Learn how to trade like an institutional trader and avoid the most common traps set by the “smart money.” Understand market manipulation and volume spread analysis.
The markets are not random. Behind every major price swing, trend or pattern, there are big players known as the “smart money” who move the markets with huge orders. Learning to trade like smart money and avoid their traps is key to success as a trader. In this blog post we will share valuable insights on how to act like an institutional trader.
The aggressive trading participation of buyers and sellers is what actually moves the markets. Smart money uses volume to gauge the conviction behind a move. If price and volume move together, it signals strong momentum in that direction. But divergences between price and volume can foreshadow an impending reversal.
What Causes Trends and Reversals?
According to Wyckoff theory, trends are the effect and consolidations are the cause. Accumulation phases, where smart money buys quietly, cause uptrends. Distribution phases, where smart money sells stealthily, cause downtrends. Understanding this dynamic is crucial.
The Composite Man
Wyckoff also created the idea of a Composite Man — a representation of the biggest players acting together to manipulate the market to their advantage. Like an evil genius, the Composite Man sets traps, creates illusions, and hunts for liquidity in order to deceive the public and extract profits.
Liquidity Hunting
Liquidity hunting involves pushing price to high-probability stop loss areas, triggering a cascade of orders. Smart money then fades the move and profits from the reversal. Other common tactics include:
- False breakouts — Quick rejections off key levels to trap breakout traders
- Stop loss hunting — Deliberately targeting areas with many stops
- Illusions — Misleading signals that contradict the actual market direction
By understanding these tactics, we can trade in harmony with the Composite Man’s intentions instead of being caught on the wrong side.
How to Avoid Traps and Trade With the Smart Money
Here are some key strategies to trade like an institutional player:
1. Trade Fresh Supply and Demand Zones
Look for liquidity runs that break key levels. Then trade retests of new supply/demand zones with confirmation (e.g. rejection candles). Use tight stops. Target previous swing points or new zones in the direction of the trade.
2. Watch for Break of Structure Patterns
Break of structure indicates a shift by smart money. Trade pullbacks to new zones after over/under patterns appear. Requires confirmation with supply/demand.
3. Combine VSA and Order Flow
Volume spikes point to manipulation by large players. Trade with the story told through price action and volume.
4. Take Note of Psychological Numbers
Round numbers act as magnets during liquidity events. Combine with VSA patterns for highest probability trades.
5. Be Patient for High Probability Setups
Don’t force trades. Wait for zones, volume confirmation, liquidity runs, and other confluence factors to line up before pulling the trigger.
The markets move in waves. By learning to surf those waves instead of fighting the tide, retail traders can consistently profit alongside the smart money. Avoid their traps, and you will already be ahead of 90% of traders. Master reading the order flow and volume, and you can finally trade on the same side as the big players consistently.
