The Smart Money Trade – Is That You?

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.

Smart_Money_Forex_Kong

Smart_Money_Forex_Kong

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?

17 Responses

  1. Franky November 21, 2013 / 7:04 am

    I guess I am dumb …been shorting S&P 500 last few weeks and this thing just keep going up up.. and when I short more, it doesn’t give me even smallest correction or profit taking…nothing…

    You just can’t go against unlimited money flowing in there, they can always print more and more. And guess what? Whole world just accept this, USD still accepted as reserve currency. Printing 1 Trillion/year? no problem. If they double it? still no problem….so at what point does this become a problem? 10 Trillion/year?

    • Forex Kong November 21, 2013 / 7:20 am

      Ya it’s tough with a guy sitting at the table with 85 billion per month no doubt. Frustrating too as – you know the fundamentals are hooped.

      I don’t think any of us truly know “how far it can go” but I can most certainly see a doubling if not tripling of the current stimulus in the U.S.

      Knowing full well that Japan plans to increase, it’s near impossible to imagine that the U.S will stop.

      It’s already become a problem now but, it’s too far gone – and the only viable option is to just continue down the path as politicians aren’t willing to make the “real changes” now.

    • Forex Kong November 21, 2013 / 7:25 am

      It takes time and practice as ….the majority of people ( I don’t really understand the reasons ) are afraid to buy near the close, and as the SMI suggests – driven by emotion / excitement buying at the open.

      Why not let the daily activities play out and make a better “educated decision” near the close?

      Cuz you think you’ll “miss something” mostly.

      That’s what the big boys depend on. You buying….when they’re selling to you.

  2. JSkogs November 21, 2013 / 9:41 am

    Really broadening volatility starting roughly Nov 15 on EURJPY…..potential trade-able short term top probably over the next 24 hrs.

    • Forex Kong November 21, 2013 / 9:44 am

      If it “ever comes”.

      Unreal……EUR as well GBP vs JPY have been on my radar forever as….I can’t believe them! No end in sight!

      When they turn, we “should” make some serious coin as even a 38% type retrace is some serious pips.

      • JSkogs November 21, 2013 / 10:33 am

        Oh and great post by the way. Interesting material. Ya not in GBPJPY yet but thinking of entering a position shortly. Ya these two are really stretched and in need of a shake out…..a potentially big shakeout.

      • Forex Kong November 21, 2013 / 12:54 pm

        I’ve taken profits here on GBP’s across the board.

  3. David November 21, 2013 / 1:30 pm

    Nice run on those GBP’s. I’m flippin the trade now and biting on some GBP/AUD and NZD shorts right now for some retracement action. Staying nimble though.

  4. Deano November 21, 2013 / 3:01 pm

    Kong, is this SMI based around the London or New York Close? Important as NY closes as I get up in the mornings in Oz.

    • Forex Kong November 21, 2013 / 3:17 pm

      Interesting.

      I’m assuming NY but in all……I understand the math can be applied to any data / indice.

      What are your thoughts Deano? You thinking that those trading in your time zone “skew” the data?

      I guess so when you consider you’re “flipped upside right”, although as I stay up / get up to trade / observe the London open…I can only assume novice “emotional traders” on your side of the pond…still wanna “get right in there at the open” in U.S – you think?

      • Deano November 21, 2013 / 3:30 pm

        I’ll do some homework, but have definitely noticed that the post London trading in NY is often a different direction to the Asian and London sessions, on lower volumes. Also there are different patterns to the early Asian trading (post NY) versus later when Shanghai opens, and then again when the Middle East opens (The Arabs love to throw their cash around, often irrationally it seems) before London opens. I’ve not seen too much retail emotionality at London open – thats dinnertime here and trading is quite light – so can’t tell you whether its smart or dumb!

        • Forex Kong November 21, 2013 / 3:34 pm

          You and I both.

          I observe all kinds of “neat little pops n drops” as the 24 hour clock rolls by.

          London open for me is 2.a.m, and I generally see the move around 3:30 – 5:30 area.

          I think the sentiment trader SMI is moreso based in straight up NY stock trading so……as a measure of how things “generally work” with the young bucks “rushing the open” and the “ol guys” watching the close – I think it’s pretty standard.

  5. Anonymous November 22, 2013 / 7:22 am

    Hey Kong WTF,you’re citing this shit straight out of Wikipedia, verbatim, and passing it off as yours…WEAK!
    Copy and pasted, just like you…
    “Smart money index
    From Wikipedia, the free encyclopedia
    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.[1] The indicator is based on intra-day price patterns.[2]
    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.[citation needed] Therefore, the basic strategy is to bet against the morning price trend and bet with the evening price trend. The SMI may be calculated for many markets and market indices (S&P 500, DJIA, etc.)”

    • Forex Kong November 22, 2013 / 7:33 am

      Where do you think I got the definition / description of the SMI? – I made it up?

      Please…….I quote / pull info out of wikipedia all the time – isn’t that what it’s for?

      Yes…you take your cursor , drag it over relevant material – then you push “copy” and then “paste”!

      You’ve got it! You’ve done it!

      I’d suggest all you have to do now – is start your own blog!

      Genious!
      ( if anyone else “other” than this brilliant soul has a problem with that….by all means let me know ) Looking through the blog you’ll find “several” definitions / descriptions of things of a “technical nature” have been taken from Wikipedia – as ….well…..it’s a dictionary so…

  6. Power Corrupts November 22, 2013 / 8:25 am

    the two times of the day i watch for signs of what serious stock traders are doing are 11:30am and 2:30pm

    • Forex Kong November 22, 2013 / 8:30 am

      Stock wise that sounds about right to me.

      Forex circles ( being that the market runs 24 hours a day ) are a bit different, as well depending where on the planet you are.

      For me…..odd but I see some good moves around 11 p.m as well 3 a.m, corresponding to mid session Asia and the early morning open in London.

      I “could” likely skip the entire day / U.S session if it wasn’t for a lot of the news / data releases.

Leave a Reply to Andy Jackson. Cancel reply