Following Smart Money
Smart money is the capital invested by traders with proficient knowledge and spot trends and trade earlier than others. Trading with the smart money, traders have to know about the signs provided by the market and market professionals. The following are the indicators which are providing insight for smart money identification.
Long-term circles of unemployment, inflation, and growth:
Unemployment, inflation, and growth are the elements of the long-term economic circle. The unemployment level is the most certain element for projecting shifts in the trends of currency pairs.
Any economic data release is most famous for the smart money and treats it as a piece of information necessary for the long-term commercial pattern—this pattern used as an instrument for projecting the long-term market sentiments and trends of currency pairs.
CBOE Volatility Indexes:
Projecting the market sentiment or future market volatility, the CBOE Volatility Index and CBOE skew index used. The analysis of these volatility measures will assist smart money in managing and diversifying the portfolios effectively.
Call and put options price can be taken as a measure of the implied volatility. The CBOE skew index works as a measure of panic. With the increase of the CBOE skew index, the cost of hedging against risk also increases. For smart money, the cost of hedging against risk is an important issue.
A commitment of traders’ analysis:
The COT is a weekly report which states the comprehensive short and long trading positions in the future market. Different participants included in this report, including Forex. Commercial traders, non-commercial traders, and small speculators posts included in the COT report.
The aggregate positions of non-commercial traders are the essential information stated in the COT report —upcoming trend reversals in the spot market indicated by the changes in the positions of non-commercial traders.
The US-Dollar Index:
The US Dollar measurement comparative to a basket of foreign currencies is known as the US Dollar index. According to most retail traders, EURUSD is the appropriate indicator of projecting what will happen next with all the Dollar based currencies pairs. To some extent, maybe it is true, but there is one better indicator for the projections of Dollar-based pair trends, which is known as Dollar Index.
When the US-Dollar index performs well, there are many chances that US-Dollar will move in the opposite of Forex majors. That’s why technical analysis on the US-Dollar index chart is a crucial process for the smart money.
Market news and market direction:
Tracking smart money can also be done when big news are released and market goes in the opposite direction of it. It is a high probability that the market is following a contrarian direction. When the market trades against the news, there is a possibility of smart money buying and selling in the news’s opposing trend.
Forex and Equity markets connection with the Treasury Bills:
When there are changes in the government bonds yield, then it is significant that some economic transition is coming. What will happen in the financial market can be projected by the changes in the spread between diverse maturity bonds? Smart money always carefully analyzes the yields of Treasury bills and the bond market.