Seeing through the trader's perspective: How does Smart Money manipulate the market? The practical guide is here

Are you curious why 95% of retail investors always lose money, while the big players consistently profit? The answer lies in the logic of Smart Money.

What exactly is Smart Money?

Smart Money is essentially a behavioral analysis system that helps you understand how large capital (whales, hedge funds, institutional investors) leverage their funding advantage to dominate market direction. Rather than calling it a strategy, it’s more like a “periscope” that reveals market manipulation.

The reason large funds can make money boils down to one core secret: they always go against retail investors’ expectations. When retail investors are collectively bullish, big players are selling; when retail investors panic and cut losses, big players are accumulating at lows. This is not coincidence but a planned design.

Why does traditional technical analysis fail?

Most retail traders use head and shoulders, triangles, moving averages—these classic patterns are actually false signals “drawn” for you by big players. You see a perfect bullish triangle about to break out, only to be hit with a reverse move that triggers your stop-loss; a seemingly unbreakable support turns out to be broken in a flash.

Why? Because big players understand retail psychology deeply. They deliberately create these false technical patterns to lure retail traders into opening positions, then sweep their stops near these levels. 95% of retail losses are essentially them “padding the bottom” for big players.

Smart Money’s advantage is that it ignores false patterns and instead focuses on real fund flows and market structure changes.

The three major market structures: Recognize the big trend

Any market only has three structural states:

Uptrend (Higher High + Higher Low) – Continually creates higher highs and higher lows. This is a bullish control zone. Features are clear: each pullback low is higher than the previous, forming a distinct upward channel.

Downtrend (Lower Low + Lower High) – Continually creates lower lows and lower highs. Bears dominate. Features include each rebound high being lower than the previous, with a clear downward channel.

Range (No clear direction) – Price oscillates within a zone, with buying and selling forces balanced. Often a period when big players quietly accumulate or distribute.

Confirming the current structure is the first step in trading decisions. You must distinguish whether you are in an uptrend, downtrend, or sideways environment to make correct trading choices.

Deviation (偏離): Signal of big players building positions

When price suddenly jumps out of a range, we call it a deviation. But an counterintuitive phenomenon occurs: after deviation, price often quickly returns to the original zone.

This is the big players’ routine. They first create a shock wave to trigger stops (retailers love to place stops outside obvious support/resistance), then pull back to continue sideways or reverse. Your stop is hit, but their large orders are already in.

Swing points: The pivot of price reversals

Swing points are of two types:

Swing High (上搖) – The middle candle creates the highest point, with candles on both sides lower than it. A sign of bullish exhaustion.

Swing Low (下搖) – The middle candle creates the lowest point, with candles on both sides higher than it. Bear exhaustion, increasing chances of upward movement.

Identifying swing points is crucial: big players sweep stops near these points.

Break of Structure (BOS) and Change of Character (CHoCH)

BOS (Break of Structure) – In an uptrend, a new high is created; in a downtrend, a new low. This indicates the original structure is still ongoing.

CHoCH (Change of Character) – A more aggressive shift. An uptrend suddenly turns into a downtrend, or vice versa. The first BOS confirms the CHoCH, signaling a major trend change.

Simply put: BOS is an acceleration within the trend; CHoCH is the end of the trend.

Liquidity: The real prey of big players

Liquidity is the “food” for big players. Specifically, it’s retail stops.

Where do retail traders usually place stops? Often outside:

• Obvious support/resistance levels
• Previous swing highs/lows
• Candle wicks

Big players know this. They create violent directional moves to trigger these stops, causing chain reactions of liquidation, then immediately reverse. When retail stops are wiped out, big players have already entered.

Liquidity Pool – These are dense zones of stop orders, usually near historical highs and lows. Big players “fish” in these pools.

SFP pattern: When double tops fail

When the market forms a double top or double bottom (Equal High/Equal Low), price often breaks the previous swing point but then reverses immediately. This is the SFP (Swing Failure Pattern).

Practical use:

1. Wait for the SFP candle to close
2. Enter a reverse position after the close
3. Place stop-loss outside that candle’s wick

This stop is tight, but the profit potential is high, with excellent risk-reward ratio.

