INDUCEMENT IN TRADING

2023年11月24日Inducement is the most popular phenomenon in the smart money concept, but most traders don't know how to label it properly and what its definition is. This post will definitely improve your ability to pinpoint the exact location of the inducement and how to use that inducement to your advantage.

What is Inducement? Inducement is labeled IND on the chart, sometimes you may see IDM. Inducement is the area and specific point that encourages (incentivizes) traders to buy and sell. In the Smart Money concept, most traders buy after the breakdown of the previous high and sell after the breakdown of the previous low. This is a normal phenomenon and it is what most people do, because this is what all classic trading books teach from the point of view of market structure.

✴️ Examples
Look at the initial structure. The bullish movement is accompanied by small pullbacks. According to the classics, if the price breaks the last low, the bullish movement will be replaced by a bearish one. What we see is that the pullback starts and the price updates the previous low. Traders start to buy on the pullback towards the continuation of the movement and sell on the breakout, towards the new, bearish direction.


The previous low in a bull market is the Inducement. This is the place where inexperienced traders give their money to the big player, a bait, not otherwise. After liquidity is collected, the big player drives the price in the direction of the true trend. When the price updates the high it will be a BOS, i.e. confirmation of the structure. Note that when the price rises, lows are formed again, these are again the places where you usually buy and sell.

✴️ The idea behide it
As you can see, the real market structure is a bit more complicated than retail traders imagine. After the last example, the price can go higher again, there is nothing to prevent it, but we will just move our structural low under the previous inducement. The essence of price movement is only one thing and that is to collect and form liquidity. That is why the price very often goes down when trending up and updates the low, and then continues to fly up, but without you. The same is true for a downward trend.


In the picture above you can see the logic of price movement. As you may know or already know from classic books, the price after an impulsive movement starts to make a pullback. This pullback is done not because the price needs to rest, but because the price needs liquidity to continue the trend. Each pullback is an achievement of inducement, that is, a set of liquidity, and within each pullback you can find the same thing. That is, there are pullbacks within a pullback, and within that another pullback, etc.

The market itself it is a fractal. This is what confuses millions of traders to choose the right place to enter a position. Reality is very different from what is portrayed in books, people just don't realize which low will be the break. Which top is extreme? Show one chart to 10 traders and all 10 will show a different structure. It also strongly influences why some traders make money while others, in the same pattern, lose.

As you have already realized, price will always take out highs and lows to gather liquidity. If you buy or sell without understanding and practicing such a concept, that liquidity will be you. You must understand and be able to identify where that very spot will be inducement. The main thing to remember is that IND appears only when the price updates a structural high or low.

You don't have to incorporate a bunch of Smart Money trading principles into your trading strategy. You just need to realize that without liquidity there will be no movement in the market. Price needs only one thing and that is liquidity. You can trade profitably, even without using any instrument, if you understand what highs and lows most traders buy and sell.