Smart money index (SMI) of smart money flow index is a technical analysis indicator demonstrating investors’ sentiment. The index was invented and popularized by money manager Don Hays. The indicator is based on intra-day price patterns.
The main idea is that the majority of traders (emotional, news-driven) overreact at the beginning of the trading day because of the overnight news and economic data. There is also a lot of buying on market orders and short covering at the opening.
Smart, experienced investors start trading closer to the end of the day having the opportunity to evaluate market performance. Therefore, the basic strategy is to bet against the morning price trend and bet with the evening price trend.
Sounds simple enough. The “dumb money” active in the morning, while the “smart money” work’s its magic near the close.
Check it out – The SP 500 is the top chart, and the “smart money” on the bottom.
The smart money has been “selling into this rally” since June of 2012!
It’s not rocket science, as emotions tend to drive new traders / investors right into the hands of the more experienced.
If you’re “up and attem” in the mornings and can’t figure out why your trading isn’t going so well, perhaps it’s time to really question…….
Are you dumb?