Abstract: China has carried out the protection and development strategy of traditional villages for more than eight years, but some traditional villages are still facing the phenomenon of population outflow and physical space waste, and the 'shrinkage' of traditional villages has become an indisputable fact. How to adapt to the trend of 'contraction' and adopt effective planning and policies to change the disorderly 'contraction' state of traditional villages is of great practical significance. This paper introduces the concept of smart shrinkage, through the analysis of the connotation and characteristics of smart shrinkage, combined with the traditional village in Pingding County, Yangquan City, Shanxi Province as the research object. From the theoretical level, this paper provides a new perspective for the study of traditional village protection and development planning. From the practical level, it provides decision-makers with the methods and paths of traditional villages from 'disorderly development' to 'orderly development'.