ICT vs SMC: Which is better for trading crypto?

Smart Money Concepts and Inner Circle Trading are two popular trading frameworks to conduct market analysis and build custom systems on top of those two approaches. For crypto traders, SMC and ICT have brought an infinite amount of possibilities, in an equal manner for those who trade aggressively as for those who seek long-term outcomes.

While Smart Money sets the foundations for market structure understanding, Inner Circle goes beyond and develops a terminology along a sophisticated method to get into and out of the market more effectively.

At Altrady, we've extensively researched and tested Smart Money Concepts, including the ICT methodology, in the cryptocurrency market. This guide provides a practical introduction to these concepts and how they can be applied to improve your trading results.

Smart Money Concepts (SMC): Introducing ICT

Smart Money Concepts are essentially a set of conceptual tools referring to and tracking the capital placed in the market, having as its main focus institutional investors, market mavens, central banks, professional traders, and, in the case of cryptocurrencies, the whales

SMC is a broader framework from which to pick advanced concepts to interpret the price movements in the market from the perspective of potential forces that influence such movements and the reasons behind. 

These concepts serve as the foundation for market structure analysis, give support and resistance levels a sense of meaning, extend the application of price action, and help track the market from the very viewpoint of professionals and institutional traders.

Three principal thesis play key roles when using SMC:

• Institutional trading as a market mover.
• Market manipulation as an intrinsic part of market structure.
• Accumulation/distribution phases according to the Wyckoff method.

Overview of SMC principles

Market Structure

This refers to analyzing the directions that shape the markets as a consequence of price movements through their different cycles, such as ranges, trends, and subsequent high and low formations. 

SMC considers this as crucial to identify patterns and optimal entry opportunities around areas where the  most significant price movements may take place. In this sense, the following components represent a vital part of this principle:

• Higher Highs (HH) and Higher lows (HL) to identify potential uptrends.
• Lower lows (LL) and Lower highs (LH) to identify potential downtrends.
• Break of structure (BOS) to spot relevant breakouts through highs and lows that change the prevailing market direction and signal potential reversals.
• Change of Character (CHoCH) to detect slight changes in the structure, often indicating a range or trendline breakout and retest.

Order flow

This principle addresses the volume behind sellers and buyers activity in the market, aiming to identify where the smart money (institutional traders) are executing or placing their orders. 

This way, traders can detect the following:

• Imbalances that represent areas for potential price movements since there is a substantial difference between buy and sell orders.
• Order blocks that represent levels of large clustered orders, thus acting as support or resistance. Traders often refer to these as key levels.

Wyckoff Method

This is a technical analysis method designed to detect phases of accumulation and distribution that anticipate subsequent upside and downside moves respectively. It also helps traders understand the formation of supply and demand zones.

This approach relies on the following concepts:

• Law of supply and demand.
• Law of cause and effect.
• Law of effort and result, where effort represents the volume and result represents price movements.

Introducing Inner Circle Trading (ICT): A Specific SMC approach

Developed by Michael J. Huddleston, Inner Circle Trading concepts try to serve as a trading framework to comprehend not only the price action of a market but also its background.

ICT concepts help resolve complexity in the market, providing a terminology for several scenarios of trading. 

Like SMC, manipulation and institutional trading play a key role for the understanding of Inner Circle Trading strategy. 

This trading method not only traces resistance and support levels but also makes an effort to decipher how institutional traders will behave over those levels.

Key Differences Between ICT and SMC

Let’s use a comparative table to showcase the key differences between both methods.

Choosing the Right Approach

• For Beginners: If you're new to trading, ICT's structured approach with clear signals might be easier to grasp initially.
• For Experienced Traders: If you have a solid understanding of technical analysis and want a deeper understanding of market behavior, SMC might be a better fit.
• Combine Strategies: You can consider combining elements of both approaches. Use ICT's key level identification with SMC's price action analysis for a more comprehensive view.

ICT Vs. SMC For Crypto Markets

Crypto markets are attractive for their increasing volatility, offering a wide range of opportunities every day. This aspect establishes a relevant difference from conventional markets, which tend to stay more quiet.

So, cryptocurrencies pose a different challenge for traders, how to overcome this quite different environment?

Market Considerations:

• Volatility: Crypto markets are highly volatile. Both ICT and SMC can be adapted for volatile markets, but proper risk management is crucial.
• Liquidity: Choose coins with sufficient liquidity to ensure easier entry and exit based on your trading signals.

Trader personality considerations:

• Risk tolerance: For both SMC and ICT, traders should maintain awareness of their own capabilities and limits. Knowing and defining the proper risk tolerance will guarantee the long-term survival of the trader's mind in the market.
• Psychological Factors: Avoid incurring on Fear of Missing Out (FOMO). The fast price movements in crypto can trigger impulsive trading decisions and cause potential losses.

Risk Management considerations:

• Develop a Trading Plan defining entry and exit points, risk tolerance and stop-loss, and overall trading strategy before entering any crypto trade.
• It is recommended to start with a small position size to test the strategies in real environments, to gain psychological strength and manage potential losses in a volatile market like crypto.
• Stay Updated keeping yourself informed about market trends, news events, and technological advancements impacting cryptocurrencies.
• Backtest different SMC and ICT models adapted to your trading on historical real data style to gain an edge over the constant market changes. 
• Altrady’s paper trading feature helps traders test those models in simulated environments but with current market data.

Conclusion and call to action

Smart Money trading is in essence a framework to face the crypto market with a broader view. Inner Circle Trading (ICT) for its part developed a methodical approach that tries to make sense of the price movements beyond market structures.

Swing Points, Equal Lows/Highs, Fair Value Gaps, Discount and Premium Zones are some of the most popular concepts of this ICT. While SMC provides traders with conceptual tools to analyze the market aiming to make better-informed decisions, conduct research, and market scanning.

Altrady is an excellent crypto platform to start scanning the market and testing SMC along with ICT with a free trial account on paper trading.