Imbalance: The market’s vacuum zone

When a strong candle’s real body “tears” through the wicks of adjacent candles, it creates an imbalance—a “vacuum” in the market.

Markets dislike vacuums. Price tends to be attracted back to fill this imbalance. Big players exploit this: the best entry points are often at the 50% Fibonacci retracement of the imbalance.

Order blocks: The footprints of big players

Order blocks are zones where big players have executed large trades. These areas often become future support or resistance.

Why do big players return to these zones? To close positions. If they built long positions above an order block, they want the price to return here to sell at higher levels; if short below, they aim to close at lower levels for profit.

How to identify order blocks? Find high-volume zones, especially those that appear during sharp declines or rises.

Divergence: Warning signs of reversals

When price and indicators (RSI, MACD) move in opposite directions, divergence occurs.

Bullish Divergence – Price makes a new low, but indicator lows are rising. Sellers are exhausted, a rebound is imminent.

Bearish Divergence – Price makes a new high, but indicator highs are falling. Buyers are losing strength, a decline may follow.

The larger the timeframe, the stronger the divergence signal. Divergence on daily charts is more reliable than on 15-minute charts.

Volume analysis: The thermometer of market vitality

Increasing volume = strong trend Decreasing volume = trend weakening

Observe this phenomenon: in an uptrend, if buying volume suddenly shrinks while price still rises—usually a sign of an impending reversal. Similarly, in a downtrend, if selling volume diminishes, a bounce may be near.

Three Drives Pattern

A reversal pattern near support/resistance, characterized by a series of decreasing lows (bullish) or increasing highs (bearish).

Bullish Three Drives: Three progressively lower lows reach support, then rebound. Enter on support touch or after the third low. Stop below support.

Bearish Three Drives: Three progressively higher highs reach resistance, then decline. Enter on resistance touch or after the third high. Stop above resistance.

Three Tap Setup

Different from Three Drives, Three Tap involves only two touches at the same support/resistance level, with no new low/high on the third attempt.

This pattern reflects big players testing the zone repeatedly, gradually accumulating positions.

Entry signals often occur at the second or third tap, combined with order blocks or 50% Fibonacci retracement.

The intrinsic logic of trading sessions

The global crypto market operates in three main sessions, each with its own agenda:

Asian Session (03:00-11:00 Moscow time) – Accumulation phase. Big players quietly build positions, with little apparent movement.

European London Session (09:00-17:00) – Manipulation phase. Volatility increases; big players manipulate to sweep stops and create false signals.

US New York Session (16:00-24:00) – Distribution phase. Big players start selling or reversing, completing their position adjustments.

Understanding this rhythm helps you avoid many false signals.

CME Chicago Futures Impact

Since CME Bitcoin futures trade only Monday to Friday, while main exchanges operate 24/7, gaps often form over the weekend.

After CME closes on Friday, the crypto market continues trading over the weekend, and prices may deviate significantly from CME’s closing price. When CME reopens on Monday, large gaps can occur.

Markets dislike gaps. These gaps are often gradually filled in subsequent trading, acting as a price gravity center. The smaller the gap, the faster it tends to be filled.

The invisible hand of macro indicators

Though the crypto market is young, it is still profoundly influenced by two classic financial indicators:

S&P 500 Index – The US stock market. Positively correlated with Bitcoin. When stocks rise, Bitcoin tends to rise; when stocks fall, crypto often suffers.

US Dollar Index (DXY) – The strength of the dollar against other major currencies. Negatively correlated with crypto. When the dollar appreciates, crypto assets are usually sold off; when it weakens, crypto gets a breather.

To better judge the market direction, you must consider these macro backgrounds.

Conclusion: From being a victim to becoming a peer

The core lesson of Smart Money is: don’t fight the market, align with big players’ logic. Once you see through their process of building positions, sweeping stops, and distributing holdings, you are no longer a victim of being “cut” but a trader walking alongside them.

This system is not the invention of a single person but a summary of years of market operation laws. Master it, and you will grasp the market’s pulse.