.

Three Drives Pattern (TDP) and Three Tap Setup (TTS)

Three Drives Pattern — a reversal pattern characterized by a series of higher highs or lower lows, usually near support/resistance zones.

Bullish TDP: series of lower lows. Entry — when the price enters the support zone or after the third low forms. Stop below support.

Bearish TDP: series of higher highs. Entry — when the price enters the resistance zone or after the third high. Stop above resistance.

Three Tap Setup — similar to TDP but without the third more extreme high/low. This is a positioning accumulation pattern by a big player in the support/resistance zone.

Trading sessions and market cycles

Main market activity occurs in three sessions:

• Asian session: 03:00–11:00 (MSK)
• European (London) session: 09:00–17:00
• American (New York) session: 16:00–24:00

During the day, three market cycles happen: accumulation (accumulation), manipulation (sharp movement to capture liquidity), distribution (distribution). Usually, accumulation occurs during the Asian session, manipulation during the European, and distribution during the American session.

CME and gap formation

On the Chicago (CME) futures on Bitcoin are traded Monday to Friday. The exchange closes on weekends, which can lead to the formation of a gap (price gap).

In summer:

• Trading opens Monday at 01:00 MSK
• Closes Friday at 24:00 MSK

In winter, the schedule shifts an hour later. From 00:00–01:00, trading is not conducted.

Gap — price discontinuities between Friday’s close on CME and the price on major crypto exchanges over the weekend. These gaps act as magnets for the price — most often they are tried to be closed. The smaller the gap — the faster it closes. The formation of a gap serves as an additional signal for the further direction of the price movement.

Important indices for understanding the crypto market

The cryptocurrency market is still young and depends on traditional stock markets:

S&P500 — index of the 500 largest US companies. Has a positive correlation with (BTC). Growth in S&P500 usually accompanies growth in $BTC.

DXY — US dollar index against six other currencies (euro, yen, pound sterling, etc.). Has a negative correlation with BTC. Growth in DXY is associated with a decline in the crypto market.

Monitoring these indices helps to form a clearer picture of the market and anticipate potential movements in [$BTC]/uk-UA/trade/BTC_USDT and [$ETH]/uk-UA/trade/ETH_USDT.

How to use Smart Money in practice?

The Smart Money concept reveals the actions of big players and explains the nature of numerous market manipulations. Learning to recognize signals enables you to:

1. Identify entry points with the best risk/reward ratio
2. Understand the intentions of large capital
3. Trade in tandem with institutions instead of against them
4. Avoid the most common mistakes of small participants

Without proper experience, trade in the trend, avoiding counter-trend operations. To find optimal entry points, go from higher to lower timeframes. If conditions are met on each TФ — this confirms the strength of the setup.

The key to success is a deep understanding of how large players obtain liquidity and how they manipulate the market. Smart Money provides you with this tool.